“There really is no method to the city’s madness”, a humorous, yet very poignant phrase to describe our current property-tax stance. Read what Mike McCann and others in the real estate community are saying on the issue, in the Philadelphia Daily New’s piece, “Homebuyers’ Nerves Taxed by Delay for Property-Assessment Changes,” written by Catherine Lucey.
“LONGTIME Center City real-estate agent Mike McCann says his phone has been ringing off the hook for the past few weeks as people learned of Mayor Nutter’s proposed property-tax overhaul.
“A lot of buyers, they’re asking questions. You’re not guaranteed what the taxes are going to be two years from now,” said McCann, a Prudential Fox & Roach agent who has been selling properties in and around Center City for 26 years. “I tell them that there’s no method to the city’s madness. What I try to say is our taxes are lower than they are in Jersey. But I can’t assure them.”
Real-estate professionals around the city agreed that uncertainty about Nutter’s proposal to move the city to a property-tax system based on market values — known as the Actual Value Initiative (AVI) — is putting a chill on a business that was picking up steam this spring after several slow years.
“April was record-breaking,” said Kathy Conway, another Prudential agent, who has been selling Center City properties for 27 years. “[Then] our market just leveled. It was actually [five] weeks ago and it leveled off for the whole two weeks.”
Nutter’s proposal has been delayed by City Council for another year. Agents said the prospect of buying a property and seeing a massive change in the tax bill was worrying many prospective buyers. Although official data is not yet available on how AVI will affect tax bills, the expectation is that many gentrified neighborhoods — like Northern Liberties, Bella Vista, Graduate Hospital or Passyunk — will see substantial tax hikes because those homes are undervalued.
“The biggest problem is no one knows what’s going to happen,” said Mickey Pascarella, a Keller Williams Realty agent who has been selling in Center City and nearby neighborhoods for seven years. “There’s fear of some people’s taxes going from $700 to $7,000. … We’re definitely getting people who are saying, ‘We’re just going to rent because we don’t know what it’s going to be.'”
Even though AVI — designed to fix the current outdated and inaccurate assessment system — is now not supposed to happen until the 2013-14 fiscal year, the administration has pledged to have the new assessments out this fall. So buyers will soon know how their potential house will be valued, although where the tax rate lands will still be unknown for some time. Council stalled on AVI this year in part because it didn’t have enough information on the new assessments or the new rate.
Finance Director Rob Dubow said that one reason the administration wanted to move to AVI this year was to avoid a longer period of uncertainty around future tax bills. But Councilman Bill Green noted that even if AVI had passed for the 2012-13 budget, assessments and the tax rate wouldn’t be known for months.
“Even if we passed AVI, they wouldn’t have any information. The uncertainty was created by trying to pass AVI without information,” Green said.
Nick Pizzola, who owns eight properties in the city and is the vice president of the Temple Area Property Association, said that he’s not buying any more property because of the uncertainty.
“What the heck are the taxes going to be?” he said. “Quite frankly, that’s a concern.”
And Kevin Brown, 28, rents in Center City and is looking to buy his first home. He said AVI may not put his plans on hold, but he will be more cautious about going to the top end of his budget, which is between $250,000 and $300,000. He said that because of the tax situation, “buying an expensive home is now more of a worry,” and he wants to make sure before buying a house that he is “not going to get stuck with a huge bill.”
Nutter and City Council have been working on some protections to lessen the blow of AVI. A homestead exemption, which would knock $30,000 off a property’s assessed value, will be available to all homeowners.
Agents said that most people buying a home are looking for predictability in their monthly payment, which includes the mortgage, interest and taxes, and that people often borrow as much as they can get from a lender.
“Like it or not, most people spend the maximum that they qualify for,” Pascarella said. “In my business, in most areas in the last five years, taxes have been inconsequential. It’s going to be a rude awakening.”
One market that continues to get interest is new construction or rehabs, real-estate agents said, because those typically qualify for the city’s 10-year tax-abatement program.
Meanwhile, John Featherman, another Prudential agent dealing mostly in Center City, noted that a lot of factors go into a home purchase beyond just the taxes.
“I think that the jury is going to be out until we see what the end of the summer is like,” Featherman said. “The interest rates are incredibly low. Some people are getting jobs again.”
Green noted that typically when taxes go up, home prices come down. Green stressed, though, that moving to a fair system, based on current values, was the right move for the city.
“You have to let the market adjust, which means citywide it will probably be a wash, but per year, you’re probably going to have initial assessments in some areas that will have to go down,” Green said.
That’s why tax-reform advocate Brett Mandel said he recently told someone to hold off on buying until after AVI is implemented.
“Somebody’s looking for a house and they asked me what to do and I told them to wait until after AVI,” Mandel said. “There’s going to be bargains after AVI because the prices will go down.”’