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Property Taxes - Impact of green building on the calculation of Fair Market Value

Davetwopoint0's picture


For the purpose of property taxes, the square footage of a building is calculated from its external footprint. (At least it is in Canada anyway.)

The architect of the featured Passive house, Steve Bascek, describes the walls at being 18" thick, which is almost a foot thicker than 2x6 construction.  The property taxes resulting from that addition foot might very well negate the savings in energy cost. 

For example, there is a 6% difference in building area between a two story 30'x40' and a 31'x41'  house. Size matters, and that additional square footage could easily result in an increased tax bill of 4 or 5%.  Thats hundreds of dollars in annual costs!  Would that R50 18" wall save you $350/year compared to a 2x6 wall insulated with spray foam? 

Even if this green structure wasn't initially penalized by the methods used to calculate Fair Market Value, eventually it will be sold and value of the green improvements will be reflected in the sale price then.  The next owner will pay additional tax on them.  His neighbours too.

There is much discussion on these forums whether a particular green upgrade is worth the additional capital cost.  The additional tax costs should also be considered.   

Dave- (post #208998, reply #1 of 6)

Does your Canadian or local bldg code say "liveable space"?

Here in our neck of Ohio it does.  Now, for a 2 story and vaulted ceiling in the great room, I was able to have them subract from the square footage-those areas that were single story within the two storey house.


If that would apply-then you could plead your 18" case to the powers that be for perhaps a legal reduction in the calcs. for house size?

and why do the neighbors pay more taxes because of your house wall thickness?


A Great Place for Information, Comraderie, and a Sucker Punch.

Remodeling Contractor just outside the Glass City.


Calculation of assessed value (post #208998, reply #3 of 6)


In Ontario, the Municipal Property Assessment Corporation (MPAC) uses the external dimensions to calculate the building area. They probably do it this way because it is the easiest method for the inspectors.  There is no oversight to how they calculate assessment value, and its not tied to any definitions in building code. 

BTW, there are very few exemptions to structure that they won't assess. Disabled access ramps aren't taxed, and solar PV arrays are exempt too. 

When the "green / passive" house in question is  sold, the price will reflect the additional value from the improvements. A better built house with lower utility bills will definitely fetch a higher market price than a standard house. The higher price of that one house will  bring up the average sale price in neighborhood.   Everyone in that neighborhood (assessment zone) will see their assessment value increase, and their taxes.

The methods used the assessors aren't smart enough to exclude that house from influencing the perceived value of the neighborhood. 

Dave (post #208998, reply #4 of 6)

Here in our corner of Ohio there are "neighborhood values" but one house don't make it.  Every 3 years there's an automatic adjustment-driven no doubt by sale values, the economy and I'd suppose other taxing ideas.  Every 6, a re-valuation of each property which does include sales in the area, change of value-additions and corrections-this is done parcel by parcel at the auditors office.  

In each change we are offered both an informal review of any change and then if necessary or on our appeal, a formal review which includes a separate parcel inspection and a more detailed examination of area (blocks in radius to the parcel) valuation and how your pc. measures up.

It is not unheard of to have properties (and quite common in our neighborhood) with VASTLY differing values.  One block from here-either direction-houses of comparable size (and somewhat larger) fetching a hundred and a half thousand more than this place.  And the other direction is true as well-a hundred thousand less for only slightly smaller living space.

The land is figured separately from the buildings.  Same rate / bigger size-more tax bill.

Various siding options mean different pricing.

Floor finishes (tile for instance) bring a higher rate.

# of baths, fireplaces, type of heating all have different multipliers.

The other things that adjust the amount of property taxes here we vote on and include county and state issues, education being a large chunk.   Local and area approved issues regarding seniors, childrens services, local school millage,  metroparks, the zoo etc all affect the amount of tax due according to valuation of the property.

All this to the point that one house isn't going to make a [JOBSITE WORD] 's bit of difference, and it'd be worth it to investigate in each individuals state / province whether or not square footage is including the wall thickness.  I know if I was contemplating a super insulated non usual construction method I'd ask.  It worked for the vaulted ceiling with no floor above as well as the two open porches within the "footprint" of the house here.

A Great Place for Information, Comraderie, and a Sucker Punch.

Remodeling Contractor just outside the Glass City.


Neighborhood size for assessment purposes (post #208998, reply #6 of 6)


The size of  "neighborhood" for assessment purposes tends to be small to address the point you raise. There can be a great difference just one block over. Around here, that grouping is probably less than 100 houses. When there only a half dozen sales within that group, and the data from those sales is used to infer values,  one or two high end homes can have an effect. 

Even a 1% increase to the assessed value will add $50 to $100 to the tax bill.  True, it is small compared to the rest of the tax bill. But I still believe my point is valid -  the sale of a high end home near yours  will result in a tax increase without a corresponding increase to the value of your home.




  "There is no oversight to (post #208998, reply #5 of 6)


"There is no oversight to how they calculate assessment value, and its not tied to any definitions in building code. "

Are you certain this is the case?  You mentioned fair market value, which should have a specific definition.  In Virginia it does.  In essence, what the average buyer would pay.  There are many ways to arrive at assessed value.

Fair market value is an excellent one, if it is used.  In order to understand the rules here I asked the Assessor for something I could read.  He gave me a small book, a compilation of court decisions.

My house is far from normal construction here.  I eagerly awaited my assessment, and had already spoken with a Realtor broker who knew my place.  When I got the assessment I called the Assessor to ask how he derived his conclusion.  He tried to slide square foot construction cost past me, which was specifically prohibited in the book.  When there are no comparables (my case), the Assessor si required to do his/her best with the limited information available.  

When I offered to get my broker acquaintance to write a letter, the Assessor sighed and simply asked what the broker had said.    We settled at 37% of what he started with, a realistic fair market value as defined in Virginia.  20 years later I'm still not up to where he tried to start, with my closest neighbor's assessment 12 times mine, for a house only twice the size.  I accounted for the land differences.

One might think that Assessors, with only one job to do, would be good at it.  This is not my experience, with more than a few Assessors.  But if there truly is no oversight for assessment determination, there is no way they can be wrong.  All Assessors will use size, no matter how it is measured, but that is only a bare start of the process. 

My house passively self-heats and self-cools, and cost much less than traditional stick-built here.  The assessment is extremely low because the average buyer would not understand or appreciate what they saw.  What I might get from the unusual buyer will have no bearing on future fair market value.  I have no apparent heating or cooling system and a very basic floor plan, resulting in a very small tax burden based on fair market value.  I have saved many thousands in the 20 years we've been here.

My advice to the many who are interested in building something similar is that there is no substitute for understanding the rules fully.   If there are no rules, wow. 

PAHS works.  Bury it.

"Green" building has nothing (post #208998, reply #2 of 6)

"Green" building has nothing to do with physics and everything to do with preception.

Florida Licensed Building Contractor, 50 years experience in commercial remodeling, new homes, home remodeling and repairs and all types building maintenance.