If you want to get a muddy answer, call your local property tax assesor and ask what the city or county’s policy is on resetting the market value on a foreclosed property after you’ve purchased it.
Some time ago I heard Dakota County, for example, would not reduce a foreclosed property’s market value to the amount it sold for.
That seemed incredible to me. After all, if something has a tax assesed market value of $300,000, but sells for $150,000, hasn’t the market established that it’s only worth $150,000?
Apparently not. Well, sort of not.
Dakota County is working off of property values from two years ago. This year’s sales, for example, will be logged into their computer program. Whatever standard it arrives at is applied to all the properties in the county, calculated, and new values determined.
The following year the county then sends out a notice to property owners informing them of what their property taxes will be in the year that follows.
So, sales in 2008 were tallied, and new totals sent out in 2009. These totals informed property owners what they would be paying in 2010; giving them much of 2009 to argue against the county’s case.
In other words, if the real estate market is bad this year, we should see overall reduced market values for tax purposes, which will result in lower property taxes in 2012.
According to the assessor’s office in the city of Minneapolis, their model calculates market values on “open market arm’s length transactions”. A property is valued on whatever the comps are and, as the city realizes most foreclosures and short sales are sold at deep discounts, those transactions are largely excluded from the valuation process.
So, taxable market value is largely based on what properties offered by traditional sellers sold for. Of course, these properties are down in value too, but not nearly to the extent of those involving banks in the transactions.
Buying a foreclosed duplex may or may not result in lower property taxes down the road. And it’s important to not project any sort of savings as part of the income property analysis worksheet you do prior to writing an offer.