Low metro property values have broad impact

Tumbling real estate values in metro Atlanta will cut both ways in coming months, with many property owners likely due substantial tax breaks at the expense of already cash-starved local governments.

Local officials fear the impact of what has so far been a localized issue — spreading in 2009 as Atlanta-area tax assessors begin capturing the downward spiral in real estate values. And the ultimate result could well be higher tax rates to offset losses.

Local governments have already had to cut back on services, staff and benefits to offset lower collections for sales taxes, inspection fees, building permits and business licenses because of the economic slowdown and drop-off in development.

Officials in cities and county offices around the region are afraid of the erosion of what is normally their most stable income source and what that may mean for services next year.

“The conventional wisdom is to expect a hit on property taxes,” said Atlanta Councilman Howard Shook, who heads the city’s finance committee. “I haven’t talked to anyone who expects to be able to say this time next year, ‘Whew. Glad that’s over.’ I expect challenges over the next two years.”

Cobb, Clayton, Gwinnett, Fulton and DeKalb counties already have more than 1,000 homes listed for sale for less than $40,000. By comparison, the median owner-occupied home value in metro Atlanta is $178,689 for 2008, according to Claritas Inc., a market research firm.

If assessors lower tax appraisals to match such stark market conditions, some property owners whose values have fallen the most could see substantial tax breaks. Others whose values assessors choose to hold steady against the slide may be forced to pay more.

Many government leaders say they could be forced next year to raise tax rates just to keep collections from falling.

Another consequence? Decreasing services as struggling governments continue to cut back to make ends meet.

Hap Richardson knows he’s paying too much in property taxes. An investor who is focusing on intown neighborhoods, Richardson said he and various partners own about 40 homes, many in areas with high foreclosure rates.

For example, tax assessors have valued at $167,500 a house he owns on Estes Drive in Sylvan Hills in southwest Atlanta. It’s in the 30310 ZIP code, the top spot in metro Atlanta for mortgage fraud and foreclosures. Richardson bought it for $18,000, paid $32,000 to renovate it and tried to sell it for $68,000.

He found no buyers at nearly $100,000 less than the county’s appraised value. So he turned it into a rental. He said he likely will apply to get the value lowered in 2009.

“About every foreclosure I buy, the taxes, the assessments are way too high,” Richardson said. “Obviously, it’s a very big problem.”

Lorraine Beato, a Keller-Williams agent, represents a property for sale on Cathedral Lane in Lithonia in DeKalb.

Tax records say it should be worth $116,600. Beato listed it for $90,000 but couldn’t get anyone to even look at it.

“I thought at $90,000 it was a great value,” Beato said. “The home has not been destroyed on the inside. It’s a great house.”

Beato turned back offers as low as $30,000. She cut the asking price to $69,000 and now has it under contract for nearly that amount — close to 60 percent of its taxable value.

“It’s crazy, but that’s where we are,” Beato said.

Assessors won’t begin generating hard numbers for 2009 until spring. Those numbers will then be folded into budget proposals for the 2009-2010 fiscal year. Some tax officials are warning that the slump will affect assessments — drastically in some areas.

“We lowered a number of properties for 2008,” said Burt Manning, chief appraiser for Fulton County. “Certainly, we will lower values for many in 2009. We will be doing some major changes. Typically, assessors are behind the curve. When values are rising quickly, we try to catch up. The same is true when they are falling.”

A recent study by Zillow.com found that across much of metro Atlanta, the average value of homes had fallen 5 percent to 8 percent.

A detailed study of 15 high-foreclosure ZIP codes by the Atlanta Neighborhood Development Partnership, a nonprofit group, found that governments have failed to keep up with swift, sharp declines in values that have destabilized some communities.

The study, released this month, found that residents in those ZIP codes had overpaid taxes for 2008 by more than $71 million. ANDP found the problems the most pronounced in Fulton, Dekalb and Clayton and beginning to take hold in Cobb and Gwinnett.

John O’Callahan, CEO of ANDP, said taxable values that are 50 percent to 75 percent higher than sales prices are common in areas overrun with foreclosures and abandoned housing. He said tax officials will have to be aggressive about reassessing properties downward to prevent some of the area’s poorest homeowners from getting hit with exorbitant and improperly high tax bills again next year.

“The question is do [assessors] really do their job right?” O’Callahan said. “If they do, the changes will be substantial.”

The critical issue for homeowners, policy makers and tax assessors is how to handle distressed sales — transactions considered below market value. Assessors typically are trained to not count those sales when setting taxable values. But in hard-hit areas, distressed sales are so numerous that it’s hard to find so-called fair market sales.