How to value condo with tax abatement?
Another perspective on this… http://www.urbandigs.com/2006/06/biggest_scam_in.html Is it 421a tax abatement? If so do taxes increase every 2 years until it’s phased out? From reading the original post I thought the abatement stayed the same for the remaining 12 of the 15 years, so it would be a more complicated present value calculation than I thought. Taxes are all over map, but I think new construction condos are taxed higher (when abatements expire) than similar condos in older buildings. So the flip side of how much is the remaining abatement worth is how much will buyers discount the condo with higher taxes. If you and curiosity both put your condo on the market in 12 years and your taxes are double his, it will take a big price discount to get a buyer.
Bklnite
in Taxes 12 years and 11 months ago
7
Please log in, in order to post replies!
7 replies
sometimesright | 12 years and 11 months ago
How do you value a tax abatement when making an offer for a condo?
For example: Condo sold for 640K in 2008\. Three years of 15 year abatement used, saving current owners 24K. To keep things simple, assume the condo has not lost value since 2008.
So do I offer 640K minus 24K (to reflect the portion of the abatement that was used)?
Thanks in advance!
Putnamdenizen | 12 years and 11 months ago
So if you bought it in 12 years you would offer 640k minus 120k?
adam_dahill | 12 years and 11 months ago
There is no calculation. Condo values are determined by market comparable sales. A condo is only worth what someone will pay for it.
housepoor | 12 years and 11 months ago
In theory, you can think of the cost in two parts: the real estate and the value of an annuity equal to the tax abatement savings. All things being equal, the value of the condo will fall closer to the tax abatement expiring. To be more precise, you need to take the present value of the tax abatement. But there is a “bet” on interest rates in there — the higher the rate, the less valuable the abatements are. Think of it as the amount of a self-liquidating mortgage you could support with annual payments equal to the tax abatement at interest rate X. Higher interest rates means you can only support a smaller mortgage. Having said all that, this is master-minding the thing way too much. Adam was right — the values won’t be driven by the tax abatement per se. But an appraiser who doesn’t take it into consideration isn’t doing their job. And a bank who doesn’t do the calculation that you can able to afford the post-abatement taxes is also doing you no favors. It is sort of a long term teaser rate on a mortgage — make sure you can afford it when the subsidy goes away. if you are afraid that the condo will drop in value each year the abatement is closer to expiration, you are right. That condo is worth less than one which has the same low taxes but not subject to an abatement.
Bklnite | 12 years and 11 months ago
Yeah, that makes sense to me – to value the abatement as something like =PV(4%,12,-8000) or $75k for the present value of 8k / year in tax payments you don’t have to pay for the 12 years left on the abatement (assuming you use something like your mortgage rate as the discount rate) compared to a comperable condo without an abatement. It would be interesting to know if the market prices it similarly.
Valuing the condo at previous price minus the value of abatement already used would make sense only if values of unabated properties were flat.
curiositykilledthecat | 12 years and 11 months ago
I am questioning your assumption that the property tax without abatement would be $8,000 per year. That’s about 4 x the tax we pay on a 3 bed/2 bath condo with no abatement, and 3x the tax we pay on a 2-family house.
elbow | 12 years and 11 months ago
Your taxes sound low, curiosity, but RE taxes are all over the map. Where is that condo? OP – take a look at the re tax for similar condos developed in a similar year in your area.