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Foreclosures may alter home values

In a sign of how the real estate market has imploded, property appraisers plan to figure in foreclosure sales when they value homes next year.

State Department of Revenue rules advise county property appraisers to ignore foreclosures and other types of "distressed" sales in favor of arms-length deals between willing buyers and sellers.

The belief is that such open market sales are truer indicators of home values. But that's only the case when foreclosure sales are relatively rare, not rampant like they are now, property appraisers are saying.

"The number of foreclosure sales we are dealing with now is so much greater than I have ever seen that I believe they have become part of the market," said Pam Dubov, Pinellas County's property appraiser-elect.

Warren Weathers, Hillsborough County's chief deputy appraiser, said that Dubov is right and that his office also will look at how to gauge the effect of foreclosure sales on values. In Pasco County, Appraiser Mike Wells has already done so for this year's tax roll.

"Some of the Department of Revenue rules are for a normal market," Weathers said, "and this is not a normal market."

Dubov and Weathers have yet to come up with a method for weighing how the inclusion of foreclosure sales will effect homeowners' property tax bills.

It's complex and uncharted territory, they said. Next week, appraisers from across Florida are meeting in St. Petersburg, and Dubov said she plans to raise the issue.

"We have to do some gaming of this and see what it looks like," she said. "I just know we can't do business as usual."

But both she and Weathers agree one likely result is that homeowners in areas with lots of foreclosure sales whose homes are assessed near market value will see their property tax bills drop next year, assuming governments don't raise tax rates.

In Pasco, Property Appraiser Wells said that in the spring he told his staff to consider foreclosure sales when developing the current tax roll. Wells said he did so after talking with his staff, his attorney and few others. He has yet to hear complaints from the state, or from homeowners who saw their tax bills dip.

"I believe it allowed me to come up with a fairer picture of the market, and what is going on out there," Wells said.

Jim Overton, Duval County property appraiser and president of the Florida Association of Property Appraisers, said he was unaware of Wells' move but isn't surprised others are eager to follow. The issue was discussed recently among appraisers at the national level, he said, and will be taken up by his association in coming months.

According to Dubov, Gov. Charlie Crist's office has asked the Department of Revenue for a review of the matter. Other than to say two or three appraisers have been in contact about the issue, the department declined to discuss what Dubov, Weathers and others plan.

Hernando County Property Appraiser Alvin Mazourek said he also was considering how to incorporate distressed sales into next year's values.

Though some homeowners may see their tax burden lift a bit, the decision by property appraisers to include foreclosure sales in their market analysis could reduce the amount of revenue going to already strapped local governments.

Incoming Pinellas administrator Bob LaSala said that in such a precarious economy it makes sense for appraisers to innovate and change their practices, even if it makes his job tougher.

"I wouldn't begrudge the home­owner who is struggling with a tax bill a solution that might make sense in this broader picture just because I've got constraints as well," LaSala said.

Florida is second only to California in the number of struggling borrowers who have lost their homes to lenders. In Tampa Bay area counties last month, 26 percent of real estate deals involved banks selling off properties reclaimed through foreclosure. Another 9 percent were "short sales," where borrowers behind on mortgages settle with lenders for less than what's owed.

That means in October more than one in three deals were distressed. The figure in September was 28 percent.

By comparison, in September 2007, 6 percent of sales were distressed; in September 2006, just 1 percent.

Peter K. Murphy, a real estate consultant with Home Encounter in Ybor City who provided the data on distressed deals, said that last month banks were selling foreclosed homes for 60 percent of market value.

Will Van Sant can be reached at vansant@sptimes.com or (727) 445-4166.

fast facts

Impact

On homeowners

Property appraisers are just beginning to consider ways to measure the impact of foreclosure sales on area home values. But they predict that homeowners in areas with lots of foreclosure sales could see their tax bills go down, so long as there's not too great a gap between the market and the assessed value of their homes. That means that newer home buyers and second homeowners are most likely to see a reduction. And if governments choose to raise tax rates, any reduction could vanish.

On governments

Property appraisers don't get preliminary tax rolls to local governments until May. Governments use those projections to develop their annual budgets. In theory, including foreclosure sales in the appraisal equation will result in less money going to local governments, which have been stung as the record revenues of the real estate boom years have vanished in today's ailing market. Voter-mandated curbs on the ability of local governments to collect taxes also played a role. With no relief in sight, governments can't be thrilled by what appraisers intend.

Foreclosures may alter home values 11/13/08 [Last modified: Thursday, November 20, 2008 5:08pm]
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