Hartford Revaluation 2011 – Mill Rate Estimate

Bushnell Park Fountain at NightThursday’s Hartford Courant contained an article and photo gallery projecting possible tax bills for a number of different properties in the City of Hartford. Their story contained just enough information to figure out what their model of the revaluation’s results say about the mill rate and residential assessment ratio.

The Courant is projecting that the three property classes will have assessment ratios of 70% for commercial, 50% for apartments (which now includes four-family buildings) and 30.6% for residential (condos, single-families, two-families and three-families). They expect the mill rate to be somewhere between 76 and 77, and used 76.79 in their calculations.

Hartford property owners interested in estimating what their July 2012 property taxes based on this model can use the following formula:

(Market Value) x (Assessment Ratio) x (Mill Rate/1000) = (Property Taxes)

So for a residential property this comes out to be…

(Market Value) x (30.6%) x (.07679) = (Property Taxes)

… which is about the same as …

(Market Value) x (2.35%) = (Property Taxes)

Owners of commercial and apartment properties would need to start with the first formula and plug in the appropriate assessment ratio.

Since we are still in the early stages of the revaluation process, this is a rough estimate and a lot can still change before tax bills go out at the end of June of next year.

Thoughts & Observations

The most challenging part of modeling the Hartford tax system is getting the residential assessment ratio correct. For the coming year it is supposed to be set so that the overall tax burden of residential property class increases by 3.5%. That was a compromise agreed to by the various stakeholders last spring and passed into law by the state legislature. The primary article attributes the 30ish percent assessment ratio to City Assessor John Philip, and lead author Jenna Carlesso confirmed that he provided that number.

The Courant is forecasting that the mill rate will actually increase under the new system. This is a bit of a surprise since the City’s overall goal is to start reducing the mill rate in order to help attract more businesses.

Although it seems counter-intuitive, it’s okay if the mill rate rises. The data clearly shows that the tax burdens for commercial property owners is decreasing, which is more important than the perception caused by the slightly higher mill rate. In the previous system we had an additional layer of complexity called the Business Surcharge – an additional tax over and above the standard tax – that is now gone. The City has taken an important first step to making the commercial mill rate directly comparable to other towns in the state.

Since the City Assessor has not come out with an official set of projections, we think it is important to continue to develop our own model on what could happen. We’ll keep trying to get data from the Assessor and hopefully have a second set of projections to share in the coming weeks.

Presumably the Courant team succeeded in getting additional information from Assessor Philip as inputs to their model. In thinking about repeating the calculation on our own, we don’t see any way to accurately do it without knowing the aggregate market values for each property class for both last year and this year. Last spring the previous City Assessor provided us a good amount of information, but not the breakdown of the residential class. Since the rules of the game changed to move four-families from the residential assessment bucket to the apartment bucket, we would need to calculate the impact of that change before being able to distribute the tax burden correctly and arrive at a potential mill rate.

Using the Courant’s Data to Calculate Their Projected Mill Rate

For those that are curious, here’s how we used the data that the Courant published to back into the mill rate and residential assessment ratio they are projecting.

After inputting all the data into a spreadsheet, we focused on the commercial and apartment properties. We knew the assessment ratios, so we were able to calculate the assumed mill rate. Once we knew the mill rate, we were able to use that in the residential properties to calculate the assessment ratio. Fortunately the values were consistent across all 9 properties once rounding errors were considered.

Here is our table, the cells with blue text are inputs while the cells with black text are calculations.

Hartford Courant Hartford Revaluation 2011 Model


Related Posts
Hartford’s Revaluation 2011 – Update
Overview of Hartford’s Property Tax System

More on Demographics and Real Estate

Red Flowers in the West End of HartfordBelow is another article about demographics and other real estate trends that builds on the research of Arthur C. Nelson. It came to my attention after being posted by City of Hartford COO David Panagore. This continues on the themes of Mr. Condon’s piece from Sunday and our take on specific neighborhoods that may benefit from the market shifts.

I’ll be honest, I couldn’t get through the whole thing in the first sitting, but when I finally did, it seemed worth the effort.

The Next Real Estate Boom: How Housing (Yes, Housing) Can Turn the Economy Around
Patrick C. Doherty and Christopher B. Leinberger
Washington Monthly, November/December 2010

Boomers Boomerang Back into Town

This Sunday’s Hartford Courant had an interesting piece by Tom Condon titled “Subdivisions On Way Out?” It is definitely worth a read if you were focused on other things yesterday, like spending time with your mother or enjoying the beautiful weather.

10 Walbridge Road, West HartfordThe basic thesis is that a confluence of trends will lead to more large houses for sale in the suburbs than buyers who will be interested in purchasing them. Supply will come from the Baby Boomer generation downsizing to smaller, lower-maintenance housing options.

However, demand for their properties may not materialize. Household size is increasing as multiple generations of a family are more frequently living together. Financially marginal buyers struggle to get a mortgage in the current environment, preventing them from being homeowners. Factors like smaller home sizes, walkable neighborhoods, mixed-use environments, and shorter commutes are creeping up to the top of buyer wish lists.

Many interesting questions could be asked using this thesis as the set-up. The first one that jumps to my mind is this, which areas of Greater Hartford will benefit most from these trends?

Some of the winners are obvious. West Hartford Center offers exactly the mix of features that Mr. Condon describes. It is an established mixed-use community with smaller homes, in a walkable setting, that is convenient to just about everything in the region. Slam dunk. The Center is currently one of the hottest real estate markets in the area with basically no inventory available. If you want to buy there, then you need to have your act together.

Other areas seem like logical winners, but there is still considerable work to be done. I see Downtown Hartford as a long-term winner. Right now there is a core group of residents excited about Downtown as a neighborhood. Seven recent apartment developments (The Hollander, The Metropolitan, The Lofts at Temple & Main, 915 Main, Bushnell on the Park, 55 on the Park, and Hartford 21) are generally considered successes. Active planning is underway to rehab another building, the former hotel on Constitution Plaza. There are many additional opportunities to add residents in smaller, apartment-style, homes that are in a mixed-use community with major established businesses and legitimate public transit.

Really, the whole Farmington Avenue corridor from Downtown Hartford through West Hartford Center seems like it has a chance to win big in the coming decades. Asylum Hill and the West End have a lot to offer on the Hartford side of the line. Residential density continues on the West Hartford side of Prospect Avenue with numerous apartment buildings and commercial areas transitioning to single-family housing just off the main road.

In the real estate market, we are already seeing buyers from the Farmington Valley come over the mountain to look at our listings in the Elizabeth Park neighborhood of West Hartford and in Hartford’s West End. If Mr. Condon is right, then this could be the beginning of a trend that will play out for years to come.

Courant Companion: That Empty Feeling

The cover story of today’s real estate section features an article titled That Empty Feeling about the impact of vacant homes on a neighborhood. The wide-ranging piece provides a lot of interesting and important information about homes that are considered eyesores.

That Empty Feeling

A critical point in the overall thesis, and therefore a focal point of the article, is the example of a dilapidated property that actually hurts the value of neighboring homes. Unfortunately, a very poor example was selected. As agents familiar with the property and the neighborhood in question, we feel the example actually works against the overall angle of the story.

The author quoted a real estate agent about a bank owned home in Hartford’s West End. The agent asserts that the home “significantly and negatively impacts a West End homeowner’s ability to sell.” As evidence, the agent “points to 13 properties in the West End neighborhood listed above $300,000 that have been removed from the market or have had contracts expire since January 2009.”

We have a number of concerns about three short paragraphs in an otherwise well-done article.

We don’t believe that the highlighted property’s exterior appearance rises to the level of “eyesore.” Although the assertion that the “landscaping has not been maintained” is factually correct, the lot is very different than the yards with long grass discussed elsewhere in the article. This property is set quite close to the street for a larger home and has far more plantings than grassy areas in the front yard. Most of the landscaping is hidden behind a brick wall, meaning that it is not visible from the street. Is there neglect? Sure, but the home isn’t sitting in what looks like a hay field. And as a brick building with a slate roof, the neglect has had relatively little impact on the overall exterior appearance.

We don’t believe that the highlighted property has scared off buyers. The house in question is on a short street that constitutes its own little neighborhood with only 18 homes. Three of the homes sold this year, so clearly those buyers were not deterred. One could argue that the bank-owned home pushed the price down on the other homes on the street. However, our experience as active agents in the neighborhood is that prices have fallen equally for all homes in that price range, even those without nearby distress. After little activity in 2009, there has been a much more interest in high-end homes in the West End during 2010.

The assertion that 13 homes priced above $300,000 have come off the market without selling is inaccurate and misleading. The inaccurate portion of the statement is that the correct number is 13. In fact, there have been more than 13 single-family homes priced above $300,000 that have not sold. The number increases when multi-family properties and condominiums are also considered. The misleading portion of the statement is the implications that these failed sales are related to vacant homes. Some of the sellers received offers that they chose not to accept. Others changed their minds about moving because of their personal or professional situations. Still others were simply unrealistic about the value of their home. We cannot think of a single West End property that was unsellable due to a poorly maintained neighboring property. Yet we can think of multiple examples of homes that sold despite the neighboring home needing significant maintenance.

It’s unfortunate that the author did not confirm these West End facts with an agent active in the neighborhood. Especially since there are plenty of agents with West End experience that would be happy to contribute to an article. The last time we counted, there were 18 real estate agents that lived in the (small) neighborhood, many of whom are very successful and are regularly quoted in the Courant. There are also plenty of agents who do multiple deals a year in the West End though they live in other areas.

We felt the need to speak out because the article makes the West End the face of neglected properties. Although it’s true that home values have fallen in the West End, and properties have come off the market without selling, these things have been happening elsewhere in Greater Hartford too. Since real estate values fall for a variety of reasons, suggesting that one bank-owned home is causing buyers to avoid the entire neighborhood (the 13 listings removed from the market) is overly simplistic. It may tie the story together, but it’s just not true.

Similarly, one poorly researched section does not negate all the value of this interesting article. We would definitely recommend reading it – just take the portion about the West End property with a grain of salt.

Courant Companion: A Refi Bonanza

Hello Fine Sir!Today’s front page Courant article gives another view of the refinancing opportunity. They highlight a homeowner who is moving from a 30 year to 15 year mortgage, illustrating the significant amount of interest they can save by knocking 8 years off the total term of the loan. The story provides another great example of the line of thinking and analysis we did when working through our refinancing process. And kudos to the homeowner for aspiring to pay it off even earlier.

Although the article is definitely in line with our thinking, there are a couple of statements that concern us. So we thought we would write a quick companion piece.

The homeowner used in the example paid $213,000 in 2006, but was told today that she shouldn’t list her home for more than $218,000. She said, “I would have lost money on the deal.”

We’ve unfortunately been seeing homeowners talk about “losing money” on their real estate a lot recently, but they often mean very different things. Some look strictly at the price they paid versus the price they expect to get in a sale. Others will add the cost of their improvements to the price they paid and then compare that to what they expect to get in a sale. And still others will deduct the transaction costs from the expected sale price before comparing to their cost.

We think that the correct cost to consider is the purchase price plus the cost of improvements. And the appropriate value for the house is the expected sale price without deducting the transaction costs.

That being said, homeowners shouldn’t expect to get all of their money out of improvements. Part of the reason is that many improvements are actually maintenance costs – keeping a home in proper working condition – and maintenance costs have very little value to potential buyers since they expect a home to be in proper working order. Even projects that are truly enhancements to a property typically don’t pay back at 100%. The main reason is that we design to our own personal tastes, which are usually different than that of others. Swimming pools are a classic example of an improvement that is owner-specific, but on a smaller scale it’s things like the choices of cabinets, counters, tile, and other long-lasting decorative elements. As homeowners we have to factor in the enjoyment we get from living in a space that feels inviting to us.

“Looking back, [homeowner] knows that she paid too much when she bought her first house in 2006.”

Prices and markets have to be evaluated in the moment. This statement could be true, but the only way to tell would be to analyze data from 2006 to see if the price she paid was in line with what other comparable homes were selling for at the time. That’s one of the main benefits of working with a real estate agent – they can analyze the data to make sure the seller’s asking price is reasonable.

We’re finding that some owners are comparing values in the current market to what they paid years ago and concluding that since the value of their home has not increased they must have overpaid. Residential real estate markets have changed considerably over the past few years, so it’s quite possible that a property that was a great buy in 2006 is now worth less than its purchase price.

If she holds the home for another 20 years, will she still feel she overpaid?