‘Very cloudy’: As residential property assessments rise, commercial assessments remain murky

Ada County residential assessments went up 30% this year, the highest rate of increase of any year since at least 1994.

But while the increase marked another data point in the sharp rise of housing costs in the Treasure Valley, this year also saw an extension of another years-long trend. As taxes on homeowners have risen, the tax burden that commercial property pays has shrunk.

Idaho is one of only a few states where property owners are not required to disclose any sales data. Limits on what’s available to the county government leave the Assessor’s Office with a lot less information about commercial property than it has about residential property.

What’s happened to commercial property values?

Homeowners in Ada County will pay about 80% of the property taxes this year, while commercial properties will pay the remainder.

In 2000, residential property paid around 57% of the property taxes, while commercial paid 43%, according to the assessor’s data dashboard.

One reason homeowners pay a higher share is that there are more residential properties — more than 200,000 — versus 13,000 commercial properties, according to the Assessor’s Office.

But while the proportions of property that are residential and commercial have changed little over the past two decades, the portion each category pays in taxes has diverged dramatically. Commercial properties are rising in value, but residential properties are rising more quickly.

“The residential market is appreciating at a much faster clip than the commercial,” Erin Brady, the appraisal division manager at the Assessor’s Office, told the Idaho Statesman.

Since 2000, the share of property in the county that is commercial has remained roughly the same, at 5%, according to dashboard data.

The value of residential properties is about $99 billion, while the value of the commercial property is about $20 billion, the assessor, Bob McQuade, previously told the Statesman. In 2000, the value of residential property was $12.5 billion, and the value of commercial was $7 billion, according to Brady.

But that’s not the end of the story.

Are assessors working in the dark?

Idaho’s laws make it especially difficult for assessors to gather commercial property values.

There are other types of property, like agricultural, which have their own methods of assessment, but the values are generally smaller.

To determine residential and commercial property values, county assessors use three common methods: a cost approach, an income approach and a sales-comparison approach. Each method is a different way of getting to the bottom of an asset’s value.

The cost approach takes the cost of the land and building that sits on it, adds the costs of construction, and subtracts depreciation.

The sales comparison approach measures how a property compares with similar properties that have sold in the same area. In the real estate world, these are called comparables.

The income approach takes the real estate revenue a property receives — often rent — and subtracts expenses. It does not consider the value of sales or any other income of a business on that property that is not derived from the property itself.

For residential properties, the Ada County Assessor’s Office generally uses the cost and sales comparison approaches, and mostly focuses on the latter, Brady said. Since small apartment units are classified as residential, those units are sometimes evaluated using the income approach as well.

Real estate agents seeking comparables to help them recommend sales prices for clients’ houses generally have the benefit of access to a multiple listing service, which provides data about recent sales in an area.

In Idaho, the Intermountain Multiple Listing Service provides data about properties to members of its service, said Glenn Christoph, the service’s CEO, by email. Members must disclose data about their sales to the service.

“Everything about the home is on the MLS — everything,” Christoph said.

And the county Assessor’s Office has access to the database, allowing the office to use recent sales data in its valuations.

The IMLS also publicly releases monthly data that shows median and average sales prices of properties in different parts of the county, which the Assessor’s Office has access to.

But people selling property don’t have to directly tell the county, city or state. Idaho is a nondisclosure state, meaning that sellers do not have to inform the government how much they bought or sold a house for. They can, but most people don’t.

“You and I could reach an agreement that you’re going to purchase my house, and we don’t have to tell anybody about that,” said Alan Dornfest, a tax policy analyst with the Idaho State Tax Commission.

In a 2013 survey, Idaho was one of only seven states to not require disclosure or to have transfer fees, which can assist evaluators in determining how much a property sold for, Dornfest said.

Because of the MLS, assessors often have a fair amount of data about residential property. But when it comes to commercial property, assessors are often working with little information.

Last year, about 8% of the residential properties in the county sold. The Assessor’s Office uses those sales to compare with other properties that weren’t sold, Brady said.

But most commercial real estate agents are not MLS members, said John Starr, a real estate agent with Colliers, so commercial property sales are not usually listed on the service in Idaho. That means assessors have even less data to work with.

“Commercial properties are a little more complicated,” Brady said, “but we do our best with the tools that we have.”

For commercial properties, the Ada County assessor had data on only 2%, which is equal to 200-300 total sales. There are also several categories within the broad class of commercial property, and those can have significantly different values.

“There might be property types that haven’t had a single property sell in years,” or that have had sales that the Assessor’s Office doesn’t have access to, Brady said.

While the Assessor’s Office says its evaluations are accurate based on the commercial sales data it has, “I can’t really speak to the commercial sales that we don’t have, because I don’t necessarily know which ones those are, and I certainly don’t know what they transacted for,” she said.

Why is commercial property not listed?

By not joining listing services in Idaho, commercial real estate agents do not have to share much information about their work. That may be why many of them choose not to.

Starr said there is a “pretty direct correlation” between the reporting requirements of the listing service and the decision by many agents not to join it.

“We deal with investors and corporations,” he said. ”By not being members and not reporting, we’re not required to share that data. We take being a nondisclosure state very seriously.”

He said there also are a lot of administrative requirements for reporting the data, which many agents do not want.

“By not being members, we don’t saddle ourselves with those rules,” he said.

Boise City Council resents tax shift

At a Boise City Council budget workshop in June, council members lamented how property taxes have shifted in recent years, and how that’s hurt homeowners.

Under Idaho law, the property tax levy rate must be applied “uniformly,” meaning that taxing districts, like Boise, cannot choose to tax certain types of property at a different rate, said Eric Bilimoria, the budget manager, at the workshop. The city is considering raising property taxes by 2.45% in its budget for the fiscal year that begins Oct. 1.

In 2016, the Legislature voted to de-index a tax exemption for homeowners that had climbed as home values rose and capped it at $100,000. In 2021, that figure was raised to $125,000. Up to that amount, a home’s value is not subject to taxation.

But property values in the area have risen a lot more quickly than that cap.

In 2016, when indexing ended, about 58% of a property in Boise’s assessed value was subject to property taxation, Bilimoria said. This year, that number has risen to 78%.

Assessed values since 2016 have risen about 166%, he said.

“It’s not that the money’s coming out of thin air,” said Mayor Lauren McLean at the workshop. A tax increase that would most likely have previously been paid for by a commercial property, McLean said, is “now being shifted, and that’s being paid by a residential property owner.”

Since 2013, taxes on the average home have gone up 139%, while the taxes at two big-box retailers in Boise have decreased, Bilimoria said.

And of that 139% growth, about 79% is due to a “burden shift,” meaning the increase is not attributable to the city’s increases in tax rates, but rather to increasing assessments, he said.

“As more and more of residential property values are subject to taxation, there is a corresponding relief to commercial properties,” he added.

In 2015, before the exemption was de-indexed, the median residential property taxes paid were $1,968, according to the assessor’s data dashboard. The median taxes paid by commercial property were $6,642.

In 2021, median residential taxes had risen to $2,536, while median commercial taxes were $6,710.

As council members debated the issue, they noted how little data is available.

Council President Elaine Clegg said “there’s just literally no information” about commercial property.

Council President Pro Tem Holli Woodings said that the commercial reporting is “very cloudy.”

Assessor battles incorrect information

Brady said that, when residents or politicians complain about rising assessments, they often misunderstand how the appraisal process works.

When discussing the “income” approach, people often believe it refers to business income, when in reality, it refers to real estate income, Brady said. For instance, the Assessor’s Office does not evaluate how much a restaurant makes from selling food, she said. Rather, it tries to calculate how much the property the restaurant sits on is worth.

“It’s very easily confused ... and once that toothpaste is out of the tube, it’s really hard to put it back in,” she said.

McQuade added that his office is working as it should.

“We are following the laws and the rules exactly how this should be done,” McQuade said. “And yes, there are problems, not because we’re not doing a good job here; it’s because of the constraints, such as nondisclosure, that are put upon us.”