A columnist wrote in an article published in Kiplinger Magazine that assessors in ancient Egypt were highly valued because of their skills with hieroglyphics and their ability to collect revenues.  The columnist went on to say that assessors were the only servants to the Pharaoh who were not killed and buried with the departed king.  Needless to say, that sentiment likely does not exist today as property values fluctuate and taxes rise and fall in localities across America.

Real property assessments can be an emotional and sometimes polarizing issue amongst taxpayers.  Real property assessments are the foundation by which taxpayers are levied an equitable share of taxes in a locality.  Assessments are based on an opinion of value and many real property owners in Loudoun County may not be aware that the opinion can be challenged.  They also may not be fully aware of the relationship between real property taxation and real property assessments.  Property owners are encouraged to become more involved in the assessment process, to check their property records annually, and to have their assessments reviewed if the assessment does not accurately reflect the fair market value of the property as of the January 1st valuation date.

The Changing Real Estate Market

The reality is that an environment currently exists where real estate values are fluctuating.  Some areas are seeing a decline and others an increase.   Real property taxes are expenditure driven.  Therefore, real property taxes may increase due to the demand for more government services related to schools, law enforcement, and fire and rescue, etc., regardless of assessment trends. 

The role of the Office of the County Assessor is to accurately and equitably maintain an ever-changing real property portfolio, which accounts for the lion’s share (approximately 70%) of local tax revenue in Loudoun County and nearly every other locality across America.  As directed by the Loudoun County Board of Supervisors (BOS), the Assessor's Office reports through the County Administrator to the BOS, providing an independent and fair analysis of the county's real property portfolio while remaining impartial to the budget and tax rate processes.

Revenues derived from real property taxes increased at a rapid rate throughout the nation from 2000 to 2007 because of expansive development and growth, which in turn substantially increased demand for governmental services.  Loudoun County was no exception to this trend.  Growth in Loudoun County was spurred through a massive push in the residential real estate sector.  As this occurred, real property values in Loudoun County skyrocketed.  The demand for housing soared as lending practices associated to mortgages became less stringent and lenders become more profitable.  An enormous burden was placed on the government to provide services for an increasing population and growing infrastructure. 

Since 2003, Loudoun County has remained in the top five of the most rapidly growing counties in the nation.  Loudoun County also had the highest per capita income in the nation, as reported from 2006 through 2009.  Although statistics related to these factors can be easily manipulated, the fact is that the combination of these significant accomplishments provides high visibility for Loudoun County.  This in turn makes this region an attractive location to live and work.

Annual Assessments in Loudoun County

As mandated by the Code of Virginia and Loudoun County ordinances, real property in Loudoun County is assessed annually at fair market value.  The date of value is January 1st.  The practice of annually assessing real property at fair market value provides the most fair, most objective, and most easily understood basis of an “ad valorem taxation” (taxes based on value).  Property values rise and fall as market values and sales trends change.  Therefore, it is essential that assessments are accurately determined and maintained, enabling the equitable levying of taxes.
 
Some states limit the amount that assessments and taxes can increase in any one year.  In other states and jurisdictions, assessment levels may not be maintained equitably or at fair market value.  In reality, real property may not be regularly assessed at all.  Practices such as this could create significant problems when properties are assessed haphazardly during an accelerating or declining market.  The assessments on those properties may have been calculated several years prior to the current year.  Imagine the nightmare that property owners could face if market values declined, their property was not reassessed at the lower market value, and the tax rate continued to rise.  The property owner could end up paying taxes on an inflated assessment with no venue for relief or appeal. 

Another practice in some states is to limit assessment increases unless ownership of the property is transferred.  This restriction could have a devastating impact on the assessing authority’s ability to equitably assess property when values increase or decline by double digit rates.  Consequently, when a property sells, the assessing authority has to adjust the dated assessment to the current market value.  The assessment could increase or decrease dramatically on that specific property. 

States such as California, New Mexico, Arizona, Florida, and Pennsylvania are suffering due to restrictive policies placed on the annual assessment of real property.  In all cases, real property levies are the foundation for the primary source of revenue at the local level.  The ineffective and inefficient management of the foundation of this primary revenue source will ultimately have a detrimental impact on the ability to provide basic services as well as disrupt the operational management of a locality.

The Review Process

The Loudoun County Office of the County Assessor provides a non-adversarial and easy method for the review of an assessment.  To request a review of an assessment, the property owner completes the County Assessor’s Application for Review Form within 30 days of the mailing of the assessment notices.  The automated application form and instructions can be found on the Assessor’s web page at www.loudoun.gov/assessor.  Traditional paper applications are conveniently accessible at Loudoun County libraries and at the Office of the County Assessor.  The automated application is preferred.  The application is self-explanatory and only takes a few minutes to complete.  It is the responsibility of the property owner to provide information establishing why they feel the assessment is incorrect.  Staff appraisers are available to assist property owners with questions regarding this process.  Property owners are encouraged to call 703-777-0267, if they require assistance or if they have questions related to their assessment or the review process.   Property owners are encouraged to visit the Assessor’s webpage and review the Frequently Asked Questions link prior to submitting a review application.

Property owners can also appeal their assessment to the Board of Equalization (BOE).  As in the Assessor’s Office review process, the property owner must establish why the assessment is incorrect by providing evidence to the BOE in support of their petition.   Property owners are also encouraged to utilize the automated appeal system that the BOE implemented when submitting an application for their review. 

Finally, a property owner can seek relief via the Virginia Court system.  This process may require testimony from an expert witness and the assistance of an attorney.  Property owners are encouraged to have their assessments reviewed by the Assessor’s staff before appealing to the Board of Equalization or the courts.

Check Your Property Data  

Property owners are equally encouraged to take the initiative to be informed when it comes to their property records.  They should check the Loudoun County Assessment/Parcel Database to determine if the characteristics of the property, the site size, exterior dimensions of the house, or other elements related to structures or improvements are accurate.  They should also make sure that the quality, condition, and classification of the property are correct.  Access to this database is available at the link above and on the Assessor’s webpage for public view.  Finally, comparable property sales from the previous year should be checked.  As expressed in the next section, buyers and sellers establish market value by their actions in the real estate market.  Therefore, the January 1st assessment is based on the sale price established by ready, willing, able, and well-informed buyers and sellers.  The assessment will not reflect distressed and non-arms length sales.  

Market Value versus Sale Price

The principle of value and price can be exclusive of one another.  Market value is the cash price a property would bring in a competitive and open market.  In such a market, sufficient time has been allowed for a sale, the buyer and seller are not subject to undue pressure, and both are well informed.  Prices are historical facts.  Values are opinions, or hypothetical prices, which are based on actual prices, particularly when the comparable properties sold in a competitive and open market.  

To better explain these concepts, let’s use an example of a single family home that sold on November 1, 2009 for $525,000.  The property was assessed for $600,000 on January 1, 2009.  In this case, the property sold after the 2009 assessment was set.  Therefore the sale will be used as empirical sales data for the January 1, 2010 assessment.  There is no relationship between the January 1, 2009, assessment and the November 1, 2009, sale price. 

The November 1 sale price would be verified by the appraisal staff.  A sales verification letter would be mailed to the buyer if the sale is outside of a 10% range of the fair market value mark indicated by the January 1 assessment from the prior year.  The appraiser would also review data in the Metropolitan Regional Information System (MRIS) in the event that the sale was marketed through the Multiple Listing System.  Foreclosures, short-sales, and non-arm’s length transactions are not typically considered to be valid samples and would not be used in a market analysis as these properties most often are sold below market value under some kind of duress.  However, foreclosures and short sales have impacted some markets and consideration to these sale prices must be provided under certain circumstances. 

Finally, the characteristics of the property would be updated in the County Assessor’s database once the sale is verified.  The sale would then be used in the assessment process along with other like sales to create a sample group.  These sales samples are analyzed by the appraiser and used to establish assessments on similar properties for the upcoming January 1 date of value.  In this example, the 2010 assessment would be reduced if the sample group establishes a decline in value.  The sale price of a single particular house alone does not necessarily establish the market value, but it can be provided consideration.

The Assessment Function, Budget, and Tax Rate

It is important to emphasize that assessments are not influenced by the budget or tax rate.  Assessments are market driven.  The creation of the budget and the setting of the tax rate are independent from the assessment process.  A budget is recommended by the County Administrator and approved by the BOS.  The BOS also sets the tax rate. 

The real property assessment function is performed for the purpose of determining the value of real property.  Neither the assessor nor a local governing body has the authority to establish assessment policies or practices that are inconsistent with the Constitution and the laws enacted by the General Assembly.  Article X, sub-section 2 of the Constitution requires that “{a}ll assessments of property shall be at their fair market value, to be ascertained as prescribed by law.”  A specific provision is included in this section of the Constitution allowing the General Assembly to authorize the use value assessment program (deferrals of levies based on the Land Use Assessment Program). 

As expressed, the real property tax is an “ad valorem” tax, which means that the tax levy is equitably apportioned among taxpayers according to the value of each taxpayer’s property. State law and local ordinances provide for the levying and collecting of property taxes.  Before the tax rate can be determined, it is necessary to know the amount of money to be expended by local government for one year (the budget) and the total assessed value for the assessment roll.  The budget may contain funds to repay bonded indebtedness in addition to operating funds.  The total assessed value or the real property portfolio is provided by the County Assessor.  The budget, less anticipated revenues from sources other than the property tax, is divided by the assessed value to obtain the tax rate.  The tax bill for an individual property is calculated by multiplying the assessed value of that property by the tax rate.  Figure 1.0 below illustrates the steps in determining the tax rate and in calculating individual tax bills.

In Closing

The public is encouraged to review the Assessor’s web page the links on the page for additional information pertaining to the Assessor’s Office and the assessment process.  Please let us know how we can better serve you.

Figure 1.0
Determining Tax Rate and Bills