Jim MacCrate, MAI, CRE, ASA has his own firm, MacCrate Associates, but has worn many hats as a Director at PricewaterhouseCoopers in New York City and Chief Appraiser at European American Bank. He is a prolific writer on valuation issues and teaches a number of the real estate appraisal classes through the Appraisal Institute and New York University. I have had the pleasure of taking a number of courses taught by Jim. His wife Judy is an SRA and is an accomplished appraiser in her own right, having managed an appraisal panel for a large lending institution throughout its various mergers for a number of years. I can only imagine the riveting conversations at dinnertime.

Jim shares his thoughts on how taxing the real property tax process is – like a maze of pipes.
…Jonathan Miller

I have a great deal of respect for civil servants and the professionals who work in the real property tax assessment offices throughout our country. Many hold appraisal licenses in their respective states and are members of the Appraisal Institute, The International Association of Assessing Officers, American Society of Appraisers, and other professional organizations. Theirs is an extremely difficult job; nobody really likes them because the general public perceives them as tax collectors. In actuality, politicians determine the budgets and set the tax rates applied to the assessed valuation that determines your real property tax liability. In addition, politicians tend to limit the resources for the real property assessors to do an adequate job. Further they fail to enforce standards such as mandatory licensing for all personnel in the real property tax departments, hearing officers and judges who hear the grievances, and the property owners’ representatives who prepare the tax appeal cases.

Real property taxation is no longer a fair and equitable method to pay for the cost of government and social services. At one time, real property represented the majority of wealth and produced most of the income from farming and other operations. Wikipedia states that the conventional property tax has some advantages—simplicity, stability, and open record keeping—but also many disadvantages.

The first disadvantage is market value assessment procedures. Market value can change dramatically with the fluctuating real estate market conditions as we are just witnessing. The second disadvantage is selected assessment and visibility because rent and leaseholders are not directly taxed. Most often the current assessed value is unrelated to any implied level of government service. Further inequities include that property taxes do not adequately provide for education and other social improvements in impoverished areas. Because real property valuation is more of an art than a science, the real property tax system has become just as corrupted as mortgage brokerage operations on Wall Street. Likewise our politicians ignore the fixes that are required, just as they failed to act to prevent our current mortgage banking meltdown.

Wealth today is no longer concentrated in real estate because on average it has been leveraged to 80% or more. In addition, the mortgage financing opportunities of the last five years created fictitious wealth and many individuals who were mislead, today are struggling or defaulting on their mortgage payments, so don’t have a prayer of meeting their real property tax liabilities. Financing influences the price paid for real estate; certainly the irresponsible actions of Wall Street and the bankers during the mid-2000s have resulted in inflated real property values from 15%-20% or more across the board in most communities. Any reassessment based on sales inflated by favorable financing is neither justified, nor equitable. Instead of real estate, wealth is now concentrated in stocks, bonds and other investment vehicles.

In addition, many lawyers and appraisers who present tax appeals are not licensed and thus not required to subscribe to a code of ethics similar to those of professional appraisal organizations. Similar to appraisals prepared by mortgage brokers, their improper valuations are biased, so their status as advocates is questionable. Their compensation is often contingent on the tax savings, regardless of whether the tax ruling is fair and equitable to the remaining residents in the community who must pick up the shortfall.

As a member of the Appraisal Institute, my compensation cannot be contingent upon the reporting of a predetermined value or direction in value that favors the client’s cause, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event. In addition, my analyses, opinions, and conclusions are developed, and my reports have been prepared according to the Code of Professional Ethics and the Standards of Professional Practice of the Appraisal Institute and in conformity with the Uniform Standards of Professional Appraisal Practice. Most importantly, if someone in the tax assessment department feels that I have violated that code of ethics, he/she can send my reports to the Appraisal Institute for peer review.

Now is the time for our politicians to focus on alternatives to real property taxation to be fair and equitable. At the very least, licensing should be mandatory for all practitioners involved in the real property tax assessment process, which includes attorneys, hearing officers, judges and anyone involved in assessment-related activities.

The author was on the Board of Assessors and the Assessment Review Commission in Nassau County. Thanks also for editorial assistance from Nancy Reiss, The Write Stuff and Max Ramsland, MAI.

Tags: , ,

One Response to “[Straight From MacCrate] Real Property Taxation Is It Fair?”

  1. DAN THOMAS says:

    Can’t say that I disagree with much of what you have said. I especially appreciate the fact that you recognize that many in the assessing profession have or are seeking professional credentials and training. Also please recognize that states require differing levels of certification, and so the problem is, in part, historic in nature. During my 24 years of experience in the assessing/appraisal camps, I have observed a high level of professionalism in the greater assessing community, mainly out of respect of the fact that we are affecting individual’s pocketbooks, as we are so often reminded. However you did not state two of the main issues with respect to the why. First, the assessing profession deals mainly with Mass Appraisal, not Fee, so while the principles are same, the application is different, but, hopefully, not the answer. Certainly as with all things, there are good and bad assessments. Garbage in, garbage out. But mass appraisals can be executed quite successfully. Secondly, there is an old saying that goes “You get what you pay for”. Not sure what the going rate for a fee appraisal is, but let’s say $250. My small jurisdiction has appx.22500 parcels (500 which are waterfront on Long Island Sound), 2200 are commercial/industrial/and apartment @ say $1500 for a summary report. Add $ 80000 for 2 Power generating facilities. Cost to reval, $8.45 million +/-. Now cut that in half because of bulk and my Town would still burn down the statehouse rather than be forced to pay $4.2 million for assessments that may or may not be better than those already in place.

    Finally I would like to take exception to some of the statements in paragraph 3.

    You say “The first disadvantage is market value assessment procedures.” Then your next line says, “Market value can change dramatically with the fluctuating real estate market conditions as we are just witnessing. “

    Is your problem with the procedures or the market changing. I’m not sure by your statements.

    Next you say, “The second disadvantage is selected assessment and visibility because rent and leaseholders are not directly taxed. “

    Many leases provide for the tenant to pay the taxes and those who do not often have their rents increased in order to compensate the landlord/landowner for higher taxes.

    Next you say,”Most often the current assessed value is unrelated to any implied level of government service.”

    I reply, “as it should be”. Taxes based on services rendered resembles a welfare state of taxation whereby misappropiation would easily be the norm, rather than some tangible measure of worth, which could be distributed equitably, is ultimately much fairer, and allows for greater economic realities to govern levels of participation.