About 50 Stanford University faculty members who purchased their homes through ground leases in the past three years are getting sticker shock after the Santa Clara County Tax Assessor's Office has reassessed their property values.
Using a little-known rule for homes owned under ground leases, the county is valuing some single-family homes 12% to 48% higher than last year; condominiums have been reassessed between 9% and 159% higher. That translates to commensurate tax increases, according to a July 31 report to homeowners by the university's Faculty Staff Housing department.
The Santa Clara County Tax Assessor began reviewing the property values in 2018 for home purchases that occurred in 2017 and thereafter. The new assessments are based on open-market purchase prices of nearby homes.
Property taxes are generally 1.15% of the home valuation per year. If the purchase price is $2.5 million, the annual tax bill would be about $28,750. But if the assessor reevaluates the property value to $3.25 million, the taxes would increase by an additional $8,625 per year, the university estimated.
Most of that valuation comes from the land and not the building. A 2,481-square-foot home on a 4,403-square-foot lot purchased in June 2018 had an assessor's value of $2.1 million for the land and $450,000 for the building, for example.
The rub for some homeowners is that Stanford retains ownership of the plot beneath the home, yet the homeowner -- not the university -- pays the taxes on that property. The faculty member pays the university a monthly rental-lease fee under a long-term lease agreement typically about $395-$450 per month, depending on the size of the lot, according to two residents.
The homeowner can only sell the property to another faculty member, which limits the number of bidders and the competition that normally would drive up the prices to open-market values, homeowner Mary Lou Zoback said.
Up until about 2017, the prices of homes on Stanford land kept pace with those of residences in the surrounding open market, according to the assessor's office. But purchase prices of homes in nearby neighborhoods are now consistently much higher than the faculty-to-faculty purchase prices. As of 2017, the split between the two markets was significant enough for the assessor's office to re-evaluate the home prices, Stanford noted.
State property tax rule 462.100 allows the county to reassess properties to fair market value when the property changes ownership if the lease is for a term of 35 years or greater, which also includes transfers of the lease. The tax rule has been in effect since July 1978. The assessor's office acknowledged that in the past it routinely accepted the faculty members' purchase prices as the new assessed values for homes, according to Stanford's report to the homeowners.
People have challenged the law -- it's been litigated multiple times -- and the courts have rejected their arguments, Deputy Assessor David Ginsborg said.
Zoback, who purchased her home in 2004, said the rule seems unfair. The goal of Stanford's ground-lease program is to keep the cost of housing affordable for successive faculty by restricting the sales to other faculty members. When she and her husband sell their home, the tax burden will rise significantly. That fact could make it so most faculty members wouldn't be able to afford the residence, resulting in Zoback and her husband selling their home at a lower price to compensate for the large tax bill.
"All of a sudden, our assets have been devalued for our children because of what seemed a rather capricious decision," she said.
Several older faculty members who were thinking about selling and moving into senior communities with long-term care now say they will stay in their house until they die, she said.
In an email to the Weekly, staff with the Faculty Staff Housing department stated: "This recent practice of assessing homes at more than the sales price makes on-campus homes less affordable to the faculty and is disappointing to both the faculty and the university. Faculty homeowners have begun contesting the increased re-assessed values, and in some cases, the Assessor has reduced the reassessments."
In one case a homeowner with a 107% tax increase got it reduced to 87%; others have had significant reductions, from 94% to 28% and from 104% to 31%; while others' were more modest, from 53% to 46% and a 30% to 26% increase, according to an on-campus property tax assessment by the university.
Stanford is providing help for homeowners who purchased their residences before Jan. 1 and are suddenly facing larger-than-expected tax bills. The university is covering the additional property taxes owed, up to $10,000 per year for two years, according to the housing department.
Stanford is also offering the homeowners cost-free consultations with a licensed real estate appraiser. The university will commission an appraisal report, and the report will be given to prospective buyers as part of disclosures.