OTTERTAIL, Minn. — In the four-plus decades that Bruce Anderson has owned his lake lot, the value crept up from the $6,500 he paid in 1977 to $98,000 last year.
Then the latest property assessment arrived in his mailbox this spring.
"It was kind of a shocker," said Anderson, 79, a retired diesel mechanic who lives in Deer Creek. In a single year, Anderson's lot on West Leaf Lake in Otter Tail County — with no cabin, just a trailer — had more than doubled in value, with a new assessment of nearly $197,000.
"It's getting so if you want to enjoy yourself on the lake, you need a [truckload] of money," Anderson said.
Property values are soaring throughout Minnesota's lake country. In a Star Tribune analysis of residential properties in 11 counties between 2021 and 2022, assessed values were up in the strong double digits everywhere. More than half the counties surveyed posted county-wide increases of 25% or more in one year, and thousands of individual properties went up at far higher rates.
"It was a pretty crazy market last year, and we follow the market – that's how we're required to set our values," said Stacy Honkomp, the Douglas County assessor. "I get grilled a lot when I'm out and about."
Mark Peterson, the Cass County assessor, called the spike in values unprecedented. When the valuation notices went out in the spring, the phones in his office lit up with calls from concerned property owners as the average Cass County residential property jumped about 35% in value.
"I've got 10 lines coming into the office and they were just nonstop," he said. "We were fielding anywhere from 200 to 400 calls per day for five weeks straight.
"We've never really seen anything like that."
Peterson's own home, on a small lake near Hackensack, gained 31% in value, in line with the county overall.
Pandemic and out-of-staters
The value increases appear to be affecting more than just the lakefronts. In most counties, non-lakeshore homes increased in value nearly as much as lake properties did, although the lake properties tend to be far more expensive and often pay a higher tax rate. It's all due to the torrid real estate market, which has remained strong even as interest rates have inched up.
Carolyn Wood, who sells homes in the Brainerd area, said she's never seen a market as hot as it's been in recent years.
"Pretty much everything that's hit the market in the last couple of years has sold," said Wood, an agent with Edina Realty's Brainerd/Baxter office. "We absolutely have seen those prices increase 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 are deciding to make their homes outside the big cities. Wood also is seeing an influx of buyers from other states.
"The cost of living and the quality of life here has really brought in these out-of-state people," she said. She's recently shown homes to prospective buyers from Alabama, Utah, Washington, Florida, Texas and California.
Roger Hahn, an agent in Fergus Falls, said the market has cooled somewhat. Mainly, he's seeing fewer homes that get multiple offers over asking price. But there's still plenty of interest, he added.
"People are still qualifying [for mortgages]. We're still seeing buyers, and we still have inventory," he said.
Tax rates may not follow
While most owners like to see their property increase in value, the big boost has left many concerned about a potential rise in taxes.
"There's going to be a big jump here someplace, at some time," said Michael Clark, a West Fargo, N.D., resident who owns a cabin on Little Toad Lake in Becker County. His property went up in value from $307,000 to nearly $400,000 in the last year, an increase of 30%.
But taxes usually don't increase as fast as values, said Peterson, the Cass County assessor — provided the various taxing jurisdictions keep spending in check.
Most property owners pay taxes to a wide array of government entities: the state, the county, townships, cities, school districts, fire and ambulance districts. Those bodies set spending, then the total is divided among all the taxpaying properties. Even with increasing values, Peterson said, the tax rates on some properties could go down — though not necessarily the tax bill.
"I tell people, if your property went up X%, you're probably not going to see that same percentage in your tax rate — if the taxing jurisdictions watch their levies," he said.
State tax laws prevent counties from sticking cabin owners with unfairly high assessments compared to other types of properties. Though cabin owners do pay additional state taxes not assessed on full-time, homesteaded properties, the state requires all properties in comparable areas to be assessed within a set range of each other.
"Ultimately, all of us county assessors pretty much report to the Department of Revenue," Honkomp said. "They do pretty heavy 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 Grand Rapids about six years ago. Their home nearly doubled in value over the last year, from about $343,000 to about $640,000 — an 86% spike.
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 families on the lake who have moved there in the last five years.
When the valuation notices came out in the spring, Pavek said, he had many conversations with neighbors about their "shock and awe" over the dramatic valuation increases. Itasca County officials did a good job explaining the situation, he said, and for his own part, he thinks his home is fairly valued.
The Paveks have done a good bit of renovation since they moved in, including a new kitchen, new floors and several reconfigured living spaces.
"It's probably fair," Pavek said. If people are concerned, he added, they should go to their county commission and township board meetings and let officials hear from them.
"It's a great call for action to be involved with your local government," he said.
The rise in lake property values seems unlikely to slow down any time soon. Peterson said the last lot with a mobile home on Gull Lake recently sold. The parcel, with 60 feet of shoreline, was assessed at $400,000 — but sold for $800,000.
Anderson, who enjoys visiting his lakeshore lot and trailer with his wife and grandchildren, isn't happy about that.
"The average person, your blue-collar worker, can't afford the lakes anymore," he said. "That's too bad. It's the working people who built this country."
Minnesota's property tax system
Minnesota's property tax system is among the most complex in the nation. But in simple terms, here's how it works.
• County assessors gather all property sales between Oct. 1 and Sept. 30. These will be the basis for the next assessment.
• After analyzing sales and comparing them to other properties, assessors set a value for all properties in the county.
• In the spring, valuation notices go out. These set the value for the next tax year. This means that assessed values trail the market by two years. The assessments that went out in spring 2022, for tax year 2023, are based on values for the year ending Sept. 30, 2021.
• Government bodies — the state, county, townships, school districts and others — set their levies. That's the total amount of taxes that will be collected.
• Based on the levies and the tax rates set by the state for various categories of property, owners are told what taxes they'll pay.