Philadelphia’s Actual Value Initiative (AVI) – Part 1

A Look at Real Estate Taxes in Philadelphia

In Philadelphia, there has been a great deal of worry over how the city’s Actual Value Initiative (commonly referred to as AVI) will affect homeowners, the local real estate market, the school district, the City of Philadelphia’s financial health, as well as the overall health of the city’s economy.

Nevertheless, some people, especially those living outside of the city, are asking more basic questions like: “How do Philadelphia’s real estate taxes work?”, “What is AVI and how does it work?”, and “How will real estate taxes in Philadelphia compare to surrounding areas?”.

In a series of posts, I will be looking at Philadelphia’s Actual Value Initiative, the problems it seeks to address, and its likely effects on residents.

The Current Property Tax System (Before AVI)

Row Homes Fairhill Philadelphia

Row Homes in the Fairhill section of North Philadelphia, an area with many over-assessed properties. Image courtesy of mezone on Flickr.

As of 2012, Philadelphia has a real estate tax rate of 9.432%, which is comprised of a 4.123% tax going to the city and 5.309% going to the school district.

This rate is applied to the assessed value of a property to calculate how much is owed in taxes. The assessed value is simply 32% of market value, an amount calculated by the Office of Property Assessment (OPA).

Therefore, the tax bill for a property is 9.432% of 32% of its market value. It is important to note, however, that the OPA’s “market value” is not the same thing as the price for which the home was purchased. According to the OPA, three approaches are used in their assessment, but the sales comparison approach is most frequently used for residential properties.

“This method compares recently sold, reasonably similar properties within a short distance of a specific property or block. Adjustments to value are then made for known differences, resulting in a fair market value.” – OPA Website

While it is true that the market value of a home can be affected by the prices of recently sold properties nearby, it is not usually by a whole lot. A significant disparity often exists between a Philadelphia home’s “fair market value” as determined by the OPA and the price it would actually bring on the real estate market. Herein lay the main problems with how property taxes are handled in the city.

More About the OPA

The Office of Property Assessment replaced the Board of Revision of Taxes in 2010 as the city office responsible for assessing the market value of individual properties each year. Although the OPA is only required to “conduct an exterior visual inspection at least once every five years”, properties are often inspected more frequently. This is especially true when a reassessment is requested, building permits have been issued, or a property was recently sold.

Related: Infographic – How Real Estate Taxes Work in Philadelphia

Up Next: Common Issues with the Current System