Reassessment: valuing land and buildings

Larry Shaw's letter, titled "Tyler Technologies using flawed method," appeared on the Cape Gazette website the same day as an article titled "1890s Rehoboth Boardwalk icon set to be demolished." 

The letter writer is not happy with assessments based primarily on location, rather than valuing the house and the land being incidental. But good assessments start with the land value, then consider what the package would sell for, and treat the building as the difference. We all know location, location, location, and most homeowners acknowledge their homes are depreciating, even with the best of maintenance. The annual depreciation rate for single-family homes I've found is 1.5%; that's a lot less than what an investor can take in depreciation each year. Replacement costs rise each year, but one must consider the depreciated value of the current house.

The article described a house at 1 Stockley St. that sold recently for $6 million, for which a demolition permit has been obtained. It had been on the market, with very appealing photos, for over two years. Interestingly, the article described the house in some detail, but omitted the size of its lot. County records reveal that it has 50-foot frontage and depth 250 feet. That translates to 50 feet on the street, 250 feet facing the ocean, and 12,500 square feet, on which one can build a home much larger than the 3,400 square feet. That 0.29-acre lot is $21 million per acre. In the 1974 assessment, the land represented 73% of the value.

The demolition will cost, say, $10 per square foot, or $34,000. Add that to the purchase price, and you have the value of that land.

Not far away, at 19 Norfolk St., a 2006 house and a 1960 house have been demolished, leaving a 100-by-100, 10,000-square-foot lot; the two properties were purchased in May for $4,250,000. Those are a block from the beach. Those purchases were within the period used to establish the new valuations for Sussex County. The 1974 valuation of that land was $50,000.

Key takeaway: Land generally appreciates (the rate depending on its location), and houses depreciate. Commercial buildings may be depreciated two or three times by a series of their investors.

I look forward to being able to see what values the assessment assigns to various locations. When Rehoboth Beach assessed its properties about 12 years ago, its oceanfront commercial blocks were valued at, if memory serves, $44,000,000 per acre. 

Shaw's home is just outside Rehoboth city limits, but within an easy walk of the ocean. Interestingly, the 1974 valuation for his home was about 45% land, 55% building.

Another letter, from Alan Roth, seems to forget that his new house would be assessed upon completion, and given a value suitable to 2023. But there is no way Tyler could have re-examined every property in Sussex County on the "as of" date to see what had changed.