I heard Pete Ricketts was going to be protesting his property valuation yesterday, but I wasn’t sure if any news channel was going to cover the story. Action, Action, Action 3 News came through and covered the story. You can visit their website to watch the full story.
Luckily for Pete, President Bush visited town yesterday and this news story got buried.
So, what is Pete complaining about? Well, he thinks his property valuation is too high and is protesting it. The Nebraska Democratic Party Blog has a good post about the situation.
Wall Street Pete: The Value of a Home - Nebraska Democratic Party Blog
This isn’t the first time that Pete and Suzanne have gone through this process. They purchased the home in May of 1999 for $1.2 million. In March of 2002, the value was assessed at $1,181,300. Pete thought this just wasn’t fair. So, he requested that the county reduce the assessed value of the 4,600 square foot home to $624,960. No, you’re eyes are not deceiving you. That’s nearly half of what the assessor valued the home at. Pete and the county reached a compromise, and the assessment was reduced to $900,000.
It’s time for a little boring property assessment information. If you’re a resident in Nebraska, your home is supposed to be assessed at 92-100% of market value. Most of the time, market value is determined by the price you paid for the house. So, if you bought a house for $100,000, then you’re assessment would likely be between $92,000 - $100,000. The only reason for this assessment is to determine how much a home owner is supposed to pay in property taxes. In most housing markets, the value of a home increases from year to year (we’ll talk about this in a second).
Let’s examine Pete’s situation. In 1999, he purchased the house for $1.2 million. If his home is valued at 92% of the purchase price, then his property valuation should be no less than $1,104,000.
But Pete is a terrible businessman. Pete paid $1.2 million for a house that is, at best, worth only $700,000. So, Pete protested his valuation. I hope you caught the sarcasm. In reality, Pete’s a pretty good businessman, and he’s going to use his savy to try and save some money (a.k.a. not paying his fair share in property taxes a.k.a. swindling the county out of money).
Time for a little boring tax analysis. In Pete’s neighborhood, his tax levy is 2.09798. That means for every $100 of assessed value, Pete would pay $2.09798. If Pete had his way, his house would have been assessed at $624,960, and he would have paid $13,112 in property taxes per year. As opposed to the more accurate valuation of $1,104,000 and $23,161 in property taxes. If Pete had his way, he would have swindled the county out of $10,000 per year in taxes. Instead, Pete had his valuation reduced to $900,000 and the county was out about $5700 per year in taxes.
Then Pete and Suzanne did a little remodeling and added on to their garage. So, of course, that would increase the value of the home. According to the county website, the latest valuation shows the home’s worth at 1.1 million dollars.
Yes, this would cause their property valuation to go up, but there are also several other factors that would cause their valuation to increase. One, houses appreciate in value. Pete’s a businessman and he wouldn’t purchase a house that would depreciate. It’s reasonable to assume that Ricketts’ house today might be worth about $2 million (maybe more). Also, inflation increases the value of a house. Using an inflation calculator, you could see that $1.2 million in 1999 would be $1.36 million in 2005.
In a perfect world, property valuations for every house would be adjusted every single year to account for changes in market value and changes in inflation. Unfortunately, we don’t live in a perfect world and property valuations sometimes don’t change for several years. When they do change (and there is a considerable jump in a person’s home value), they call up the television station and complain. The television crew comes out and interviews a person desperate for an explanation on how their valuation could increase 25%. In reality, the person complaining likely hasn’t been paying their fair share in property taxes for years, and the county is finally assessing the property at the correct market value. They’ve probably saved thousands of dollars over the past several years because their property valuation wasn’t adjusted every single year - money that they never have to pay back to the county. So, the next time you see someone complaining about property valuations on the news, you should hesitate before you shed one ounce of sympathy for them. Actually, a couple weeks ago when property valuation increase notices went out, WOWT did a news story about it. One of the people they interviewed (whose valuation increased) said she was perfectly fine with the valuation going up. She said she was happy paying her fair share in property taxes and thought the increase was reasonable. Wow, you don’t see that on the news everyday. Kudos to that lady and kudos to WOWT for airing her interview.
Ok, I’m sorry I got off topic a little bit. I just had to get a little bit of stuff off my chest.
So, what can you take away from all of this? Well, Pete has every right to protest his property valuation. But claiming a property should be assessed at 50% of its purchase price is downright ridiculous (and Pete knows it).
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