Wealthy condo owners benefit from New York City’s flawed property appraisal process, in which officials use arbitrary calculations and shift the majority of tax burdens to cheaper properties and rentals, according to a new survey from Bloomberg News.
Authorities blamed the imbalances in tax bills on Section 581 of the New York Property Tax Act, which has been interpreted to mean that appraisers determine the assessed value based on the hypothetical income that co-ops and the condos would generate. Since this is not the case, the values create a hypothetical guessing game and a large margin of variation.
Appraisers use comparables to determine hypothetical earnings, but they all seem to use different values to determine the number. For some properties, the income figure has been changed hundreds of times for different comparisons, skewing the capitalization rate, which is determined by dividing net income by the market value of a property.
The authorities appear to lower the assessed values of expensive condominiums by raising the cap rate to a level much higher than what the real market dictates, resulting in lower property values than the market suggests and greater tax relief. For less expensive condos, the appraised values are more faithful to the market value, thus reducing any tax advantage.
City officials didn’t reveal much to Bloomberg about how the capitalization rate was determined, but found that an estimated effective tax rate of at least 5% is added to the rate. cap to account for tax payments from a previous year, grossly overestimating the estimate. .
Bloomberg reports that the assessed value of tens of thousands of condos has fallen by about 80% on average due to flaws in the property appraisal process.
A study reviewed by Bloomberg shows that annual property taxes have gone from around $ 292 million from the top 10% to the bottom 90% in New York City. Another study showed an even bigger change of about $ 450 million.
Bloomberg cited 163 cases, based on sales and tax records from 2017 to 2019, in which the valuation of an entire condominium was less than the sale price of a unit in the building, highlighting the flaws in the evaluation system.
Three years ago, Mayor Bill de Blasio announced the creation of a committee to review and redesign the system. In February, de Blasio pledged to relaunch the administration’s initiatives regarding property tax reform and cited a delay in the preliminary report on the pandemic.
Amid the slow pace of tackling inequality, Tax Equity Now New York, a local tax reform group, in a May letter called on the Department of Justice to challenge the city’s tax structure under the Fair Housing Act.
The real deal previously reported that TENNY policy director Martha Stark cited the challenge by the Nassau County Department of Property Tax Laws on the grounds that higher rates in black and Latino neighborhoods violated the law.
In the letter, Stark argued that residents of color are taxed at higher rates through a “dizzying array of valuation methods, caps, adjustments, allowances and other characteristics.”
[Bloomberg] – Holden Walter Warner