An appraiser in California is calculating operating expenses for a rental property. The property has recently undergone a change in ownership, triggering a Proposition 13 reassessment. The previous owner's property tax was $4,200/year based on a 1990 purchase price. After reassessment to the current sale price of $850,000, the new property tax will be approximately $10,200/year (at approximately 1.2% including local overrides). Which property tax figure should the appraiser use?
Correct Answer
D) The new $10,200 based on the reassessed value, because a change in ownership triggers reassessment under Proposition 13
Under Proposition 13 (California Revenue & Taxation Code §51), a change in ownership triggers reassessment to current market value. Since the income approach should reflect the expenses a NEW owner would incur, the appraiser should use the reassessed property tax figure of approximately $10,200/year. Using the previous owner's artificially low Prop 13 tax would understate expenses and overstate NOI.
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Previous Question
A California appraiser is determining the appropriate vacancy rate for a 20-unit apartment complex in San Jose. The property has had a consistent 2% vacancy rate over the past three years, but the market vacancy rate for comparable properties in San Jose is 5%. Which vacancy rate should the appraiser use in the income approach?
Next Question
A California appraiser is using the income approach for a rental property and must determine whether to include ADU (Accessory Dwelling Unit) rental income. The property has a legally permitted ADU that rents for $1,500/month. How should the appraiser treat this ADU income?