Understanding Nondisclosure States
In certain U.S. states, home sales are conducted privately, keeping sale prices out of public records. Experts suggest this practice might lead to lower property tax bills for sellers while potentially raising them for neighbors. Typically, home sales provide crucial data for assessing property value and calculating taxes. When homes are sold privately in these states prioritizing seller privacy, significant data becomes unavailable.
Transparency and Fairness Concerns
Experts highlight the complexities involved as transparency in these transactions is compromised. Those with access to undisclosed sale data might use it to reduce their tax liability. Assaf Harpaz from the University of Georgia School of Law notes the challenges assessors face when properties are sold off-market due to the lack of public data.
“Property taxes are typically imposed by reference to a property’s assessed value, and jurisdictions use different methods and data points to determine what that value is,” Harpaz told Newsweek.
He emphasizes that private sales create a transparency issue affecting assessments, leaving assessors with limited data to guide decisions.
Assessors Left To Guess
Private property listings are legal nationwide and regulated by the National Association of Realtors. While most states document finalized sale prices publicly, about 12 nondisclosure states keep final sale prices confidential, creating economic asymmetry between on-market and off-market sales.
Harpaz explains that institutional and wealthy individuals can exploit the lack of public data to appeal assessments, potentially skewing property taxes.
Sergio Garate of Emory University researched the impacts of nondisclosure sales, finding direct consequences for homeowners and buyers. Assessors rely on prior assessments, comparable sales, property features, and recent listing prices in these states, complicating valuations due to missing transaction data.
Consequences of Information Imbalance
Garate highlights that private listings in nondisclosure states can lead to valuation errors. Homeowners benefit from underassessment without incentive to correct below-market valuations, potentially lowering property tax assessments. This situation can create inequality compared to disclosure states.
Differences in disclosure laws can affect appraisals and mortgage performance. Garate’s research indicates nondisclosure states show stronger appraisal bias and higher mortgage default probability for financially constrained borrowers.
“In theory, these information asymmetries should also have consequences for transaction volume, who is able to transact in the market, and how bargaining power is distributed among brokers and the other parties involved in the transaction,” Garate added.
Case Study: New Mexico
New Mexico moved from nondisclosure to partial disclosure in 2004, resulting in a 4 percent annual tax revenue increase, roughly $1.09 million. Prior studies suggest nondisclosure laws reduced property tax revenues. High-value homes were often under-taxed.
Property taxes are structured to generate revenue for local governments. If some properties are undervalued due to undisclosed sale data, other homes might carry a greater tax burden.