Construction In Progress
When the voters passed Proposition 13 in 1978 establishing base year values for property, they did allow for reappraisal of property upon change in ownership and "new construction." The most frequent question I am asked is "if I build a new home or add on to my existing home, will the whole property be reappraised?" Proposition 13 says that only the "new construction or addition" gets a new base year value which is added to the old base year of the rest of the property.
Construction projects, whether a new structure, an addition or a major renovation, can take an extended period from start to finish. If the construction period extends over January 1 (known as the lien date which is the time when taxes for any fiscal year become a lien on property), the assessor must value the project as of that date in its unfinished state. The value is then enrolled as construction in progress (CIP) for the coming tax year (July 1 to June 30). The method of arriving at a CIP value can depend on the steps of completion of the project.
For projects which are just underway as of January 1, an appraiser will usually look at the amount used to calculate the building permit fees and then use a percentage based on steps of completion. There are 16 Steps of completion. Examples are: Step 1 - Excavation, foundation and piers 7 per cent of completion; Steps 1 through Step 5 - Roof covering 31 per cent; Steps 1 through Step 13 - Plumbing fixtures 87 per cent. A project with a permit amount of $300,000 for which only the foundation is complete on January 1 could have a CIP value of .07 x $300,000 = $21,000. An alternative for unusual projects such as a commercial boarding kennel is to look at the costs of the project through January 1.
Once a project is approximately 50 per cent complete (Steps 1 through Step 9 - Interior sheetrock 57%) on January 1, the appraiser is usually able to make a rough estimate of the overall project. At this point, the appraiser may shift from using the permit amount to a value derived from sales of comparable, completed projects and then apply the percentage of completion. Example: the project is a 2750 square foot, 4 bedroom, 3 bath home and the appraiser has homes of the same general type selling for $115 per square foot. The CIP value would be 2750 sq ft x $115/sq ft = $316,250 x .57 = $180,260. For unusual projects the actual cost of the project, plus adjustments for financing costs and entrepreneurial profit, may be the appropriate value method.
When the project is finally completed, the appraiser can then make a final determination of the quality class of the structure based on details such as floor covering, kitchen and bath amenities, etc. At this point the final value is enrolled as of the date of completion and a supplemental assessment is made. Example: Upon completion the appraiser decides to use $130/sq ft because it is felt that the finished quality of the home was superior to the $115/sq ft used for CIP purposes. The supplemental assessment would be $130/sq ft x 2750 sq ft = $357,500 - $180,260 (CIP value) = $177,240. $357,500 would be the new Proposition 13 base year value for the home itself plus the factored base year value of the land and the base year value of any other components such as garage, patios, swimming pools, etc.
If you have questions or comments about this column, please contact Napa County Assessor John Tuteur, (707) 253-4459 or by e-mail at firstname.lastname@example.org.