How long can you appeal your “base year” property value if you overpaid?

Have you ever overpaid for something? None of us like to admit when we spend too much money on something, but occasionally it happens – whether it’s a hyped-up gadget, hot toy during Christmas or even a piece of real estate.

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Overpayment Conversations: I get phone calls periodically from property owners who think they overpaid for a house or parcel. After all, purchasing real estate often involves a combination of logic and emotion, and it’s usually the emotion part that drives us to pay too much.

Scenario 1: Most home owners I speak with about overpayment tend to say they overpaid by $5,000 or so to get the deal done. Honestly, even if there was an overpayment of $5,000, that’s an extremely minimal tax savings (about $50) that probably isn’t worth the time to pursue. In truth, don’t waste your time. Moreover, when a sale was on MLS and exposed on the open market for a reasonable time period, and there were other sales at a very similar level, the overpayment argument doesn’t have much support.

Scenario 2: However, there are cases where owners really do overpay by quite a bit. This tends to happen more frequently with unique properties, parcels, custom homes and all cash private sales off MLS that are not subject to an appraisal or strict lending guidelines to evaluate risk. Sometimes buyers and investors will overpay by tens of thousands or even hundreds of thousands of dollars. It happens and there are huge tax consequences too (overpayment).

How long can you appeal your “base year” value? In the case of legitimate overpayment, there can be tax relief for the property owner, but the owner can only appeal the “base year” value within four years of the date of purchase. After four years, there is nothing the owner can do to correct the base year value. In California the “base-year” or “Proposition 13” value is the assessment level the Assessor assigns to a property when it is first purchased. All other years of taxation are “based” on this original assessment, so it’s definitely an important number. For example, if you bought a property for $500,000, and the Assessor determined market value was indeed $500,000 at the time, then your property taxes should not exceed that level in the future beyond an allowable 2% increase for inflation each year. Of course if property values decline, then your property should receive a temporary “Prop 8” assessed value where your assessment is temporarily lowered each year to reflect the current market instead of the $500,000 market in the past when you purchased.

Money leaving your wallet: All things considered, if a property owner overpaid by $100,000 and the Assessor did not catch the overpayment, the property owner would basically be overpaying by $1,000 each year. Imagine doing that for 25 years in a row (that would equal 25-30K in overpayment). That’s why it’s important to act within four years in case there was a significant overpayment. All you would need to do is fill out the proper appeal form and supply support for a lower opinion of value for the base year between July 2 to November 30 of the calendar year (if relevant, this is what I can help you with).

I hope this was helpful. Please let me know if you have any questions, stories or scenarios to share with me (in comments below or feel free to call or email me).

When have you seen people overpay in real estate or retail? Are there are specific retail examples you can think of?

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