City of Manassas Park, Virginia

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1 DATE: MARCH 24, 2008 City of Manassas Park, Virginia MEMORANDUM TO: FROM: GARY FIELDS, FINANCE DIRECTOR RICHARD SANDERSON, CITY ASSESSOR SUBJECT: CY 2008 REAL PROPERTY ASSESSMENT REPORT The purpose of this memorandum is to provide you with information concerning changes in the City s real property tax base from calendar year (CY) 2007 to CY 2008 and to highlight several community and public relations initiatives. Overall Change in Real Property Tax Base For CY 2008, the overall assessed value of locally-assessed real property declined 8.77%, or $154,897,000, from $1,767,088,100 in 2007 to $1,612,191,100 in This decline in the real property tax base is primarily the result of falling residential property values the market suffered during In all, real property depreciated by $172,659,200 from 2007 to 2008, with net new growth (new growth after accounting for any losses) of $17,762,200 offsetting part of this decline. Residential properties (including multi-family apartments and vacant land zoned for residential use) make up 87.4 % of the total real property tax base for CY 2008, with commercial and industrial properties (including vacant land zoned for commercial and industrial uses) making up the remaining 12.6%. Last year, for the 2007 assessments, the percent of total breakdown was 89.9% and 10.1% respectively for residential, and commercial and industrial properties. Changes in the Residential Real Property Tax Base The residential real property tax base declined 11.32%, or $179,801,600, from $1,588,661,500 in 2007 to $1,408,859,900 in This decline was partially offset by residential new construction which added $4,532,700. The average assessed value for an existing residential property (including single family homes, townhomes, and residential condominiums) declined 12.64% for the 2008 assessments. The average residential single family detached home declined by 13.15% The average townhome declined 12.9% The average residential condominium declined 10.89%

2 Reductions in the value of residential properties for the 2008 assessments are consistent with similar reductions made by local assessment offices throughout the Northern Virginia Area. Although assessed values for all existing residential properties declined by double-digit figures for 2008 in most of Northern Virginia, the exceptions were closerin localities where declines ranged from 1.25% in Arlington County to a 3% decline in Falls Church. Closer-in jurisdictions generally have more established neighborhoods that are convenient to employment centers, cultural activities and other amenities that are desirable in the current market. According to Washington Post writer Kenneth R. Harney, two other important factors about the real estate markets in closer-in locations are that they typically are not first-time buyer markets and have little new subdivision construction. The 2008 assessments for residential multi-family apartments increased 5% over the 2007 assessments based upon the increased demand for residential apartments in the Northern Virginia Area and uncertainty in the residential sales market. The 2008 assessments for vacant residential land were unchanged from Residential Sales Statistics. The following sales statistics were complied by the Office of the City Assessor (OCA) from property transfer data available for the City of Manassas Park from the Prince William County Clerk of the Courts Office, Land Records Division. These sales statistics reflect the sale of existing homes in Manassas Park during CY 2007 that were considered before determining the 2008 assessments. Number of Units Sold The number of existing residential units sold declined 65.49% from 510 units sold in CY 2006 to 176 units sold during CY Sales Volume Sales volume (in dollars) for existing residential units sold declined 68.7% from $189,546,047 in CY 2006 to $59,320,948 in CY Average Sales Price The average sale price for existing residential units declined 9.31% from $371,659 in CY 2006 to $337,051 in CY The average sale price is determined by taking the sales volume in dollars and dividing by the number of units sold. 2

3 Median Sales Price The median sale price for existing residential units declined 11.94% from $357,693 in CY 2006 to $315,000 in CY The median sale price was determined by arraying the sales prices from low to high and selecting the midpoint or middle value. The effective date for the valuation of real estate for the 2008 assessments was January 1, Therefore, real estate market activities during all of calendar year 2007 were considered in determining the 2008 assessments. The OCA follows guidelines established by the Virginia Department of Taxation for gathering, verifying, and analyzing sales information for assessing real estate. Because many sales during 2007 were foreclosures or short sales in order to avoid foreclosure, many sales were disqualified because they did not meet the criteria for what real estate appraisers and assessors call arms-length transactions. The Supreme Court of Virginia has defined fair market value generally as the price a property will bring when it is offered for sale by a willing seller who is under no compulsion to sell and is bought by a willing buyer who is under no necessity of having the property. In the case of foreclosures or sales involving mortgage lending institutions, the property is not being sold by a willing seller and the seller is generally under compulsion to sell. 217 foreclosure sales or sales involving mortgage lending institutions were disqualified by the OCA when sales that took place during CY 2007 were analyzed before the 2008 assessments were determined. In contrast, before the 2007 assessments were determined 14 foreclosure sales or sales involving mortgage lending institutions were disqualified by the OCA when sales that took place during CY 2006 were analyzed. It is important to note that although foreclosure sales or sales involving mortgage lending institutions are disqualified by real estate appraisers and assessors because they do not represent an arms-length transaction, there have been enough of these sales to influence the general market through direct competition. Typical properties offered for sale have had to compete aggressively with foreclosure offerings since late last year. According to the Mortgage Bankers Association (MBA), the number of outstanding mortgages nationwide in foreclosure reached an all time high in the fourth quarter of The default rate was highest among homeowners with adjustable-rate loans, where 42% of homeowners in foreclosure had adjustable-rate subprime loans and 20% had adjustable-rate prime loans, according to MBA. Changes in Commercial and Industrial Property Tax Base The overall value of the City s commercial and industrial real estate tax base increased 13.96%, or $24,904,600, from $178,426,600 in 2007 to $203,331,200 in The assessed value for the average existing commercial and industrial property increased 5%, from 2007 to New construction accounted for $13.2 million of this increase. 3

4 Commercial and industrial properties were increased 5% for the 2008 assessments to reflect increased demand for commercial retail, and commercial and industrial warehouse space in Northern Virginia. Changes in the State Assessed Public Service Corporation Property Tax Base The valuation of non-locally assessed public service corporation (PSC) property (electric, gas, and telecommunication company properties) and railroad property is expected to increase to $25,353,300 for The estimated 2008 value reflects a 4.09% increase over the 2007 actual PSC value of $24,356,826. The 2008 values for PSC properties were estimated after considering a 5 year history of changes in actual values reported by the State Corporation Commission and the Virginia Department of Taxation. Highlight of Community and Public Relations Initiatives The following community and public relations initiatives were undertaken by the OCA since the 2007 reassessment cycle. At the recommendation of the Board of Equalization, an announcement of the availability of e-assessment Services on the City s web site ( was included as an insert in City water bills sent on October 9. Using e-assessment Services, a property owner can view property information cards for his or her own property or any property in the City. The January 2008 Park News included an article that helped to answer taxpayer concerns about why the 2007 assessments that affected the second half tax bills that were due December 5, 2007, we so high compared to current market conditions. Notices of Assessments for 2008 that were mailed to property owners on February 29 were completely revised from notices sent in previous years. The revised notices included changes in assessed values from 2007 to 2008, information about appeal rights and procedures, tax relief for senior citizens and permanently disabled persons, and the availability of real property assessment information on the City s website. The revised notices were prepared at a cost savings over the previous year in both printing costs and postage fees, and involved considerably less staff time. The representatives of six neighborhood and business associations had been contacted by the Office of the City Assessor as of February 25 about the OCA being available to make a presentation to the association or group concerning the real estate assessment process. On March 6, a tracking system was completed that monitors the number of requests for review of assessment filed with the OCA. The system enables taxpayers and/or their representatives to determine the current status of their request for review of assessment, serves as a citizen outreach tool to conduct 4

5 citizen satisfaction surveys, and the resulting outcomes can be included in reports of assessment changes from year-to-year. On March 12 and 13, a webpage was developed for the Office of the City Assessor that includes general contact information and the following content: o A pamphlet entitled Understanding Your Assessment by the International Association of Assessing Officer that describes how residential properties are assessed and remedies that can be pursued if a taxpayer disagrees with the assessment. o A web link to the Request for Review of Assessment form that can be printed out and mailed to the OCA after being completed by the property owner or agent. o A web link to a list of sales that were considered in valuing properties for assessment purposes for CY o Web links to sample Notices of 2008 Assessment (in English and in Spanish). o A web link to frequently asked questions related to real estate assessments. ATTACHMENTS: 1 - CY Real Property Assessment Change Summary 2 - Guttentag, Jack The Mortgage Crisis is One of Confidence. The Washington Post, 5 January 2008, p. F3. 5

6 City of Manassas Park, Virginia Office of the City Assessor CY 2008 Real Property Assessment Change Summary ($) Amount of ($) Amount % Loss Appreciation/ New Growth Real Property Classification Assessments Assessments of Change Change ($) Depreciation ($) (1) (2) (3) (4) (5) (6) (7) (8) 1 Single Family Detached Homes 1,013,133, ,019,600 (134,114,200) (13.24) (4,292,200) 1 (132,668,600) 2,846,600 2 Single Family Townhouses 326,505, ,752,000 (38,753,400) (11.87) 0 (38,753,400) 0 3 Residential Condominium 173,555, ,263,300 (10,292,600) (5.93) (648,900) 2 (16,270,900) 6,627,200 4 Residential Multi-family 67,172,200 70,530,800 3,358, ,358, Vacant Land- Residential 8,294,200 8,294, Total Residential Real Property 1,588,661,500 1,408,859,900 (179,801,600) (11.32) (4,941,100) (184,334,300) 9,473, Commercial/Industrial Real Property Commercial 50,179,600 69,149,600 18,970, ,042,700 14,927, Industrial 107,392, ,044,200 7,652, (845,500) 4 5,792,700 2,704, Vacant Land - Commercial 15,279,300 12,722,300 (2,557,000) (16.74) (3,162,800) 6 605, Vacant Land - Industrial 5,575,600 6,415, , (1,346,100) 7 1,233, , Total Commercial/Industrial Real Property 178,426, ,331,200 24,904, (5,354,400) 11,675,100 18,583, Total Locally-assessed Taxable Real Property 1,767,088,100 1,612,191,100 (154,897,000) (8.77) (10,295,500) (172,659,200) 28,057, Non-locally Assessed Taxable Real Property State Corporation Commission-assessed Properties Electric Light & Power Corporations 12,757,681 13,122, , Gas Corporations 4,782,435 5,023, , Telecommunications Companies 5,019,101 5,197, , Total SCC-asessed Properties 22,559,217 23,343, , Virginia Department of Taxation-assessed Properties Railroad Companies 1,797,609 2,009, , Page 1 of 2

7 City of Manassas Park, Virginia Office of the City Assessor CY 2008 Real Property Assessment Change Summary ($) Amount of ($) Amount % Loss Appreciation/ New Growth Real Property Classification Assessments Assessments of Change Change ($) Depreciation ($) (1) (2) (3) (4) (5) (6) (7) (8) Total for All State-assessed Properties 24,356,826 25,353, , Grand Total Taxable Real Property Assessments 1,791,444,926 1,637,544,400 (153,900,526) (8.59) (10,295,500) (172,659,200) 28,057,700 Notes: 1 Loss includes $3.6 million for property that was reclassified as commercial for 2008 and $272,600 loss to tax exempt property. 2 Loss due to fire. 3 Includes new value in the amount of $6.6 million that is the result of the reclassification of residential and vacant property that now is improved. 4 Loss due to consolidation of two parcels into one. 5 Includes $394,400 class change from vacant industrial land to improved property. 6 Loss due to changes in classification to improved commercial class as a result of new construction. 7 Loss due to land that was subdivided and change in class to improved industrial property. File origin: File name: Fin Docs/Assessor/Required Reports/Final CY 2008 Real Property AV Report Last updated: Page 2 of 2

8 Attachment 2 Washington Post 5 January 2008, p.f3 THE MORTGAGE PROFESSOR Jack Guttentag The Mortgage Crisis Is One of Confidence T he current mortgage crisis wifl probably enter the U.S. record book as the second-worst in the past 100 years. The worst was in the early 1930s, when thousands of banks failed and the mortgage market shut down entirely. It has not shut down this time, thanks in large part to federal institutions created in the "30s to deal with that crisis. The housing finance system is really two overlapping systems. One consists of portfolio lenders, mostly depository institutions, which hold the mortgage loans they originate. The portfolio system was the larger part of housing finance before the savings-and-loan crisis of the 1980s but gradually lost ground thereafter. The other system consists of temporary lenders who either sell loans in the secondary market to firms that securitize them or resell to still other firms that securitize them. Securitization means putting mortgages in a pool and issuing mortgage-backed securities (MBSs) against the pool This secondary market system began in the early 1970s and grew at the expense of the portfolio system until the recent crisis. The crisis originated in the subprime segment of the secondary market system and quickly spread. The crux of the crisis is a loss of confidence by the investors who purchase mortgage-backed securities and their retreat to the sidelines. When investors stop buying, the secondary market system grinds to a halt. One part of the secondary market system, however, has continued to function more or less normally. That is the "conforming loan" market, which covers loans no larger than $417,000 that meet the eligibility requirements of Fannie Mae and Freddie Mac. Investors have retained their confidence in the two federally chartered companies, which they assume would be supported by the government if it were necessary. Hence, they continue to purchase the MBSs issued and insured by the agencies. The crisis has also re-energized the portfolio system. Portfolio lenders have raised additional funds from channels unaffected by the crisis: by selling certificates of deposit, which are insured by thefedeial Deposit Insurance Corp., and by borrowing record-breaking amounts from the Federal Home Loan Bank system. The banks raise money by selling bonds, and, like Fannie Mae and Freddie Mac, they continue to have the confidence of investors. Portfolio lenders have been turning more often to mortgage insurance, both from the Federal Housing Administration and from private mortgage insurers. The FHA's business shrank markedly from 2000 to 2006 as the subprime mortgage market expanded, while private mortgage insurance had been hurt by lender self-insurance in the form of second-mortgage "piggybacks." Both trends have been reversed. Four of the five federally created institutions now supporting the market were formed during the financial crisis of the 1930s. The exception is Freddie Mac, which was created in If not for those institutions, the current crisis would be much worse. But it is bad enough. Portfolio lenders have replaced only part of the shortfall left when investors deserted temporary lenders. The portfolio lenders hve in the same world as secondary-market investors, see the same frightening data on foreclosures and have tightened their underwriting requirements across the board. Further, many are constrained by capital requirements, especially those who participated in the secondary market system as investors and have suffered capital losses. The upshot is that, just as many loans were made during 2005 and 2006 that should not have been made, today there are loans that should be made that aren't. Further, the prices of all deviations from underwriting perfection contain a "fright premium" and are therefore higher than ' they ought to be. That is true even in the conforming market, where Fannie Mae and Freddie Mac have raised the price increments on borrowers with less-than-excellent credit. This semi-paralyzed market will continue until investor confidence is restored. Key players are the investment banks and hedge funds who sold MBSs when prices were high in expectation that they could buy them back later at lower prices. At some point, they must go into the market to cover their short positions. They will do that when they decide that MBS prices have reached a bottom. That will not happen before we see the end of unpleasant surprises large value write-downs by major U.S. firms and revelations by previously unknown foreign institutions in trouble because they, too, bought subprime-contaminated securities. Most firms come dean at year-end, so. perhaps the surprises will stop soon. Once the surprises stop, investors wib look for a bottom in house prices and a peak in foreclosures. When both become clear, they will make their move. Next Saturday: What is needed for recovery, and how much help wffl the relief plan provide? Jack Guttentag is professor of finance emeritus at the Wharton School of the University of Pennsylvania. He can be contacted through his Web site, ivww.mtgprofessor.com. 2008, Jack Guttentag Distributed by Inman News Features