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Mar 20, 2022 How accurate is the assessed value of your home?

Gary Sandler

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Published 20 March 2022

On Jan. 1 of each year, a property tax lien is placed on every piece of real and personal property in New Mexico. The lien covers the amount of property tax due in that calendar year and is administered by the office of the assessor in the county in which the property is located. How that amount is determined is both an art and a science.

In the case of real property, the question is whether a homeowner or homebuyer can rely on the assessed value to accurately determine the property’s true market value. The answer is probably not. The reasons behind that observation are numerous and an interesting topic of discussion. Unpacking those reasons begins with the assessment process itself.

Let’s say a person purchases a $200,000 home. Within 30 days of closing, the purchaser is required by statute to submit to the county assessor a Residential Real Property Transfer Declaration Affidavit disclosing the amount paid, the terms of the purchase and what personal property, if any, was included in the sale. The assessor’s appraiser assigned to the area in which the property is located, of which there are twenty in our 3,814 square mile county, then compares that information with information provided by other recent purchasers in the assigned area. The appraiser then determines if the sales price conforms to other sales prices for like-kind properties and assesses the value accordingly.

Let’s also say that our purchaser got one heck of a deal and paid $200,000 for a property worth $300,000. There’s a good chance the sales price would not comport with the sales price affidavits of other nearby like-kind properties, most likely resulting in an appraised value closer to the actual market value.

Now let’s say that the value of our $200,000 property doubles by the time the next Jan. 1 comes along. Will the property be reassessed at $400,000? Thanks to another provision in the New Mexico Property Tax Code, the answer is no. The provision in question places a three-percent cap on the amount the assessed value of a residential property may rise each year. In this scenario, the following year’s assessed value could not exceed $206,000. Should the value double again in the following year, the assessed value could not exceed $212,180.

While the three-percent rule protected homeowners from increases in their property tax bills as home values continued to rise, it set up a situation that shocked future homebuyers. For example, the buyer of our $400,000 home carrying the old, assessed value of $206,000 and an annual property tax bill of, say, $2,100, would be shocked to learn that their tax bill more than doubled in the year following the purchase when the property was reassessed at or near their purchase price. The phenomenon was referred to as “Tax Lightning.”

While nothing could be done about the reassessment, the New Mexico legislature enacted legislation requiring that homebuyers, before writing an offer to purchase, receive an estimate of the higher property tax amount that will be levied after reassessment. Now, rather than suffering the shock of tax lightning, they only suffer from “tax frightening.”

Well, there you have it. Relying on an assessed value to determine market value is probably not a good idea.

See you at closing.

Gary Sandler is a full-time Realtor and owner of Gary Sandler Inc., Realtors in Las Cruces. He loves to answer questions and can be reached at 575-642-2292 or Gary@GarySandler.com.

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