Q&A with San Francisco's Assessor-Recorder Joaquín Torres
March 9, 2022
On behalf of our Realtor® community, our 2021 President Dan Hershkowitz has been in contact with the Office of San Francisco's Assessor-Recorder Joaquín Torres, and Dan’s persistence has paid off!
We have received official answers to some of your burning questions, including questions regarding reassessment events, review of transfer taxes, and updating public records to account for “unpermitted” bedrooms and bathrooms. Please see the Q&A below:
SFAR Question #1 - A Supplemental Tax Bill issued to a new purchaser just after a close of escrow. The tax triggering act was a renovation by the previous owner shortly before close of escrow. Who is responsible? What is the procedure to convince the assessor tax collector the supplemental tax bill belongs to the seller who made these renovations? How do we convince the tax assessor that making the new buyer pay would be a “double taxation?
Answer to Question #1 - Generally, the value of the renovations made by the previous owner shortly before close of escrow would have been included in the purchase price paid by the new homeowner. Under this scenario where the new owner received a Supplemental Tax Bill for the recent renovations, please refer the owner to our office to determine on a case-by-case basis the next steps to resolve the supplemental assessment. If after reviewing the facts we find an error, we will fix the error, which may include a cancellation of the supplemental, once we are aware of it.
Additional Background: We understand for some new homeowners, the supplemental notice can be unclear whether the supplemental value is for a Change in Ownership or New Construction. Per state law, generally a change of ownership or a completion of new construction are separate assessable events. Each occurrence may trigger an assessment that increases the taxable value of the property. When this occurs, a Supplemental Notice of Assessed Value is issued by our office, and a Supplemental Tax bill follows that is issued by the Treasurer and Tax Collector’s Office. When a property changes ownership, a new base year value is established at the fair market value on the date of the change in ownership. When renovations or rehabilitation of a property (or a portion) occurs, only the value attributable to the area being remodeled or added to the existing home is assessed and enrolled as a supplemental assessment onto the factor base year value.
Here are a couple of scenarios to illustrate how our office approaches the review of new construction shortly before and after a sale.
Scenario 1: A renovation occurred shortly before close of escrow.
Our office typically processes New Construction permits once they are completed with the Department of Building Inspection (DBI). When an owner completes renovations shortly before close of escrow, the value from the completed renovations would have been included in the purchase price paid by the new home buyer. That is, the value from the renovations should have been assessed as part of the property that changed ownership.
Additionally, sometimes taxpayers take longer to inform DBI that their renovations project is complete. A seller may have completed the renovations and sold the property without finalizing the New Construction permits. In that case, the event date of the sale would have occurred before the new construction is completed by DBI. Typically, our appraisers would discover this and not assess the new construction due to the recent sale.
Scenario 2: A renovation occurred after close of escrow
Renovations that were not in the house at the time of purchase, and therefore not included in the purchase price and subsequent base year value, would be considered an assessable New Construction event. In this case, the renovations that occurred after close of escrow would be subject to supplemental assessment.
In each instance, if homeowners are not clear about the supplemental, please contact our office to discuss the notice and the facts so that we can determine on a case-by-case basis the next steps to resolve any confusion or mistake. If we find an error, we will fix it once we are aware of it.
SFAR Question #2 - The regressive nature of the transfer tax at $5M and $10M, has resulted in some unusual and unintended consequences. In particular, the seller has an economic interest in selling the property for $9.9M rather than $10M. As a result, we are more likely to see offers below $10M which include terms allocating the commission or transfer tax to the buyer. This is perfectly acceptable and not without precedent regardless of the transfer tax but given the possibility of “assessor review” of the sale, the parties are left uncertain as to the permanency of the benefit of their bargain. We need clarity. Why should a seller be punished for following the law and using the provisions of the tax code to minimize tax? What is the policy of the Assessor’s Office? What are the standards of review?
Answer to Question #2 - For transfers via deed, the transfer tax basis is the purchase price or the consideration paid. That is, we accept the sales price as the basis for transfer taxes. Our office reserves the right to issue Requests for Information for transfers on the margin of the tax tier change (e.g., $9.99M), among other reasons, asking for the closing statement and/or purchase and sale agreement to confirm the declared value. If we discover a discrepancy, we will demand transfer taxes on the difference.
Our office may look further into hotel sales that have been transferred via deed. This is because there are typically deductions from the sales price for the portion of the price attributed to non-realty or intangible value. For these scenarios, we reserve the right to issue a Request for Information and work with our real property appraisers to determine the realty-only value.
SFAR Question #3 - Updating the bed and bath count and square footage. What is the procedure (and realistic timeline) to have a property profile / tax records changed regarding square footage and or bedroom count when the records are in error (do not reflect the reality at the home) or following an addition or renovation? Is there a way to update records if for example a 3rd bedroom and bath were added without permit?
Answer to Question #3 - If a homeowner discovers that our office’s public records do not reflect their property’s characteristics, please refer the homeowner to our office to update the information. In these cases, we would request supporting documentation for the additional room count and/or square footage and request permission for our staff to inspect the property to verify the information.
Please note that new construction work completed without permit may be subject to an escape assessment which is a retroactive assessment to rectify an omission or error that caused taxable property to be under-assessed or not assessed at all. If property that has undergone new construction escape assessment, the assessor is required to value the property upon discovery of the taxable value, and enroll the appropriate value, and process any necessary corrections for prior years within the statute of limitations.
SFAR Question #4 - How long after the completion of a condo conversion (recorded CCRs) does it take for the new condominium status to appear in the Tax Records. Is there a method to expedite? We have an agent who reports ... “I have a listing coming soon that converted to condos in early 2020. The first sale was in Jan 2021, but the records are still not updated.
Answer to Question #4 - The recording date of the condo sale, which is the final step in the condo conversion process, will determine when the updated status will appear in the Assessor's Office public records. The short answer to when the sale that was recorded in January 2021 would appear in the public records is July 2022 when the Assessor’s Office releases the annual assessment roll for 2022-2023. The status of the condo with the new Assessor’s Parcel Number (APN) will then appear in the first annual property tax bill issued in October 2022.
This is because our office processes all events (change of ownership, new construction, and parcel management) based on the assessment year according to a set timeline.
Let’s use fiscal year 2020-2021 (FY20-21) as an example. FY20-21 starts on July 1, 2020 and ends on June 30, 2021. During the FY20-21, appraisers work on events with dates January 1, 2020 to December 31, 2020 to finalize and close the assessment roll by June 30, 2021. This work finalizes the values for the assessment roll year FY2021-2022. Note that appraisers work on the roll for the next fiscal year and the cutoff date for events to be processed for roll year FY21-22 is December 31, 2020.
Therefore, in the scenario where the condo sale occurred in January 2021, which did not make the cutoff date of December 31, 2020 to process events, our office would not be able to work on the January 2021 event date until after the fiscal year ends on June 30, 2021. The January 2021 event would not be publicly available on the Assessor’s annual roll until July 2022. If homeowners require answers about their condo conversion process sooner than the posting of the annual roll data, please have them call our office. We may have the information sooner to share via phone or email.