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Tuesday, July 23, 2024

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Appealing Property Assessement? Know ‘Exclusions’ for Comp Sales 5.17.2006

By C.M. Mattessich

You’re delighted when your dear old neighbor Mrs. Michaelmas sells her house – which is exactly like your own – for a price that is $250,000 less than the amount at which your own house was assessed just last year.
You’re sure that you now have the evidence that you need to make an argument to the County Tax Board that your assessment should be lowered.
Not necessarily.
The requirement that you show “comparable sales” when you seek a lower assessment means that you must show examples of homes, very similar to your own, which sold recently in transactions involving a willing seller and a willing buyer, neither of whom was “compelled” to buy or sell – meaning that the price established between seller and buyer was not subject to special influences.
If Mrs. Michaelmas “sold” her house to her daughter, coming up with a price that was really a gift in disguise, obviously it would not be fair to say that the sale price is the true market value of the house.  The fact remains that a willing buyer would have paid an additional $250,000 for it.
To avoid using comparables that unfairly skew market price, the New Jersey legislature has specified categories of sales that are excluded from consideration when your town’s tax assessor analyzes comparables for your home.
The exclusions are listed in New Jersey statute 18:12-1.1.  Here’s a shorthand version of some of the exclusions:
Sales between members of the immediate family (arrivederci, Mrs. Michaelmas!);
Sales in which “love and affection” are stated to be part of the consideration;
Sales by the estate of an owner who has died;
Sales between a corporation and its stockholder, subsidiary or affiliate;
Transfers of convenience, as when someone records a “new” deed to correct title defects or a husband transfers a property to himself and his wife so that they can hold the property together;
Sales of properties that are subject to an outstanding municipal tax sale certificate, a lien for more than one year in unpaid property taxes or other governmental lien;
Sheriff’s sales;
Sales in bankruptcy proceedings;
Sales of doubtful title, including sales in which quit-claim deeds are used;
“Government sales,” that is, sales to or from the United States, New Jersey, or any New Jersey political subdivision;
Sales to or from a charitable, religious or benevolent organization;
Transfers to banks or other institutions made in lieu of foreclosure;
First sale after foreclosure by a federal or state-chartered financial institution;
Sales of properties whose value has been substantially affected by demolition, fire, contamination or other physical damage;
Sales of homes designated as low/moderate income housing, as established by the Council on Affordable Housing;
Transfers involving exchange for other real estate, stocks, bonds or personal property;
Commercial or industrial real property sales that include machinery, fixtures, equipment, inventories, or goodwill, when the values of such items are indeterminable (this exclusion could be particularly relevant in the instance of motels, or bed and breakfast inns);
Sales of property subject to a leaseback arrangement;  and
Sales of qualified farmland or exempt property.
Under certain circumstances, sales from some of these categories might be considered if a full investigation by your town’s tax assessor shows that the transaction was a sale between a willing seller and a willing buyer.
For example, let’s say that Mrs. Michaelmas had died instead of selling her property to her daughter.  Her “estate,” through her executor, may list the property for sale through a realtor who establishes what he or she determines to be an appropriate listing price for the house.  There is no relationship between the realtor and the estate.  Two prospective purchasers take a look at the house, and both submit bids reasonably near the listing price.
Even though estate sales typically are excluded, in such a case it might be established that the price was truly market value.
You should consult your own attorney, real estate professional, and tax expert when you make a move in this area, but it never hurts to educate yourself to the concepts.  For a full list of exclusions, with guidelines employed by the New Jersey Division of Taxation, visit the Division’s website at www.state.nj.us/treasury/taxation/pdf/lpt/guidlines33.pdf.

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