City value versus what you paid

Buyers see a 4 million dollar apartment with a market value of 900 thousand on the city record and assume something is broken. Nothing is broken. The city just does not use your price.

A condo in a building with four or more units is Class 2. The Department of Finance builds the bill in four steps.

Step one, market value. The city estimates what your building would produce as a rental, using income and expense modeling based on comparable rental properties by size, location, age, and unit count. It does not look at what your neighbor sold for. This is exactly the method the current reform talk would replace.

Step two, assessed value. The city multiplies that market value by 45 percent for Class 2 property. That is the level of assessment.

Step three, transitional assessed value. For buildings with more than ten units, changes to assessed value are phased in over five years. If the transitional value is lower than the actual assessed value, the city uses the lower one. This is why your tax bill lags reality in both directions.

Step four, exemptions and abatements. Exemptions come off the assessed value. Abatements come off the final bill. Then the Council sets a tax rate each year and applies it.

Why this matters when you are shopping. Two apartments at the same price can carry very different tax lines, because their buildings were valued differently and are at different points in the phase in. A big gap between the city's market value and real sale prices in the building is not free money. It is a gap that reform proposals are specifically aimed at closing.

What to ask for. The current tax bill for the exact unit, not a building average. The assessed value and whether it is actual or transitional. Any abatement and its remaining term. With those three numbers you can model the carry honestly.

Everything else is a brochure.