An appraiser from Honolulu’s Real Property Assessment Division will determine the assessed value of a property on October 1st of any given year. The appraiser will look at 5 comparable sales (ideally comparable sales in the same building, but could also be comparable sales in other buildings), which have sold prior to June 30th and then also take in to account any possible market movements July through September to determine the assessed value on October 1st. The October 1st assessed value is used to determine property taxes due the following fiscal year.
Example: October 1, 2017 assessed value is used to determine property taxes due fiscal 2018, which runs from July 1, 2018 through June 30, 2019.
For new condo projects – to be completed – the appraiser does not know the sales price agreed between the developer and Buyer, since there is no transfer of ownership / no recorded sale yet. So how does the appraiser at the Real Property Assessment Division determine an assessed value for a unit in a to be completed condo where there are no recorded sales?
The appraiser will put a lot of weight on building costs – typically substantially lower than the actual market value – and that means the October 1st assessed value is likely to be low compared to the actual market value.
Example: Waiea (a new condo in Honolulu) was completed November 2016 (first group of buyers took ownership November 2016) and October 1, 2016 assessed value for those units appeared to be a fraction of the expected market value. The appraisers have likely put substantial weight on the cost of building Waiea, in determining the assessed value for those units, which makes sense, since Waiea was not completed by October 1, 2016.
Recently, I looked at some Anaha (a new condo in Honolulu) October 1, 2017 assessed values and to my surprise the assessed values appeared – for several units – close to the actual market value. If Anaha wasn’t completed by October 1, 2017 (no units recorded / sold by this date) and the cost of building Anaha surely isn’t close to the market value, then what is the reason for such high assessed values?
I called the Real Property Assessment Division and spoke with an appraiser who had appraised a unit in Anaha and asked her on this matter. She – the appraiser – told me Anaha was pretty much completed by October 1, 2017 and she therefore used 5 comparable sales in nearby and similar buildings (sold prior to June 30, 2017) to determine the assessed value. I asked her what are the determining factors to be considered pretty much completed and to my surprise there were no clear guidelines – subjectively determined by the appraiser. I was told if a project is about 95% complete then they would likely look at comparable sales, but if project is only 75% complete then they would probably focus more on cost of building the project in determining the assessed value.
If you purchase a new condo completed shortly after October 1st, don’t count on the October 1st assessed value, in that same year, to be artificially low – it may be, it may not be. It seems reasonably fair, although a bit disappointing the Real Property Assessment Division does not have more clear guidelines on this matter.