The annual determination of a property’s assessed value / state equalized value is done by the local assessor. The Assessor is required by state law to assess at 50% of current market value all assessable property of December 31 of each year. Simply stated, market value is the probable price that a property would sell for in an arm’s length transaction between a willing buyer and a willing seller. There is no cap or limit on the assessed value change.
The Assessor takes various factors into account when establishing property value, including:
- Description of the property and the improvements
- Land value
- Lot dimensions
- Age of Home and other buildings
- Building and square footage
- Value-enhancing amenities
- Sales of like homes within the neighborhood
As a result of “Proposal A” (P.A. 415 of 1994), beginning in 1995 a new value was introduced to the property tax system. This value is termed taxable value, and it is the value used in the calculation of a property’s taxes. As long as the property has not transferred ownership, the annual increase in taxes is limited by the “cap” put into place by Proposal A. Taxable Value shall not be larger than the State Equalized Value and is simply a calculated number based on the following formula:
Previous year’s taxable value minus losses X Consumer Price Index (1.7% for 2011) plus Additions.
The year following a sale or Transfer of Ownership of a property, the property’s taxable value “cap” is removed and the taxable value is adjusted to that year’s state equalized value.
This means that the taxable value and the state equalized value will be the same for the year following a transfer of ownership. A common misconception regarding “uncapping” is that the assessor uses 50% of the sale price as the new taxable value and state equalized value. This is certainly NOT the case.
The Property Transfer Affidavit
As a result of the uncapping provision in “Proposal A,” the Legislature enacted mandatory disclosure of all transfers of ownership in Michigan. The Property Transfer Affidavit (L-4260) is used for this requirement. The new owner of the property is required to file this form with the Park Township Assessor within 45 days of the transfer of ownership. Failure to file this form may result in penalties. This form is available at most closing agent’s offices, law firms, the local assessor’s office or online.