If you’ve lived in Michigan a while, you know that we have a quirky system for determining the “Taxable Value” of residential real estate. Under Proposal A (passed in 1994), the increase in the taxable value of residential real estate cannot exceed the lesser of the rate of inflation or 5%. In other words, no matter what the market data says, the taxable value of your home will not grow at a faster pace than the statutory cap.
Sounds good, right? Well, maybe. When the economy collapsed in 2008 (and residential real estate values along with it), local governments struggled to meet their budgets with dramatically reduced property taxes. As the situation has improved, and real estate values have grown, municipalities have chafed at the cap on increased taxable values, which essentially means the value of real estate can grow more quickly than can the resulting boost to the municipal budget.
Curiously, some have observed a steady increase in assessed values … within the statutory caps to be sure … that may be exceeding true market growth. For years, Louise Braun has been a recognized guru among Oakland County real estate appraisers. (You can reach her at email@example.com or at 248-625-0318.) She publishes a monthly update on trends in the market called the Louise Braun Real Property Appraisal Service. Noting this curious trend, Braun reviewed every single-family home sale in Oakland County between January 1 and May 31 of 2019. She shared the results in her June report. In nine cities (including Birmingham, Bloomfield Hills and West Bloomfield), the percentage of homes that sold for less than their assessed value ranged from 28% to 61% (in Bloomfield Hills). In other words, the market wasn’t willing to pay as much as the local tax assessor determined the property to be worth in all those instances.
Fluke? Maybe. But as Braun warns, if the trend continues, homeowners will increasingly bring assessment challenges to their local tax board of review. And if the assessments get struck down, municipalities will find themselves once again struggling to balance their budgets without either increasing taxes or cutting services.