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Property Taxes – Impact of green building on the calculation of Fair Market Value

Davetwopoint0 | Posted in Energy, Heating & Insulation on December 17, 2013 01:54am

 

For the purpose of property taxes, the square footage of a building is calculated from its external footprint. (At least it is in Canada anyway.)

The architect of the featured Passive house, Steve Bascek, describes the walls at being 18″ thick, which is almost a foot thicker than 2×6 construction.  The property taxes resulting from that addition foot might very well negate the savings in energy cost. 

For example, there is a 6% difference in building area between a two story 30’x40′ and a 31’x41′  house. Size matters, and that additional square footage could easily result in an increased tax bill of 4 or 5%.  Thats hundreds of dollars in annual costs!  Would that R50 18″ wall save you $350/year compared to a 2×6 wall insulated with spray foam? 

Even if this green structure wasn’t initially penalized by the methods used to calculate Fair Market Value, eventually it will be sold and value of the green improvements will be reflected in the sale price then.  The next owner will pay additional tax on them.  His neighbours too.

There is much discussion on these forums whether a particular green upgrade is worth the additional capital cost.  The additional tax costs should also be considered.   

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  1. calvin | Dec 17, 2013 02:33pm | #1

    Dave-

    Does your Canadian or local bldg code say "liveable space"?

    Here in our neck of Ohio it does.  Now, for a 2 story and vaulted ceiling in the great room, I was able to have them subract from the square footage-those areas that were single story within the two storey house.

    If that would apply-then you could plead your 18" case to the powers that be for perhaps a legal reduction in the calcs. for house size?

    and why do the neighbors pay more taxes because of your house wall thickness?

    thanks

    1. Davetwopoint0 | Dec 17, 2013 04:30pm | #3

      Calculation of assessed value

      In Ontario, the Municipal Property Assessment Corporation (MPAC) uses the external dimensions to calculate the building area. They probably do it this way because it is the easiest method for the inspectors.  There is no oversight to how they calculate assessment value, and its not tied to any definitions in building code. 

      BTW, there are very few exemptions to structure that they won't assess. Disabled access ramps aren't taxed, and solar PV arrays are exempt too. 

      When the "green / passive" house in question is  sold, the price will reflect the additional value from the improvements. A better built house with lower utility bills will definitely fetch a higher market price than a standard house. The higher price of that one house will  bring up the average sale price in neighborhood.   Everyone in that neighborhood (assessment zone) will see their assessment value increase, and their taxes.

      The methods used the assessors aren't smart enough to exclude that house from influencing the perceived value of the neighborhood. 

      1. calvin | Dec 17, 2013 04:55pm | #4

        Dave

        Here in our corner of Ohio there are "neighborhood values" but one house don't make it.  Every 3 years there's an automatic adjustment-driven no doubt by sale values, the economy and I'd suppose other taxing ideas.  Every 6, a re-valuation of each property which does include sales in the area, change of value-additions and corrections-this is done parcel by parcel at the auditors office.  

        In each change we are offered both an informal review of any change and then if necessary or on our appeal, a formal review which includes a separate parcel inspection and a more detailed examination of area (blocks in radius to the parcel) valuation and how your pc. measures up.

        It is not unheard of to have properties (and quite common in our neighborhood) with VASTLY differing values.  One block from here-either direction-houses of comparable size (and somewhat larger) fetching a hundred and a half thousand more than this place.  And the other direction is true as well-a hundred thousand less for only slightly smaller living space.

        The land is figured separately from the buildings.  Same rate / bigger size-more tax bill.

        Various siding options mean different pricing.

        Floor finishes (tile for instance) bring a higher rate.

        # of baths, fireplaces, type of heating all have different multipliers.

        The other things that adjust the amount of property taxes here we vote on and include county and state issues, education being a large chunk.   Local and area approved issues regarding seniors, childrens services, local school millage,  metroparks, the zoo etc all affect the amount of tax due according to valuation of the property.

        All this to the point that one house isn't going to make a shit 's bit of difference, and it'd be worth it to investigate in each individuals state / province whether or not square footage is including the wall thickness.  I know if I was contemplating a super insulated non usual construction method I'd ask.  It worked for the vaulted ceiling with no floor above as well as the two open porches within the "footprint" of the house here.

        1. Davetwopoint0 | Dec 18, 2013 10:57am | #5

          Neighborhood size for assessment purposes

          The size of  "neighborhood" for assessment purposes tends to be small to address the point you raise. There can be a great difference just one block over. Around here, that grouping is probably less than 100 houses. When there only a half dozen sales within that group, and the data from those sales is used to infer values,  one or two high end homes can have an effect. 

          Even a 1% increase to the assessed value will add $50 to $100 to the tax bill.  True, it is small compared to the rest of the tax bill. But I still believe my point is valid -  the sale of a high end home near yours  will result in a tax increase without a corresponding increase to the value of your home.

  2. florida | Dec 17, 2013 03:20pm | #2

    "Green" building has nothing

    "Green" building has nothing to do with physics and everything to do with preception.

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