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December 16, 2001
When the voters passed Proposition 13 in 1978 establishing base year values for
property, they did allow for reappraisal of property upon change in ownership
and "new construction." The most frequent question I am asked is, "If I build a
new home or add on to my existing home, will the whole property be reappraised?"
Proposition 13 says that only the "new construction or addition" gets a new base
year value which is added to the old base year of the rest of the property.
Construction projects, whether a new structure, an addition or a major
renovation, can take an extended period from start to finish. If the
construction period extends over Jan. 1 (known as the lien date which is the
time when taxes for any fiscal year become a lien on property), the assessor
must value the project as of that date in its unfinished state. The value is
then enrolled as construction in progress (CIP) for the coming tax year (July 1
to June 30). The method of arriving at a CIP value can depend on the steps of
completion of the project.
For projects which are just underway as of Jan. 1, an appraiser will usually
look at the amount used to calculate the building permit fees and then use a
percentage based on steps of completion. There are 16 steps of completion.
Examples are: step 1 - excavation, foundation and piers, 7 per cent of
completion; steps 1 through 5 - roof, covering 31 per cent; steps 1 through step
13 - plumbing fixtures, 87 per cent. A project with a permit amount of $300,000
for which only the foundation is complete on Jan. 1 could have a CIP value of
.07 x $300,000 = $21,000. An alternative for unusual projects such as a
commercial boarding kennel is to look at the costs of the project through Jan.
1.
Once a project is approximately 50 per cent complete (steps 1 through step 9 -
interior sheetrock, 57%) on Jan. 1, the appraiser is usually able to make a
rough estimate of the overall project. At this point, the appraiser may shift
from using the permit amount to a value derived from sales of comparable,
completed projects and then apply the percentage of completion. Example: the
project is a 2,750 square foot, 4-bedroom, 3-bath home and the appraiser has
homes of the same general type selling for $115 per square foot. The CIP value
would be 2,750 sq ft x $115/sq ft = $316,250 x .57 = $180,260. For unusual
projects the actual cost of the project, plus adjustments for financing costs
and entrepreneurial profit, may be the appropriate value method.
When the project is finally completed, the appraiser can then make a final
determination of the quality class of the structure based on details such as
floor covering, kitchen and bath amenities, etc. At this point the final value
is enrolled as of the date of completion and a supplemental assessment is made.
Example: upon completion the appraiser decides to use $130/sq ft because it is
felt that the finished quality of the home was superior to the $115/sq ft used
for CIP purposes. The supplemental assessment would be $130/sq ft x 2,750 sq ft
= $357,500 - $180,260 (CIP value) = $177,240. $357,500 would be the new
Proposition 13 base year value for the home itself, plus the factored base year
value of the land and the base year value of any other components such as
garage, patios, swimming pools, etc.
If you have questions or comments about this column, please contact Napa County
Assessor John Tuteur, (707) 253-4459 or by e-mail at
jtuteur@co.napa.ca.us
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