Reflecting the unusually divergent marketplace for residential and commercial real estate, Santa Clara County Assessor Larry Stone both increased and decreased assessed values of properties in accordance with the provisions of Proposition 8. The net reduction totaled almost $10 billion in assessed value. Notification cards, and letters, informing taxpayers of Proposition 8 assessed value restorations and declines were mailed recently.
When the market value of properties declines below the previously established base assessed value, measured as of January 1 each year (lien date), the Assessor proactively reduces the assessed value to reflect the lower market value. However, as the real estate market rebounds, the Assessor is required to restore the assessed value for properties previously reduced during the downturn. Proposition 8 provides that property owners are entitled to the “lower” of the fair market value of their property as of January 1, 2004, or the factored base year assessed value as determined at the time of purchase or construction, and increased by no more than 2% annually. The temporary reductions, and subsequent increases in the assessed value of a property, are mandated by Proposition 8, passed by California voters in November 1978.
Last year Larry Stone, the Santa Clara County Assessor, temporarily reduced the assessed value on 33,300 properties reflecting an $8 billion reduction in the County’s assessment roll.
This year, due to favorable market forces, the values of residential property generally improved. The Assessor fully restored the assessed values on over 9,500 residential properties that were reduced last year. The market value of many Commercial and industrial properties however, did not improve. It appears that the commercial and industrial market sustained further declines.
“I hate administering this part of the State law,” said Stone, “it is so confusing. Most people assume that Proposition 13 guarantees them no more than a 2% increase in any given year. However, that is not entirely true.” If you happen to own a home where the market value has jumped but the assessed value remains below the original or base year value, then the Assessor is required to restore the assessed value reflecting an improvement in the market until the market value is equal to the base year value. At that point assessment increases are subject to the 2% annual limit.
While, increased assessments are generally not good news for property owners, they result from improving market conditions, which is a major benefit. “When the value of the principal asset owned by most families takes a dive, it is very stressful. While I proactively provide temporary relief, the relief cannot offset the loss in equity. However, when the market values improve, that’s positive news to property owners,” said Stone.
Despite the rebounding residential market, over 23,000 residential properties continued to receive reductions in excess of $1.7 billion.
The residential market is in sharp contrast with commercial, industrial and multi family properties. Currently, the assessed value of over 1,200 commercial, industrial and multi-family properties have been reduced reflecting a reduction of more than $8 billion from the 2004 assessment roll. “Clearly the market place for commercial properties remains under water.” We will continue to review income property values right up to the day we close the roll on July 1, 2004,”said Stone. Below is a chart depicting the value decline by major property type.