Buncombe County may have missed out on about $450,000 in tax revenue because of an estimated $96 million in unreported home improvements in 2021.
Buncombe County Tax Assessor Keith Miller reported June 14 during the final meeting of the Ad Hoc Reappraisal Committee that many homeowners didn’t report or obtain permits for renovations, leaving the Tax Assessors department to fill in the blanks using multiple listing service data and their own research.
Many of those homeowners had high-value properties that sold for between $500,000 and $1 million.
After months of discussion during which Miller and Asheville-based economic research firm Urban3 often disagreed, the two recently came to common ground on how to look at property sale evaluations.
“Property owners don’t report (improvements) because, honestly, their taxes are going to go up,” Miller told the committee, a group created by Board of Commissioners to investigative whether or not the current assessment process was equitable.
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Urban3 looked at the data Buncombe County Tax Assessment office collected, analyzing the difference in property data with and without adjustments Miller’s office had made based on sales information, essentially adding renovation values back into the mix.
What they found was approximately $96 million in property improvements that were not reported in 2021.
Miller checked his presentation against Urban3 analyst Ori Baber, who is a member of the Ad Hoc Reappraisal Committee and has closely analyzed Buncombe sales data.
Urban3’s pro-bono work in 2021 — an effort of Baber and firm principal Joe Minicozzi — is what led to the creation of the committee.
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“Out of the 2,500 or so sales transactions in 2021, (Baber/Urban3) has determined, through changes that we had made in that data, that there was around $96 million of value unreported characteristics that we added to those 2,500 transactions,” Miller said.
Moreover, Miller said that “the higher-end properties are where we’re missing most of the characteristics.”
In other words, properties that sold for more money tend to be the ones that have not reported improvements, suggesting many of those homeowners did not take out permits.
Unreported upgrades mean ‘bad data’
“Our appraisers have never been in a house,” Miller said, noting that since his department can’t know about improvements unless, in most cases, a homeowner takes out a permit or reports them.
So they have to rely on sales data to find out which homes increased in value and why.
When Buncombe’s assessors look at MLS data and find improvements to a property they weren’t aware of — often inside a building, not visible from outside — staff updates their database to reflect those changes, Miller said.
“When we update the data, that shows us the valuation model is working,” Miller said.
About 40% of the sales transactions that happened in 2021 needed updating, Miller said. In other words, 40% of the homes sold in 2021 had changes that weren’t immediately reported to the department.
“Something was wrong,” Miller said. “Could have been a bathroom missing, could have been a basement missing, could have been an air conditioner missing. Something was missing. That data that was missing was on the interior of the home.”
He emphasized tax assessors never see the inside of homes being renovated so they don’t know those basements, bathrooms and air conditioners were being added, improved or changed.
While he didn’t discuss at length a reason why higher value property owners had reported alterations at a much lower rate than others, Miller said it may be because they are making more changes to their homes more often.
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“We have come to the conclusion together that there’s not anything wrong with what my office is doing,” Miller said. “The valuation methodology is correct. It’s the fact that missing data skews those numbers.”
In the end, Miller said homeowners who don’t report renovations might have a less proportionate tax burden than those who do report.
In Buncombe’s case, according to Miller and Urban3’s analyses, lower value properties — and likely lower-income households — could be seen as having a higher tax burden, something Urban3 identified as potential inequity.
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The data is more correct for homes with lower sales values because those homeowner more consistently report their improvements. That means they could be paying more of their fair share of property taxes than those at the “high end” with more expensive homes who have not reported as many improvements.
The fewer improvements reported, the more faulty the data can be, Miller said.
“It’s not that … my assessors are purposely over assessing the lower end versus the higher end, it’s just the fact the data is incorrect,” Miller said. “Good data produces good appraisals. Bad data produces bad appraisals. That’s just the way it is.”
Baber said Urban3 agrees.
Strengthened assessment process needed
“These two sales ratio approaches make a really strong business case for additional resources for Keith and his team,” Baber said, commenting on Miller’s June 14 presentation. One model he presented showed property assessments without unreported improvement value and one model showed property assessments with improvement value.
“If you were to go through and clean this data as best you can, there’s actually financial return on doing that,” Baber said. “That could provide Keith with additional staff and resources.”
He estimated the county could be missing out on at least $450,000 in tax revenue each year.
Baber also noted better, “cleaner” data may help the county know more about potentially unnecessary tax burdens on lower value properties and households.
Additionally, more resources and personnel in the Tax Assessment department could potentially help it capture more unreported improvements, potentially leading to more revenue.
But that means finding those improvements in unsold properties as well, something more difficult than finding them in recently sold properties.
Those who don’t take out necessary permits for renovations, Miller said, could be “liable for up to six years of back taxes for as much as 60% penalty for not telling me that.”
Outside of the penalty avenue, Miller’s department will be impacted by a report the Ad Hoc Reappraisal Committee will give to Buncombe Commissioners July 19. Miller will also present that day.
The committee was tasked with understanding how Buncombe currently conducts its appraisals and whether or not there is inequity baked into that process. They received two, somewhat conflicted reports in the first half of 2022, one from Syneva Economics and one from Urban3.
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Miller’s office and Urban3 have approached the most recent property assessment — conducted between 2017 and 2020 — very differently. Miller and the county supported the Syneva findings, for which it paid $27,000.
That difference has resulted in a wealth of sometimes conflicting information provided to the committee, who is tasked with tell Board of Commissioners July 19 how the county should work to improve the tax assessment process and better educate the public on property values.
Though Miller and Urban3 have been frequently at odds during committee meetings and in “hours” of private meetings, he said in an interview they’re coming closer to seeing eye-to-eye.
“We’ve come to the agreement that there were some things that were misunderstood,” Miller said in an interview. “They understand that what’s on the surface is not always the whole story. … I’ve sat with Urban3 for hours and hours working through a lot of this and having conversations. There’s still a few things that we won’t agree on, and that’s OK. We’ve come to the point of saying, ‘Yes, I understand where you’re coming from.'”
Miller said he believes Urban3’s desire is to “make the system better and better,” and said he’d be happy to continue to work with the firm.
“We’re seeing eye-to-eye,” said Baber in an interview, but said he wished the Ad Hoc Reappraisal Committee was presented with more data. “Keith understands what my concerns are, and I understand his approach the the work that he presented. So I think we have a solid understanding. But I don’t think we’re done yet.”
Andrew Jones is Buncombe County government and health care reporter for the Asheville Citizen Times, part of the USA TODAY Network. Reach him at @arjonesreports on Facebook and Twitter, 828-226-6203 or [email protected]. Please help support this type of journalism with a subscription to the Citizen Times.