After years of minimal valuation increases, many rental properties in Grand Forks are seeing a big hike this year.
For buildings with 18 or more rental units, valuations increased an average of 18 percent, according to City Assessor John Herz. In past years, the valuations only increased 1 to 3 percent.
Valuations are part of a formula that determines how much in taxes a property must pay.
Mike Opp of Oxford Realty said valuations have increased drastically for several of his rental properties and he isn’t happy about it. He said if taxes went up, rent would have to increase as well.
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“It’s a business,” he said. “You have to make money at a business and the only revenue in the apartment business is rent. You simply have no other option”
But Amanda Welk, a local vice president at Goldmark Property Management, said a property-tax increase wouldn’t necessarily lead to higher rents.
“I would say that property tax expense doesn’t affect rent prices because rent prices are market driven,” she said. “They fluctuate based on competition with similar properties.”
The other part of the tax formula is the mill levy, or the tax rate, and those won’t be set by local governments until fall, according to Herz. He said he thinks the rate is going to be lower than it was last year to compensate for the valuation spike.
Still, the mill levy would have to decrease about 15 percent to offset an 18 percent valuation increase.
Changed market
The city assessing department came up with the higher valuations because the market required it, according to Herz. While only a couple apartment buildings were sold in past years, more than 40 were sold in 2013, so that gave assessors a dollar figure with which to compare what they were valued at.
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“We reviewed every apartment complex in town,” Herz said “We found 18 units and more were selling for a lot more than what we had them assessed at, so we said, ‘Ok, let’s review all of them.’”
Those who saw increases of more than 10 percent were notified so that they had a chance to appeal to the State Board of Equalization.
“This year, for some reason, there were a lot of sales and a lot of information for 18 units and larger,” Herz said. “If we didn’t do something and bring them into line, first of all, we wouldn’t be doing our job, and, secondly, if that market continues it would be that much more of an increase in the following years.”
Brad Stenberg, the general manager for Cambridge Property Management, didn’t see drastic valuation increases but has seen a similar situation with other properties he oversees in Bemidji. He said it made sense that if a comparable property next door to his sold for a higher value than what his was valued at, it was normal for his valuation to increase dramatically in order to equal things out.
“It’s tough to argue against a comparable sale when you’re looking at values,” Stenberg said.
Coping mechanism
While rent may or may not go up as a result of a tax increase, Welk said it could affect renovation.
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Her company, Goldmark, manages rental properties on behalf of their owners. She said a drastic increase in property taxes could affect how much money those owners are willing to put back into their properties. Big painting projects or other improvements of that nature could suffer, she said.
“We spend time suggesting to our owners what larger capital projects they might want to do to keep them up to date, and it might affect how much they’re willing to continue to invest,” she said.
So far, most apartment owners have not protested the new valuations. One exception is owners of buildings used as low-income housing. They fought the high valuations last week and convinced a City Council committee to recommend a lower valuation.
Herz said his department’s original calculations didn’t take into account the high cost of running that type of housing, along with the fact that rent is preset by the U.S. Department of Housing and Urban Development in most cases.
To fix the problem, assessors switched from using market value to basing it on the income generated by the units.
“It’s a little more expensive to operate those because you have so many federal guidelines you have to keep track of,” Herz said.
