Vacant lot owners got a surprise when they opened their property valuations this year. Most were double or more what they were the year before, essentially doubling what they owe in property taxes.
Buildable lots in Lancaster County — those that have been platted and improved with infrastructure — now are being assessed at 100 percent of their market value instead of at 50 percent, as was the case for decades.
The Lancaster County Assessor's Office had been using a valuation method known as discounted cash flow, which takes into account the holding period before a developer is able to sell a lot at market value. Douglas and Sarpy counties follow the same method.
In reviewing state and local laws, however, Assistant Lancaster County Attorney Mike Thew discovered the discount goes against state statute. The state mandates that land must be based on "actual" value, and not future purpose of the land.
So now Lancaster County is in compliance with state law, but some developers are unhappy.
Mike Benker, vice president of the Home Builders Association of Lincoln, said it's not feasible for a developer to sell most of its available lots in a single year, so assessing those lots at 100 percent of market value is not practical. Benker said it can take years to sell all of the lots in a development, adding that there isn't actual value until there is a buyer.
Bob Benes, who owns Aspen Builders and other commercial land, said it’s a detrimental change for developers. He develops 50 to 100 lots a year and if he sits on that amount of inventory, it would cost him an additional $20,000 to $30,000 annually in taxes, he said.
One commercial lot, he said, went from being valued at $800,000 to $3.5 million, which comes with a tax bill of $70,000, he said.
He said the change will also likely mean fewer choices of lots for those looking to build a new home.
“I'm only going to want to plat 10 home lots at a time,” Benes said. “The problem with that is that the selection of lots is so limited, there will be nothing out there to pick from for those wanting to build a home.”
He supports state legislation to allow the discounting practice.
“This is not good for economic development in Nebraska,” he said.
In Lancaster County, 3,210 residential lots and 964 commercial lots lost the discount this year. Owners of 1,634 lots protested the valuation change.
"It was a shock to the system of a developer out there with 100 lots," said Tom Kubert, an appraiser with Great Plains Appraisal, which led the referee process. "But once we got past the discontinuation of the discount, we talked about market value.
"What are they worth? What are they selling for?"
The average buildable lot is valued at $40,000, according to data provided by the Lancaster County Assessor's Office.
Lancaster County Assessor Norm Agena provided a list of more than a dozen developers that were hit hardest — including Hartland Homes, Nebco, Legacy Homes and Waterford Estates.
Jeff Johnson, a Realtor and director of the Waterford Estates at 98th and O streets, said the change came as a surprise. Most of the lots were valued at about $35,600, but rose to $68,100. Taxes on each went from $690 to $1,300.
“It’s going to affect the overall price of a home,” he said. “Let’s not talk lots for a second; let’s talk widgets.
“If you’re building a widget for 50 cents and now for an unforeseen reason it costs a dollar, you’ll have to pass some of that new cost onto the consumer.”
The same thing happens with home building, he said.
Waterford Estates still has a lot of years of growth ahead, he said, so they’ll feel the tax increase for years to come.
“You plan for a cost and then the game changes on you without knowledge or discussion, it’s tough,” Johnson said.
Both Douglas and Sarpy counties still value buildable lots based on an absorption rate — the amount of time it would take to exhaust the supply of lots on the market in any given subdivision. Officials in both counties say they are comfortable with their process and don't believe it conflicts with state law.
Sarpy County gives owners a 47 percent discount on vacant residential lots and a 43 percent discount on vacant commercial lots, according to Chief Deputy Sarpy County Assessor Jackie Morehead.
“We had a case a few years back dealing with equalization allowing us to extend discounts to all vacant lot owners, not just developers,” she said. “We determine the discount based on a study we do each year.”