Outdated valuations create risk of assessment increases under Shelby County's 2025 reappraisal.

In late 1811 and early 1812, West Tennessee's New Madrid Fault produced several earthquakes greater than magnitude 7.0, swallowing the town of Little Prairie, Missouri, in liquefaction and temporarily reversing the flow of the Mississippi River to crest its banks and create Reelfoot Lake.

Almost 200 years later, pseudo-scientist Iben Browning infamously sparked an earthquake frenzy by predicting another major New Madrid quake would occur on Dec. 3, 1990. School children of the 1990's likely still remember earthquake drills in the classroom and "earthquake kits" (trash cans filled with food, water and medical supplies) assembled and stored in basements and garages for years after.

Fortunately, Browning's prognostication was a dud and nothing happened. Still, those living above the New Madrid Fault today know in the back of their minds that "The Big One" could hit at any time.

For taxpayers, that time may be 2025, when Shelby County Assessor Melvin Burgess will reappraise properties countywide to 100 percent of fair market value for the first time since 2021. It may not shake buildings to the ground or flood low-lying areas, but the 2025 reappraisal could do grievous damage to unprepared taxpayers.

Market heat builds pressure

During the Shelby County reappraisal in 2021, the market was recovering from the 2020 slow-down in lending and sales transactions due to COVID-19. The assessor seemed to take the pandemic into account, refraining from aggressively capturing all of the market's growth from 2017 to 2019.

Low interest rates helped transaction volume accelerate in 2021 and the first half of 2022, however, quickly putting distance between the assessor's mercifully low appraisals and actual market value. The real estate market cooled after interest rate hikes in late 2022, but the value differential was already significant. A sales ratio study by the Tennessee Division of Property Assessments indicated the overall level of assessor's value in Shelby County was 75.87 percent of actual market value by Jan. 1, 2023. That ratio could be even lower for individual properties.

Shelby County's 2025 reappraisal program will aim to eliminate such undervaluations. The bigger the current undervaluation, the bigger the taxpayer's potential increase next year.

This is a major flaw in long reappraisal cycles: Undervaluations expand over the course of the cycle like geothermal pressure until the difference suddenly, and sometimes catastrophically, vaporizes in a single year with a massive increase in assessed value.

These delayed assessment adjustments and resulting tax increases make budgeting more difficult than would more frequent but less dramatic reappraisals. The Tennessee Legislature has been considering shorter reappraisal cycles, but none of the proposals have passed both houses yet.

Bad timing for a big setback

Property tax increases are never convenient, but 2025 could be especially poor timing. If interest rates stay relatively high and operating expenses keep rising, tax increases may arrive when there is no room to accommodate them in over-stressed taxpayer budgets.

Even in 2024, a non-reappraisal year, the mayor of Memphis has proposed a monstrous tax rate increase for properties inside the city. It is doubtful the city will raise rates as much as the mayor wants, but a 2024 increase in city taxes before the assessor's 2025 reappraisal could create back-to-back blows that are hard to absorb.

Preparing for "The Big One"

Hiding under a desk or filling a trash can with supplies will not stop a major assessment increase in 2025, but there are other ways to prepare.

1. Understand the timeline. The assessor will formally certify 2025 values by April 20, 2025, but value-change notices are expected around mid-March or early April. Appeals must be filed to the Shelby County Board of Equalization, with a likely deadline of June 30. The city of Memphis sends tax bills around July that are due by the end of August. Shelby County taxes are due by the end of the following February.

2. Anticipate the increase. Don't be caught off guard by a higher tax bill. It is important to estimate the assessor's reappraisal value and develop a realistic 2025 property tax budget. If the assessor's new value is unreasonably high, it can be challenged through a timely appeal to the Shelby County Board of Equalization. Some amount of increase is likely to be fair and supportable, however, so adjusting tax escrows in advance would be prudent.

Property tax professionals can help

Preparing for the 2025 reappraisal needn't be a daunting process. A property tax professional can provide a tax estimate in preparation for the 2025 reappraisal, and if the assessor's new value is too high, file an appeal.

Taxpayers preparing for The Big One to rattle their real estate would be well served to consult a property tax professional in advance. An experienced advisor can help identify the fault lines of undervaluation and brace-up vulnerable budgets before the reappraisal strikes.