As discussed in
A real estate tax subsidy for the rich and famous -- an isolated case?, there are clear indications that the Fairfax County government is not fairly applying real estate assessment rules when it comes to luxury home owners in McLean, Virginia. Too many high-end homes seem to fall short of assessments on the basis of "100% of the estimated fair market value".
Now, when starting to examine luxury streets in McLean (such as Crest, Chain Bridge, and Ballantrae Farm), not only does one find numerous examples of homes that are quite probably significantly underassessed, relative to their "fair market value", but interesting information as to just who is profiting from this (now not-so) hidden tax subsidy for the homes of the rich and (in)famous.
Richard B. Cheney is a good example ...
The Cheney's bought a property for $1.35 million that settled on 12 January 2000. This is .9 of an acre on Chain Bridge Road which is one of the top-end streets in McLean, which is one of the richest portions of Fairfax County, which is one of the richest counties in the United States. As of today (the 2006 assessment), this property is assessed for $1.045 million, or less than 80 percent of what the Cheneys paid for the property over six years ago.
KEY NOTE: This discussion is 100% based on public records that are available to any and all via the worldwide web. For example, the Fairfax County Department of Tax Administration's Real Estate Assessment Information Site.
While the Cheney tax assessment remained below their purchase price this was, of course, a time period in which the average Fairfax home owner saw assessments increasing by far more than 10 percent per annum (generally far more). Now, the Cheney land assessment did go up by 25 percent this year (after two years at the same level) ... the assessment on the land portion of my assessment went up by 50 percent.
Now, note that there was a structure on the property when the Cheneys bought it. When the Cheneys bought the property, it had a tax assessment of $841,600 - of which $413,200 was for a structure on the property, which the Cheneys immediately had torn down. The 2000 assessment of $841,600 then fell to $450,000 for just the land in 2001 (a $21,600 increase - less than five percent - over the 2000 land value).
To believe that the Cheneys' tax assessment has been reasonable over the past six years requires, in part, an assumption that the land was worth less without the structure than with it - when the Cheneys first action (in essence) after purchase was to tear it down. This is (sadly) a rather common real estate transaction, the property that is a "tear down". As any realtor or real estate investor knows clearly, a "tear down" is valuable for its land - and the existing structure actually has negative value because it costs money to have it torn down and the debris hauled away.
From realtor acquaintances, they have estimated the Cheney's property's land value between $2.5 to $6 million (or even more). Or, to take it another way, that Cheney has been underpaying his 'fair share of real estate taxes' by anywhere from $15,000 to $50,000 (or more) per year -- year in and year out.
While the market has changed, less us again note that from the late 1990s to late 2005, the McLean area average easily 15 percent per annum increases in real estate values. And, the key point was not the structure - but the land as McLean is "inside the Beltway". If one were to take the Cheneys' $1,350,000 January 2000 purchase price as their own "fair market value" assessment of the land's value (as, again, what they did was tear down the structure on the land), then - applying McLean's real estate market of 2000-2005 would suggest a "fair market value of $3-4.5 million" as of 1 January 2006 (date for tax assessments), right in the sweet spot of my realtor acquaintances' estimates.
There are many others with tax assessments on their luxury homes that seem totally out of line with "fair market value" ...
Frank Carlucci's home on Crest Lane has an assessment -- for another example - which states that his building value is $340,080. That is less than $14k higher than the assessed building value in 2000. Again, this is a period where the community saw 10-20 percent growth in real estate prices, year in and year out. One might have expected the property to have a much higher "fair market value".
The Carlucci home sounds quite nice ... a 5 bedroom, 6.5 bath, three fireplace, 2292 square foot (above grade) "Excellent" construction home with a tennis court, pool, and garage. (For contrast, in terms of assessment, my 4 bedroom / 3 bath / 1 fireplace, 1695 sq ft (above grade) "average" construction building is assessed at $351,780 value. Hey, it is a wonderful home but, sadly, no tennis court, pool, nor garage.)
And, this potentially serious 'undervaluing' of property assessments is not limited to these two ... similar can be found for Colin Powell (appraised value roughly 50% of sales prices in the neighborhood for comparable homes), Justices Thomas and Scalia, and ...
Those who are benefitting from the tax advantages of significantly low tax assessments are, it seems, clearly aware of this. In Forever the Negotiator: Brzezinski in a Stalemate Over a Sidewalk, we learn about this in a back hand manner
Based on the assessed value of the Brzezinskis' land -- $1.7 million, not including a house worth $489,000 -- the county could offer about $19,000 for an easement on the 240-foot-long strip. An easement would not preclude future subdivision (the land can be split for five homes). [The county] wrote that it would enhance the land's value, because a developer would be spared the cost of building the sidewalk required by law.
Brzezinski was not satisfied. He responded, asking, among other things, why the easement compensation wasn't based on the "actual selling price" of area homes
Note, Zbignew Brzezinski challenged Fairfax County's offer for a small part of his property with a statement that the assessment was not truly 'fair market value' because it didn't reflect the "actual selling price" around him. He understood that his taxes were anything but based on the "fair market value" that the law requires.
Other non-luxury homes seem, on examination, to be assessed at far closer to actual sales prices and thus come within the range of "100% of the ... fair market value". Failing to assess at full value means lower taxes for the homeowners of these luxury homes -- and a greater tax burden for other home owners and county residents.
How many $millions in tax revenue is Fairfax County leaving uncollected by not fairly (and unevenly) assessing luxury homes? Is McLean an isolated example or is this true for elsewhere in the Commonwealth? Elsewhere in the United States? Are we talking about uncollected $billions through under assessments of the luxury homes of the rich and (in)famous?
Too many people who could afford to be paying their fair share are not being asked to. This is the case for Zbignew ... Colin ... Dick ... Frank ... and too many other rich and famous residents of McLean.
(crossposted from: Raising Kaine)