Thursday, June 20, 2013

Well, it's official ... AVI is here.

Philadelphia AVI Assumptions - February 2013

AVI, otherwise known as Philadelphia's Actual Value Initiative, was brought about to modernize (or fix) the city's broken property tax system.

Everyone has their own take on AVI, and most people who write about the subject really get into the nitty-gritty details of the math, property tax histories, etc. My promise during this post is not to do any of that, but to provide a professional, real estate based opinion on why I feel AVI is a good thing for Philadelphia.

First and foremost, the city's pre-AVI system was flawed. It was outdated, it lacked logic, and it really focused on certain real estate owners; meaning that some people actually were taxed differently, even though they owned similar properties and (in some cases) even lived on the same block. According to this Axis Philly map, there are 2 large sections of Philadelphia (Northwest & Northeast Philadelphia), that will be seeing big changes to their taxes as a whole (and for the better). And I'm not just saying that because I live in Roxborough, even though I'm stoked that my property taxes will be going down.

You can see what I mean by checking out this map.

Large portions of real estate in both NW & NE Philadelphia are heavily colored in "blue." Any shade of blue means that these owners' property taxes will actually be going down in 2014, from their 2013 levels. It also means that pre-2014, these homes were "overtaxed" (in the eyes of the city) according to it's new, easy-to-understand-and-use, tax system.

Here's why I feel that AVI is easy to understand, and also why I feel it's a step in the right direction for Philadelphia's overall property tax system.

You take your assessed value, multiply it by the property tax rate of 1.34% (which was just recently approved and my motivation for writing this post), and you get your annual property taxes.

Simple, right? Yes, it is simple.

The only other catch out there is what's called the Homestead Exemption. This is not as logical to me as AVI, but it will help some people with the drastic tax changes coming in 2014. The HE allows you to take $30K off of your assessed value, and all you have to do is complete a form. Again, it doesn't make too much sense, but it is what it is.

If you are approved for the HE, here's your new formula: Assessed Value - $30,000 x 1.34% = Annuual Property Taxes.

Now, here's why I like AVI.

It's a fair system. Are the newly assessed values not 100% accurate? Of course. Are they more accurate than before? Much more accurate. Therefore, taxes are more fair because we are now dealing with realistic/current assessed values. If you are not happy with your assessed value, you have the right to an appeal. I don't know how you can be more fair than that.

That's 1 for AVI.

It shares the city's tax burden. What do you think is one of the biggest reasons why Philadelphia has such a high wage tax? They don't have enough money to cover their annual budget. Why don't they have enough money to cover their annual budget? Well, we could get into a year-long argument over local politics, cronyism, unions, pensions, fringe benefits, and the like; but that's not why I'm posting about AVI  today. The wage tax is high (and focused more on businesses) because our property taxes were low; until now. I don't feel that just taxing the h*ll out of loyal Philadelphians is the best solution, but in all honesty we should help shoulder the burden by paying our fair share; and AVI is fair. I also feel that taxing businesses less will help bring more jobs, more opportunity, etc.

That's 2 for AVI.

It's a legitimate formula, it makes sense, and it's easy to understand. Assessed Value x Tax Rate = Annual Taxes. It doesn't get any easier than that, and every property is now looked at in the same way. Do I think the tax rate they agreed upon is high? I can't share an opinion on that yet, because all of this is too new to truly comprehend. I can say that compared to Philadelphia's neighboring suburbs, it's a good starting point. Again, we could argue all day over unfair tax abatements, the quality of Philadelphia's public services, public schools, crime rates, etc. And I'll say this again, that's not why I am posting today.

That's 3 for AVI.

My hope is that this post generates some good comments and opinions from my fellow Philadelphians. But please, try to keep the caps lock off and the cursing to a minimum.

PS - You can calculate your own Philadelphia property taxes by using this handy AVI Calculator.


  1. According to actual data, the new assessments may be even less accurate than the old assessments.

    Here's the evidence:

    Do you have any evidence besides your gut take to back up your opinion that it's more accurate?

  2. Yes, and here's an example. We can use my place, even though I know it's case-by-case.

    Pre-AVI, the total assessment on my home was $23,424; no where close to my home's current sale price value. Today, it's $142,400. In today's slower market for non-Center-City condos, I could probably sell my place for around $180K.

    According to the article you posted, assessed values should range anywhere from 80% - 120% of a home's current sale price. Therefore, my place is within close range. If I'm not happy, I can still appeal.

    Although I admitted in my post that the new system is not the best, it's better; and it's based more on Philadelphia's current home values, which is what property taxes should be based off of.

    I can use this example on more homes, but my goal was to give you a good example. What better example than my own home.

  3. Thanks for this helpful post. I am looking at buying a house in Philadelphia whose assessed market value is a lot less than the asking price and less than what I would pay for it. If we buy it for more than the assessed value, will the sale price become the new market value?

  4. Hi, Anonymous.

    I can't answer your question with 100% confidence because AVI is too new to do so, and I'm not sure how often the city plans to reassess homes in the coming years ahead. Being an agent, it will take a few closed transactions and some time to answer it more accurately.

    If I had to guess, I will say that the assessed value on the property you like is already established. If it changes hands through a sale, paying a higher amount (than the already established assessed value) should not change that value (or your taxes) in the short-term. Just an opinion.

    Please note that "assessed" value, "market" value, and "sale/purchase" price are 3 different things. Assessed value is how the city values your property. Market value is typically an appraiser's/realtor's opinion of value on your property. Lastly, sale/purchase price is what a buyer would pay for your property (which also establishes value).

    All different values, all different meanings. I hope that was helpful.