For those readers who own real estate in Teaneck you have by now received a letter informing you that the town is going to reassess the value of all of the municipality’s homes. There are many questions surrounding this process and why it is happening now. While I cannot answer all of these questions, I did have the opportunity this past week to meet with Teaneck’s tax assessor and review with him a series of questions he had answered for us two years ago and I can confirm that most still hold true. The biggest change he noted is the “ratio” at which houses will be valued compared to their true market value. In July of 2021 Teaneck’s ratio was at 81% while currently in 2023 it has dropped to 73%. For more of what this actually means continue reading below.
Nechama Polak: Can you explain what it means that houses are valued at a percentage of their actual market value?
James Tighe: The Director’s Ratio is calculated on an annual basis by the director of the Division of Taxation. It is based on a multi-year analysis of every usable sale in the district versus the assessed value for each of those sales. Simply put, the assessed value of each sold property is divided by its sale price to determine what the assessment ratio is for that particular property. All these individual ratios are weighted by class, then averaged and blended with the prior sampling period’s sales to smooth out abrupt year to year changes. The result of these calculations is an average ratio of assessed value to true value for the municipality. A ratio of 73% simply means that, on average, properties are assessed at 73% of their actual value. A property with an assessed value of $500,000 has an implied market value of $685,000 at a ratio of 73% ($500,000 is 73% of $685,000). Conversely, properties with a market value of $685,000 should be assessed at or around $500,000 ($685,000 x .73).
Municipal-wide revaluations are not conducted on an annual basis. As property values change over time and assessments stay the same, the ratio between them changes. In Teaneck, properties that were assessed at market value eight years ago are now worth considerably more. Teaneck’s ratio of assessed value to true value has therefore declined to 73%. (For example, a property that sold for $100,000 that had an assessed value of $100,000 in 2015 indicates an assessment to value ratio of 100%. If that property sells for $150,000 five years after the revaluation and still has an assessed value of only $100,000, the ratio of that sale is 66.67%.) As can be seen, this is an inverse relationship. Declining ratios over time indicate that real estate values are increasing in the community. Rising ratios indicate that property values are declining.
Nechama Polak: How does the assessor arrive at a home’s value?
James Tighe: 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 New Jersey State Valuation Manual for Assessments. The cost factors are periodically updated by the State of New Jersey and are then 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&N Group LLC, located at 1401 Palisade Avenue in Teaneck. Send your thoughts and comments to [email protected] or call 201 826 8809.