SOUTH CAROLINA - Prop Taxes Too High for Sales Prices

Add South Carolina to a growing list of U.S. states where home owners are continuing to bear the burden of property taxes that jumped during the years of skyrocketing real estate values, although the values of their homes have dropped substantially in real estate’s subsequent tumble.

And like homeowners in other states, South Carolinians are also suffering from the unintended consequences of legislation meant to protect property taxpayers during the decade of skyrocketing real estate values.

With one in four South Carolina homes in foreclosure, real estate investors and savvy home buyers are taking advantage of the depressed real estate market, foreclosures and desperate sellers, but getting no similar deals on their tax bills. That’s because state law requires county assessors to base taxes on a home’s “fair market value,” not the sales price.

Several lawmakers and real estate professionals argue that it’s time to change the law. Many also are arguing for changes to Act 388. Passed in 2006, ostensibly to protect homeowners from property taxes that soared during the decade-long housing bubble, the act capped property tax increases at 15% over a 5-year period. These types of laws are having the unintended consequence of preventing property taxes from decreasing proportionally in a declining real estate market.

How? As South Carolina property values continued to increase in the past decade, Act 388 limited property tax increases to no more than an average of a 3% annually. What recent purchasers of homes in the state are now experiencing is that the only way they’ll see a tax break is if the home’s market value falls below its recent purchase price.

“Anywhere in South Carolina that a property has sold in recent years, then the county should base the property value on what the buyer paid for the home. That is the most accurate market indicator,” Rep. Chip Limehouse, R-Charleston, told Columbia, South Carolina’s The State newspaper. “If the counties are not dropping these values to reflect current market conditions, then we may have to address that legislatively.”

The newspapers examined 100 “arms-length” home sales – not foreclosures or family related – in South Carolina’s Richland County from late July to mid-September, and found that 45 were sold for less than their assessed value, some by as much as 46% less. However, the properties’ tax assessments meant the new owners were paying as much as $865 more in annual taxes than they would have if the taxes instead had been based on the purchase price.

Richland completed its annual reassessment last year – shortly after falling real estate prices hit South Carolina – and doesn’t have another scheduled until 2014, The State reported. Recently, officials adjusted the sale prices of 3,000 homes on its website to reflect what the county believes to be the fair market value. The neighboring county of Lexington has fewer discrepancies because its property assessment update took place this year.

Widespread Foreclosures Hurting Other Homes, too, Homeowners Say

But homeowners who haven’t bought a home in recent years say their taxes are artificially high because foreclosed homes in their neighborhoods are depressing property values overall.

With the nation’s sixth-highest unemployment rate, foreclosures have continued to rise, and the state now has the 16th highest foreclosure rate among U.S. states, according to the most recent report from RealtyTrac, a respected home foreclosure website.

“The county budgets are hurting is why they are not wanting to drop those values,” Limehouse, who also is a real estate developer, told The State. “Everybody in government needs to get it through their heads that we are living in a different world. We’re all going to have to get used to a smaller, leaner government.”