Average Resort Property Values Increase For First Time In Years; Assessment Notices Up 2.2% In OC

Average Resort Property Values Increase For First Time In Years; Assessment Notices Up 2.2% In OC
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OCEAN CITY — When assessment notices for over 32,000 residential and commercial properties in Ocean City hit mailboxes this week, many owners saw their values hold steady or even decline somewhat, but average resort property values increased overall for the first time in nine years.

The State Department of Assessment and Taxation (SDAT) last week sent out property value reassessment notices across Maryland revealing an average increase of just over 8 percent for most in the areas assessed this year. SDAT reassesses property values for roughly one third of the properties in Maryland each year in a repeating cycle. In Worcester County, property values are reassessed each year in three geographic groups and this year most residential and commercial properties in the municipality of Ocean City were reassessed.

The recently completed reassessment of Ocean City revealed an average increase in residential property values of 2.2 percent, ending six years of decline in the resort. After recording off-the-chart increases in the early part of the last decade during a remarkable real estate boom, Ocean City residential property values declined in two straight three-year cycles before turning the corner this year with the 2015 reassessments.

For example, in 2003, residential properties in Ocean City increased by an average of 70.6 percent, and spiked even higher to 78.9 percent in 2006. In the 2009 reassessment of Ocean City, residential property values declined by an average of 12.1 percent and fell further by 14.3 percent during the reassessment in 2012. This year, however, property values in Ocean City increased by an average of 2.2 percent, signaling the resort, like much of the state, has started to climb out of the recession and is heading in a positive direction again.

“It’s certainly hopeful,” said Worcester County SDAT Director Terri Smith, who was appointed to the position in November after serving as acting director. “It’s a modest increase, but a gain nonetheless, after the values were heading in the opposite direction for so long.”

Again, one third of the property values in Maryland are reassessed each year in a three-year cycle. In Worcester, for example, Ocean City, or Group 3, was reassessed this year. Group 1, which makes up much of the northern end of the county including Ocean Pines, Berlin and Bishopville, will be reassessed next year, with Group 2, which includes the south end of the county and much of West Ocean City splintered off a few years back to make the groups geographically comparable in size, will be reassessed in the following year.

The modest 2.2-percent increase for Ocean City marks the first positive move for Worcester County property values since 2008, when Group 2 increased by an average of 33 percent. Since then, every reassessed group saw their average values decline for six straight years.

Smith said Ocean City’s modest 2.2 percent increase this year was largely fueled by a rebound in the values of many oceanfront condominiums. Near the end of the last big building boom in the resort, several posh oceanfront condos were built before the bottom fell out of the economy and their values declined steeply. She said many ended up in foreclosure or short sales and dragged the average property value figures for the resort downward.

With the crisis apparently nearing its end, those properties are regaining their value and pulling up the rest of the residential values in Ocean City with them.

“Some of the new condos along the oceanfront saw significant increases, which helped pull up the overall values,” said Smith. “The assessments for many of the residential properties further inland were flat or even declined somewhat, but they are typically more stable any way.”

It’s no secret the resort nature of Ocean City results in a high volume of second homes and vacation homes, but the difference between the latter and primary residences is quite remarkable when seen on paper. For example, of the roughly 32,000 properties reassessed in Ocean City during the current cycle, just about 2,500 are primary residences.

Commercial properties in Ocean City are reassessed on a similar cycle, although a vast section of the old downtown area is split off from the rest of the town because of the density of the commercial properties there to ease the reassessment process. The commercial properties throughout much of the resort that were reassessed in the current cycle saw a small decline of around 1.1 percent.

“The commercial assessments in this cycle in Ocean City were pretty flat,” said Smith. “They saw a modest decrease, but there were very few sales in the commercial sector. The sample size is pretty small.”

While the reassessments in Ocean City increased by a modest 2.2 percent in the current cycle, the gains might not exactly represent a windfall for the resort or the county. Primary residences in Maryland are protected from property tax increases from reassessments somewhat by the Homestead Tax Cap. Maryland sets its Homestead cap at 10 percent, but the counties and municipalities have the ability to lower their caps to any rate lower than that, but not higher.

In Worcester County, the Homestead cap is currently set at 3 percent, while Ocean City lowered its cap to zero this summer. In essence, primary residential property owners would have a 10-percent cap on their state taxes, a three-percent cap on their county taxes and a zero cap on their municipal taxes.

Again, with such a small percentage of primary residences in Ocean City, the Homestead cap issue is moot for those who actually live year-round in the resort, but the second home and vacation home property owners are not afforded the same protections and are liable for the full amount of increase. However, with a modest average increase of 2.2 percent this year, most won’t see a dramatic spike in their annual tax bills. Only in those robust years in the early half of the last decade when resort property values spiked by as much as 70 percent was the Homestead Cap such a volatile issue.

Nonetheless, the reported 2.2 percent increase in residential property values in Ocean City during the recently completed reassessment in Ocean City represents a potentially significant increase in state, county and local coffers. For example, the 2.2 percent average increase in Ocean City represents an increase of $182 million in the aggregate property value in Worcester. Commercial property values in real dollars declined by about $8.5 million in Ocean City during the current assessment cycle.