Traverse City Record-Eagle

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February 27, 2009

Home values mostly fall; Sixth St. goes up

By BRIAN McGILLIVARY

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Values, assessments can be out of sync

TRAVERSE CITY -- Home values continue to fall throughout the region, but venerable Sixth Street in Traverse City stands as an oasis of appreciation.

Most Traverse City homeowners will see a slight decrease in recently released property assessments, but stately Victorian homes hold value, said city Assessor Debra Chavez. Sixth Street, lined with Victorians between Union and Division streets, where some contend the wealth of Traverse City was born, will see about a 10 percent increase in property assessments.

Oh, really? responded some Sixth Street residents.

"I believe Sixth Street is probably the best place in Traverse City to invest your money, but if the values are going up, why do I have homes for sale on either side of me that haven't sold in 18 months," said Cristy Sneed, a Sixth Street homeowner who moved to Traverse City two years ago.

Chavez said a study of homes on Sixth Street shows several sold for more than their assessed value. In April, for example, a house sold for $785,000 that the assessor valued at $500,000.

"Their home is a major investment of their life and the fact that the city is doing better than the surrounding area and better than the state, significantly better, people should be happy," Chavez said.

Most local homeowners won't see similarly escalating property values. Most local property values are flat or worse, real estate agents said.

"If you own a Sixth Street home or waterfront, the cream of the crop that someone from Chicago wants to own, then you're a little bit insulated. But for the average citizen, your home's assessment shouldn't go up," said Brenda Irish Heintzelman, of Traverse City Realty. "If your value is only dropping five percent, you can count your lucky stars."

In Peninsula Township, Leon Martuch is perplexed. His property assessment dropped, but his taxable value, the figure used to calculate his tax bill, will go up 4.4 percent.

The inflation rate that caps property tax increases under Proposal A has been set at 4.4 percent, almost double last year's cap of 2.3 percent. As a result, Martuch and many other homeowners will see the value of their homes drop, while their property taxes increase.

"I think most people are baffled that their market value decreased substantially, but that never gets taken into account on your tax bill," Martuch said. "I'm confused about why Proposal A requires my taxes to go up. I thought it was a cap."

In 1994 voters adopted Proposal A, complicated legislation that ties property tax increases to the rate of inflation. It once was lauded for capping runaway property taxes in an era of escalating real estate values, but Proposal A isn't so popular these days.

"It's going to be ugly this year," said Grand Traverse County equalization Director Laurie Spencer. "The 4.4 percent increase will be the largest it's ever been since Proposal A went into effect."

Except for some pockets, most homeowners will see their state equalized value, commonly referred to as the assessed value, decrease, Spencer said. The assessed value is supposed to reflect half the property's market value.

Taxes, however, are based on the home's taxable value.

When someone purchases a home, the taxable and assessed values are set at the same level the first year. Assessed value changes with the market, and homes bought before the current real estate downturn often saw regular increases of 5 percent or higher.

Since 1995, the annual rate of inflation that capped the taxable value averaged 2.6 percent.

A gap is created when the assessed value grows faster than the taxable value, and the longer a house is owned by the same person, the larger the gap. Now assessed values are dropping, but in many cases not far enough to erase the gap and lower the taxable value.

"The law pretty much insulates (government) from having to ever lower the taxes on a property," said real estate broker Cindy Anderson, who fought several assessment increases on her properties in 2008. "The law needs to change ... that's what needs to happen."

Property owners concerned about their assessments should contact their local assessor, who can make adjustments through March 2. After that, property owners must turn to their local Board of Review to seek assessment changes.

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