Assessor Explains Practicality of Reform Proposal
Jan 20, 2010
An experienced public assessor, Ted Gwartney, MAI, explains why the proposed tax on the rental value of land parcels can be accurately determined based upon readily available information and, therefore, is a practical measure to implement. Mr. Gwartney is a former Sacramento County Deputy Assessor, British Columbia Assessment Commissioner and currently serves as Assessor for Greenwich, CT.
“Assessors deal with the market selling value of real property — land and improvements – on a daily basis. The rental value of real property is directly related to the market selling value of real property. Thus, it will not be difficult for assessors to switch over from assessing the selling value to assessing the rental value of property, and the rental value of land, in particular. California’s public assessors are already separately determining the value of the land from the value of the improvements (buildings) for each taxable land parcel in the state. ”
“Many residential properties are leased to tenants rather than used by their owner. Current evidence of the rental value of homes can be found in local newspapers, on the internet and on the multiple listing services of realtors. Rents from comparable houses will be used to value homeowner property not rented to others.”
“For commercial properties, assessors capitalize the net rental income from property to determine the market value. Assessors and real estate agents make surveys of typical rentals, vacancies, expenses and capitalization rates. Prospective buyers considering a commercial property take into account its current net rent and whether that net rent can be increased by making improvements to the property or by improving its management.”
“The tax reform initiative provides for a new system of reporting rental information to California’s public assessors as new rentals occur. This will insure that the valuation of land rent will always be current. A tax based on the rental value of land will be relatively simple to administer.
“Assessors will be asked to estimate the monthly rental value of properties rather than the market value (selling price). Appraisers, agents, owners and tenants think in terms of a rental value as a percentage of market value or, alternatively, think of market value as a multiplier of the rental amount. In today’s real estate market, excellent evidence of rental values exists. Annual gross rent multipliers typically fall within a range of from 12 to 24 times the annual gross rent for single family homes depending on desirability, demand, type, quality, characteristics, condition and location.
In terms of a percentage of market value, a range of 4.5% to 8.5% would be typical for single family dwellings. In my opinion, a 6.5% rental rate of return on the market value of real property could be an appropriate state-wide average with individual variation by area, location and demand.”
“Assessors are familiar with estimating local land values as a proportion of total real property value. Urban centers have the highest proportion of land value while agricultural or rural areas have the lowest proportion of land value.
Within a given California county, the ratios vary by neighborhood. For example, a study updated to 2009 showed the average ratio of land to total property value as 65% in Los Angeles 65%, 40.6% in Sacramento 40.6%, 33.1% in San Bernardino, and 73.7% in San Francisco.”
Assessors will find practical and efficient methods of assessing the rental value of land for taxation just as they now separately assess the selling value of land for the same purpose. Because of improved and more current information, the assessment of land rental value should become easier and less costly than the assessment of the selling value of land. I am confident that California’s public assessors will find it very feasible to accurately assess the rental value of land.”
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