North-End Property Values On Decline

BERLIN – When the latest reassessment notices for the north end of Worcester County hit mailboxes later this month, most residents will not be surprised to learn their property values have declined, but they be surprised to see how far they have dropped, likely by as much as 20 percent or more.

Over the last 12 months, assessors with the State Department of Assessment and Taxation (SDAT) have been re-evaluating residential and commercial properties in the northern third of Worcester County, including Ocean Pines and Berlin, to determine their assessment value for property tax purposes. Property owners in the subject area this time around will receive their reassessment notices before the end of the year and most will find the value of the property has declined, in some cases sharply, since the last reassessment three years ago.

“We definitely took a hit,” said Robert Smith, SDAT director for Worcester County, this week. “It looks like the average decline will be around 15-20 percent, but some property owners will see their values decline by as much as 20-30 percent, depending on a wide variety of factors.”

SDAT officials reassess property values in Worcester County each year on a rotating basis with the county divided into three large areas. This year, much of the entire north end of the county was reassessed, including areas such as Ocean Pines and Berlin, for the first time since 2007, before the economy turned south taking the real estate market with it.

Properties in Ocean City were reassessed last year with the average decline in value coming in at around 12-15 percent. In the prior year, the south end of Worcester County, with a vast section of West Ocean City added to make the geographic areas similar in size, was reassessed and property values held steady or declined only slightly in some cases.

Smith said property values have declined for the most part across all of Worcester during the last three-year cycle, but the most recent reassessment of the northern third of the county might be the most pronounced because of a variety of factors, including the ongoing recession and the associated stagnant real estate market. While the real estate market has shown modest signs of rebounding in recent months, the overall lack of transactions for existing properties and a slowdown in new construction has contributed to the declines.

“About 95 percent of all of the properties in the north end went down this year,” said Smith. “Of the other 5 percent, most went down slightly or stayed about the same.”

Smith said the declining assessments follow a similar trend throughout Maryland and across the country, although the decreases are not as pronounced as some areas.

“Worcester County is a little unique because of the resort nature of some of the communities,” he said. “We definitely took a hit, but we didn’t take the hit other areas of the state did. It’s a little different market here.”

One anomaly in the current assessment cycle is the difference in values for existing properties compared to new properties, according to Smith. For a variety of reasons, older properties held their values better than new construction, particularly when it came to condominiums.

“Older condominiums sold for a little more than expected, while new condos sold for considerably less,” he said. “Try explaining that to people who have just invested in a new property.”

Of course, property values are used to establish Worcester’s assessable tax base, which county officials use to predict property tax revenue for the coming fiscal year. When the values decline sharply, as they did for the most part in the north end of the county this year, it stands to reason the county naturally collects less in property tax revenue. 

“The trickle-down on all of this is the county will have less property tax revenue to work with this year when it comes to formulating its budget,” said Smith. “They went through it to a large degree last year and it won’t be any easier this year.”

For property owners, it cuts both ways. Naturally, most residents like to see the value of their property increase or at least hold steady. On the other hand, property owners who have seen their values decline will pay less in county and state property taxes.

Nonetheless, Smith said his department is bracing for a glut of appeals when the new assessment notices hit mailboxes in the north end of the county later this month. Ironically, the number of appeals goes up just as much when property values decrease as they do when the values spike upward dramatically, as they did for several years during the last big real estate boom in the area.

“I’ve been here since 1986, and for years the average number of petitions for review was about two or three a year,” said Smith. “In the last two years since property values have trended downward, we’ve handled about 300 petitions for review each year and this year should be no different. When everything is going up based on the market, we get very few appeals. Once the market drops, the number of appeals spikes way up.”

Smith said many area residents are caught in a conundrum where they would like to take advantage of historically low interest rates and purchase a new residence or property, but have to rely on selling their existing property. However, most don’t want to sell their current property when the values are declining, and finding a buyer in the current credit crunch is difficult. Instead, many are opting to stay put and reinvest in the property they already have.

“If they can’t sell their house, they are deciding to remodel it and stay there, or they’re remodeling them in attempt to increase the value and make it more attractive to potential buyers,” he said. “We’re seeing a lot of that. The number of remodeling permits has gone way up.”

While a remodeling project may increase the value of a property in terms of an asking price, it may or may not have an impact on the value of a property from an assessment point of view. Smith said major projects, particularly on the exterior of a property, can impact assessed value, others may not.

“When you remodel your property, it might not be included when it comes to reassessing its value,” he said. “Major projects, like a new roof, or new siding, certainly can because it can change the effective age of a property. For example, a 1986 house with a new roof or new siding might be viewed as a 1990 house in terms of assessed value. Improvements that are more cosmetic in nature, new kitchen counters or new carpeting or hardwood floors won’t necessarily impact the assessed value of a property because they are considered normal maintenance.”

Other improvements are a by-product of the trying economy and can have an impact on a property’s assessed value. With unemployment rates soaring and layoffs reported almost every day, more and more grown children are moving back in with their parents during the current recession. As a result, what was once a screened porch is being converted to living space and storage areas over garages are being changed into apartments, for example.

“We’re actually seeing quite a bit of that,” said Smith. “Those are the types of structural changes that can impact the assessed value of a property.”

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