The value of your co-op or condo is flat compared to last year. It might even be down. In fact, unless yours is one of those multimillion-dollar apartments that always seem to flip for millions more, your place almost certainly hasn't seen any great increase in its value.
Which makes 20- to 50-percent increases, which Bob Friedrich of the Presidents Co-op & Condo Council (PCCC) says the New York City tax department is assessing several Queens co-ops / condos this year, all the more difficult to understand.
Except, not really. But whether it's fair or not is another story.
"It's counterintuitive that a condo unit you bought for 10 percent more than you could sell it for today has gone up in value," admits Dept. of Finance spokesman Owen Stone. "But if the rental market is moving up, you're still going see an increase in the value of your home."
When a Home Is Not a Home
By "home" he means "co-op or condo," not single- and two-family homes and townhouses. That's because under New York State's Real Property Tax Law Section 581, co-ops and condos are assessed as if they were "comparable" income-producing commercial properties — i.e., rental buildings. And rents generally tend to go up, regardless of what the sales market does.
With amazing linguistic irony, the city categorizes co-ops and condos as Class 2 properties, whereas virtually every type of other home (including most condominiums in buildings under three stories, for some strange reason) are Class 1 properties — on which valuations for tax purposes are capped at 6 percent a year.
This second-class status for City co-ops and condos means there's no tax cap — valuations can increase by triple-digit percentages, as they did last year for some properties before an outcry forced the DoF, which assigns the valuations, to retreat and declare a 50 percent cap.
The DoF bases its figures on the annual filings of confidential Real Property Income and Expense (RPIE) statements from all property owners whose tax lots are valued at over $40,000. Applying that information to a mathematical model results in what's called the total assessed value (TAV).
"Yes, there's a formula under the law," concedes Geoffrey Mazel of Hankin & Mazel, the attorney for the PCCC. "But the numbers that go into the formula are cherry-picked and hand selected, and then they can blame the system or blame the formula and say, 'I had nothing to do with it.'"
"The Dept. of Fantasy, I call it," says Friedrich, president of both the PCCC and the 2,904-unit, 134-building Glen Oaks Village co-op complex in Queens. "Their numbers are basically fantasies, with no economic reality at all. The basic trend of real estate values has been down. But at the Dept. of Finance, the trend of real estate values is up. You cannot continue to increase valuations that translate to higher property taxes when property values are going down. The Dept. of Finance completely deaf to reality."
The DoF's Owen says, correctly, "We do not" — indeed, cannot — "take sales into account when valuing co-ops and condos. Net operating income has increased for rental properties, as reported by landlords."
And it virtually always does: An April 2011 report from the City's Rent Guidelines Board, the latest data available, found that rental income at rent-regulated buildings increased by 1.4% in 2009, and operating costs increased by 0.1%. Net operating income increased 5.8%. Market-rate apartments traditionally have higher net incomes. By basing co-op and condo valuations on income-producing buildings — something not done for any other type of homeowner — the City has turned co-ops and condos into an annually increasing cash cow it has little incentive not to milk.
Last year, State Senator Toby Ann Stavisky (D-Whitestone) and Assemblyman Edward C. Braunstein (D-Bayside) introduced bills aimed at taking co-ops and condos out of Class 2 and putting them into a new part of Class 1, alongside traditional single-family homes. They and some similar bills did not advance in Albany. This year Stavisky introduced a new Senate Bill S5118, accompanied by Assemblyman Michael G. DenDekker's Assembly Bill A8118, which would create a new residential-property class, Class 1A, to provide co-ops and condos owners with the same tax-cap protection other homeowners have.
"What the bill does is simply state that co-ops and condos will be afford the same protections that single-family homes are afforded," Friedrich says.
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