Friday, January 28, 2022

Part 2

While the sight of an excavator sitting on the front lawn of your neighbor’s home was quite the spectacle 50 years ago, today it seems the norm as much of Northern New Jersey retires its 100 year old homes in favor of “new construction.” Large-scale development began in the early 20th century, the period when many of the beautiful Teaneck tudor colonials were built. Large tracts of land continued to be developed well into the 50s and 60s, culminating with the introduction of the split-level home. By the 70s most of the land designated for single family living was developed, hence new construction was not something familiar to those of us either buying or selling homes.

When I first began selling new construction, neighboring homeowners were angry and complained about the changing landscape. I heard complaints of “This new construction looks like a library” or “It breaks my heart to see that house demolished.” Gradually, however, Teaneck residents realized that new construction and home renovation signaled stability, growth and increased value.

With that in mind I present our second round of questions with Teaneck’s Tax Assessor James Tighe:

Nechama Polak: What is the difference between renovating a house and new construction vis a vis tax assessment?

James Tighe: All homes, new or old, are assessed according to their market value. While the physical age of a building can be a major factor in determining its value, it is not the only one. Older homes are routinely renovated to the point that they have values similar to, or even greater than, new homes in the same neighborhood. Bottom line is that if a home is worth $1,000,000, whether brand new or 100 years old and renovated, it should have the same assessed value and pay the same taxes.

The same principle applies to the frequently asked question of whether retaining some vestige of an older home, like a portion of the exterior wall, or foundation, makes a difference when assessing the property. The answer is typically no. Older foundations or wall sections can only be incorporated into newer construction if structurally sound and consistent with current building codes. When fully incorporated, it is usually not even apparent to the average buyer that part of the building is older. In most cases it has little or no effect on the market value of the property and therefore will not change the way the property is assessed.

Nechama Polak: Regarding new construction, what is the formula used to determine assessed value?

James Thighe: As previously stated, new construction is ultimately assessed according to its market value, just like any other property in town. If considering the purchase of a new home that is not currently assessed, or a renovated home that has not been reassessed for the renovations, one can “ballpark” estimate the assessed value by multiplying the market value (sale price) by the average ratio for the municipality. If it’s your own home and not for sale, use the best estimate you have for market value (appraised value for construction loan or other purpose could be used) and multiply by the same ratio. (More on “average ratio” below.) If done using a reasonable estimate of market value, this should yield the upper limit of what it’s likely to be assessed at and will be useful for determining your budget.

When the assessor actually assesses the new home, a valuation model maintained by the township is typically employed. In order to facilitate the mass appraisal of thousands of properties with some thread of consistency, municipalities create and maintain valuation models which employ various formulas to determine the assessed value of a property. These models employ a cost approach with cost factors that are based on the NJ State Valuation Manual for Assessments. The cost factors are periodically updated by the State of New Jersey and are updated for the municipality at each revaluation.

In brief, the valuation model calculates the replacement cost, new, of a building based on its size, quality and other physical features. Various depreciation factors are then applied to account for deterioration due to age and/or condition and yield an estimate of the current value of the building. The depreciated building value is then added to the land value to determine the total assessed value of the property. (New homes valued in this manner will not have depreciation subtracted from the replacement cost as, typically, there is none.)

It should be noted that the valuation model is just a tool that the assessor uses to assist in the mass valuation of the township. The results for any individual property are always compared to actual market data to determine their reasonableness and adjusted when necessary.

Nechama Polak is the broker of record and owner of V and N Group LLC. V & N Realty is located at 1401 Palisade Ave in Teaneck. Feel free to email Nechama at [email protected] or call 201.826.8809.

Sign up now!