SIOUX FALLS, S.D. (KELO) — How much is your house worth? It could be worth more these days because of rising prices for houses sold in Minnehaha and Lincoln counties.
Minnehaha County Director of Equalization Chris Lilla said some houses in what he called the “affordable range” price in the county have been selling at prices higher than the assessed values.
Properties, such as houses, are assessed a value that is applied to taxes paid on the property.
State law requires that the market value of properties be determined. The market value is the amount the property would sell for on the open market. Once the property is assessed for market value it is equalized for taxing purposes.
But here’s a twist to taxes. The state uses the equalization factor of 85% of the market value for taxing purposes or the taxable value of the house. If the taxable value of the house with an assessed market value is $200,000 the house can be taxed at the taxable value of $170,000 or 85% of the market value of $200,000. There are more possible factors, such as if a county needs to use all 100% of that 85% value, but the short version is: the taxable value of a $200,000 house is $170,000.
While there is a difference between market value and taxable value, when the market value increases, so does the taxable value.
Two county officials said they need to be as accurate as possible with assessments of market value.
The range of accuracy used in the industry is 85% to 100% of what the property sells for.
“I like to be 92% to 94%, said Karla Goossen, the director equalization in Lincoln County.
The 2020 assessments in Lincoln County was 91%, Goossen said.
Assessors or directors of equalizations consider any improvements made to a house when assessing its value. But one other key factor is the housing market.
“For this year, we found that most older homes needed the most adjustment,” Lilla said of re-assessing property.
Homes that had assessed values of $75,000 or values in the upper $80,000 were selling for $140,000, Lilla said.
But while assessors are responsive to changes in the market, any comparisons to market prices must be on similar homes.
Those homes could be in the same neighborhood or in nearby subdivisions, for example, said Goossen.
Lilla said Minnehaha County began to change its assessment system several years ago. The county once compared sales of 2,600 parcels, he said.
Using 2,600 parcels was ineffective, Lilla said. The 2,600 parcels was cut to 700. The 700 parcels are divided into three tiers of old homes, middle-aged homes and newer and new homes, Lilla said.
The smaller pool of parcels and the breakdown of three categories has been more efficient and allowed for more accurate comparisons, Lilla said.
In a neighborhood of mixed ages of homes, sales of newer homes won’t impact the assessments of older homes, Lilla said.
Even if a homeowner didn’t add a deck or re-do the kitchen in the home, the assessed value could still increase because the sales price of similar homes increased in the county, Lilla and Goossen said.
Goossen said while assessments are evaluated each year and are impacted by the real estate market, it’s important to understand the market.
“You don’t want to assess at the top of the market or bubble,” Goossen said.
She may need to consider the housing market trends over two years in some cases, as opposed to one year.
A higher assessment doesn’t always mean the house owner will pay higher property taxes.
Property taxes also depend on the budgets and bond debt of counties, school districts, townships and cities.
“There are a lot of working parts to taxes,” said Sheri Lund, the auditor in Lincoln County.
“I think there is somewhat of a misconception that if an assessment is raised, that will raise taxes. That’s not the case neccesarily,” said Ben Kyte, the auditor in Minnehaha County.
“This year, we had people whose assessment for their home value went up and their (share of the) tax levy went down,” Kyte said.
Taxes are spread across the entire tax value of the taxing district. So when new houses or apartments or industry are built that increases the tax value in the taxing district. It could mean that while a house’s value increases the property taxes don’t because it’s offset by overall growth in the tax base.
But, if a house was valued at $180,000 and it sells for $240,000, the assessment should increase and it’s possible the taxes can increase as well, Lund said.
Kyte said the McKennan Park area in Sioux Falls was an example of where increased values in homes resulted in an increase in taxes.
Those school districts, cities, counties and townships need money to operate and it comes from property taxes.
A tax levy is one tool to raise money for operations. A tax levy is referred to in an increment of dollars per thousand. It’s one example of how tax money is generated from a property.
The South Dakota Department of Revenue describes how a tax rate is reached. “For example: if the taxable value within a city is $10,000,000 and the city has a tax levy request of $100,000, the tax levy is $10 per thousand.”
Apply that $10 per thousand to a house with a taxable value of $200,000 and the taxes are $2,000.
Lund said property owners can be surprised by increases in their property’s market values and any possible increases in property taxes but, overall, it’s important that values reflect the real value in the market.