A Fairfax City homeowner and attorney has appealed his property tax and that of six other owners on the grounds that assessors failed to consider the impact of creative financing on the "fair market value" of houses in the area.
The attorney, Raymond Bowie, has asked the city's board of real estate equalization to treat the appeal as a class action on behalf of all homeowners in the jurisdiction whose property may be have been "overvalued" for 1982 tax assessments.
Annual adjustments in property tax assessments are based in part on sales prices of comparable houses, along with factors such as improvements or additions.
Bowie contends that this method, used by Fairfax City for years, is "no longer correct and no longer legal."
The selling price of a home in today's real estate market, Bowie said, is now in large part determined by whether the seller can offer financing at below-market rates.
If such financing is available, the price the home can command on the market is likely to be higher than if a buyer had to finance the purchase at market rates, Bowie contends.
He said he purchased his house at 3708 University Dr. last year for $129,950 but assumed a 9 1/2 percent mortgage. The city increased the assessed valuation of his home 26 percent, basing its decision on sales prices of other houses in the neighborhood last year.
Bowie maintains that the 26 percent jump in assessment, reflecting sales price, is illegal because it does not represent the fair market value required under Virginia state law.
Had he paid cash for the house and financed the purchase with a mortgage at 17 percent, he said, the price, fair market value and tax assessment would have been substantially lower.
Bowie is asking the three-member equalization board to invalidate all real estate assessments made using the comparable sales price method.
Henry Taylor, director of assessments for Fairfax City, said the valuation method his office employs is dictated by state law, which defines the fair market value of a piece of property as "the price it will bring when offered by sale" under normal circumstances.
The issue is whether the definition of fair market value should be broadened to take into account the differences in selling price that arise from the availability of a creative financing scheme.
Taylor said it was not his responsibility to make that determination and that he would continue to follow established statewide procedures until they are amended. He predicted that the problem would eventually have to be resolved by the state legislature or the courts.