OTTERTAIL, Minnesota — In the more than four decades that Bruce Anderson has owned his lake property, it has gone from the $6,500 he paid in 1977 to $98,000 last year.
Then, this spring, the latest real estate appraisal landed in his mailbox.
“It was kind of a shock,” said Anderson, 79, a retired diesel mechanic who lives in Deer Creek. In a single year, Anderson’s property on West Leaf Lake in Otter Tail County — with no cabin, just a trailer — had more than doubled in value, with a new estimate of nearly $197,000.
“It’s going to be like, if you’re going to have some fun on the lake, you need one [truckload] money,” Anderson said.
Real estate values are rising throughout the Minnesota Lake District. In a Star Tribune analysis of residential properties in 11 counties between 2021 and 2022, appraised values increased by strong double digits everywhere. More than half of the counties surveyed saw statewide increases of 25% or more in one year, and thousands of individual properties rose at far faster rates.
“It was a pretty crazy market last year and we’re following the market — that’s how we have to establish our values,” said Douglas County Evaluator Stacy Honkomp. “I get grilled a lot when I’m out.”
Cass County surveyor Mark Peterson called the rise in values unprecedented. When the valuation announcements were released in the spring, the phones in his office lit up with calls from concerned homeowners as the average Cass County home rose in value by about 35%.
“I have 10 queues coming into the office and they were just non-stop,” he said. “We handled between 200 and 400 calls a day for five weeks.
“We’ve never really seen anything like it.”
Peterson’s own home on a small lake near Hackensack appreciated 31% in value, in line with the county as a whole.
Pandemic and Out of States
The increases in value do not seem to affect only the lake shores. In most counties, non-lakefront homes have increased in value almost as much as lakefront properties, although lakefront properties tend to be much more expensive and often pay a higher tax rate. It’s all due to the hot real estate market, which has remained strong despite rising interest rates.
Carolyn Wood, who sells homes in the Brainerd area, said she has never seen a market as hot as it has been in recent years.
“Pretty much everything that’s come out in the last few years has sold,” said Wood, a broker in Edina Realty’s Brainerd/Baxter office. “We’ve absolutely seen those prices rise rapidly, more than I’ve seen in the last 20 years.”
Wood and others said the pandemic effect has been a big factor as people who can work remotely choose to build their homes outside of big cities. Wood is also seeing an influx of buyers from other states.
“The cost of living and the quality of life here really drew these out-of-state people into it,” she said. She recently showed homes to potential buyers in Alabama, Utah, Washington, Florida, Texas and California.
Roger Hahn, an agent in Fergus Falls, said the market has cooled off a bit. Mainly, he sees fewer homes that get multiple offers over the asking price. But there is still a lot of interest, he added.
“People are still qualifying [for mortgages]. We still see buyers and we still have inventory,” he said.
Tax rates must not follow
While most homeowners like to see the value of their property go up, the big boom has many concerned about a potential tax hike.
“Eventually there’s going to be a big jump somewhere around here,” said Michael Clark, a West Fargo, ND resident who owns a cabin on Little Toad Lake in Becker County. His property went from $307,000 to nearly $400,000 last year, a 30% increase.
But taxes don’t typically rise as fast as values, said Peterson, Cass County’s surveyor — provided the various tax jurisdictions keep spending under control.
Most homeowners pay taxes to a variety of government agencies: the state, county, township, city, school district, fire and ambulance district. These bodies determine the expenses, then the sum is divided among all taxable properties. Even as values rise, Peterson said, tax rates on some properties could fall — though not necessarily the tax burden.
“I tell people if your wealth is up X%, you probably won’t see that same percentage in your tax rate — if the tax authorities are watching their levies,” he said.
State tax laws prevent counties from taxing cabin owners with unreasonably high valuations compared to other types of real estate. Although cabin owners pay additional state taxes not levied on full-time homesteaded properties, the state requires all properties in comparable areas to be appraised within a specified range of one another.
“Ultimately, we’re all county auditors pretty much under the Treasury Department,” Honkomp said. “They do pretty extensive data analysis. They look at all our sales.”
Watch your local government
Adam and Kathy Pavek moved from the Twin Cities to Pokegama Lake outside of Grand Rapids about six years ago. The value of her home has nearly doubled in the last year, from about $343,000 to about $640,000 — an 86% increase.
The Paveks both work from home. They love raising their 5 year old son on the water. Adam Pavek said he knows at least eight or 10 lakeside families who have moved there in the last five years.
When the rating notices came out in the spring, Pavek said he had many conversations with neighbors about their “shock and awe” at the dramatic rating increases. Itasca County officials have done a good job of explaining the situation, he said, and for his part he thinks his home is fairly valued.
The Paveks have done quite a bit of renovations since they moved in, including a new kitchen, new floors, and several remodeled living spaces.
“It’s probably fair,” Pavek said. If people are concerned, he added, they should go to their county commission and community board meetings and let officials hear from them.
“It’s a great call to action to get involved in your local government,” he said.
The rise in property values around lakes is unlikely to slow anytime soon. Peterson said the last mobile home lot at Gull Lake was recently sold. The property, with 60 feet of shoreline, was valued at $400,000 – but sold for $800,000.
Anderson, who enjoys touring his lakefront property and trailer home with his wife and grandchildren, is not happy.
“The average person, your worker, can no longer afford the lakes,” he said. “That’s a shame. It’s the working people who built this country.”
Minnesota property tax system
Minnesota’s property tax system is among the most complex in the country. But in simple terms, here’s how it works.
• District appraisers collect all property sales between October 1st and September 30th. These will form the basis for the next assessment.
• After sales are analyzed and compared to other properties, appraisers set a value for all properties in the county.
• Evaluation notifications will be sent out in the spring. These determine the value for the next tax year. That means the valued stocks lag the market by two years. The notices issued in spring 2022 for the 2023 tax year are based on values for the year ending September 30, 2021.
• Government agencies—state, county, local, school districts, and others—set their dues. This is the total amount of taxes that will be charged.
• Owners are told what taxes they have to pay based on the levies and tax rates that the state sets for different categories of real estate.