Last year, residential properties owned by 136,000 property owners were assessed below their purchase price to reflect the collapse of the residential real estate market during the “Great Recession.” This year, the market value of 47,000 of those properties has risen to the point that all the value lost during the recession has been fully restored, and the market value now exceeds the original purchase price. In addition, the assessed values of another 81,000 properties will be partially restored to reflect the surging residential property market. “Just as my office reduced assessed values to respond to the declining market, the same state law also requires the assessor to restore assessed values when the market recovers,” said Assessor Larry Stone.
For the remaining three-quarters of all property owners, the limits imposed by Proposition 13 apply, and the assessed values will increase by two percent. When the market value of a property declines below the previously established assessed value measured as of January 1 each year (lien date), the assessor is required to proactively reduce the assessed value to reflect the lower market value. However, as the real estate market rebounds, the assessor is required to “restore” the assessed values for properties previously reduced during the downturn.
Proposition 8, passed by California voters in November 1978, provides that property owners are entitled to the lower of the fair market value of their property (as of January 1, 2013), or the base year value as determined at the time of purchase or construction, and increased in accordance with Proposition 13 by no more than two percent annually.
“If a property assessment was reduced during the recession, the restoration of its assessed value is not limited to two percent, until the market value reaches a property’s purchase price plus the annual inflation increase of no more than two percent. The market solely determines whether the assessed value of a property is reduced or restored,” Stone said.