Are You Paying Too Much Property Tax?
As millions of American homeowners are reeling from monthly mortgage payments that have gone sky-high, many municipalities are also raising property taxes.
To prevent from being squeezed in both ways, Early Show personal finance expert Ray Martin prepared a Q&A to help homeowners discover whether they can save some money.
Q: Are people paying too much property tax on their homes?
Some experts estimate that at least one third of all properties nationwide are assessed too high for property taxes. According to the National Tax Payers Union and the American Homeowners Association, as many as 60% of all properties nationwide is over-assessed.
Also, during the last several years when real estate values were rising rapidly, many local governments updated their property value assessments to reflect the current value of property. Most municipalities typically hire a company to do a "mass revaluation" or a "blanket assessment" to conduct a mass appraisal, which results in increasing assessed values to reflect the current market. Another method - called trending or indexing, which was reportedly used in Michigan - is to simply order assessors to reappraise all property within a district at a higher market value.
During these processes, new sales prices and higher real estate values are used to update assessments of newer homes. While these processes may be generally accurate, they will not consider the unique characteristics of an individual property which gives rise to many instances where these are a good reason to appeal.
If your home's assessed value was updated over the past several years, or if you bought a home during the height of the real estate boom and now property values in your local area have fallen considerably, it is very likely that your assessment is now too high and you are paying too much in property taxes.
Q: Why is it likely that your property tax is too high?
There are several plausible reasons why your home's assessed value and the resulting property tax you pay can be too high: Sheer volume alone increases the likelihood that errors can occur. There are more than 65,000 governmental taxing authorities, each with its own laws, rules and procedures for levying and collecting taxes on over 80 million taxable properties which are assessed a tax annually. Therefore it is impossible that such a system can take into account the unique characteristics of each property that is assessed.
Lack of qualified assessors: typically the person in this position of the local government is appointed to the job of property tax assessor and is no more knowledgeable than the average property owner in appraising properties, and is not required to be an expert in the field of property value assessment.
Property tax assessors cannot inspect every property: These individuals often perform this job part-time and lack the staff and resources to do a through assessment on every property. One property owner who challenged the assessed value of his property and tax was appalled to learn that the assessor had "looked at the house from the road," which is a common technique utilized in the assessment process. The particular property, set back some 50 feet from the road, failed to show the house was in poor condition and required significant repairs.
There is little incentive for your local government to help you to reduce your property tax: Property tax is the single largest source of revenue for local governments - usually over 80 percent of a local government's budget is paid by property taxes.
Q: Basically what does a homeowner need to do to get their property tax reduced?
The process involves gathering information and filing an appeal to challenge the home's assessed value. Basically it involves several steps, including review of the current tax records and gathering information that supports the lower value you are proposing.
Studies have shown that although less than two percent of assessments are appealed, typically 75 percent or more of all appeals result in a reduction of property taxes. Some states even have laws that when an appeal is properly filed, there is an automatic reduction of property tax! These reasons alone should be incentive enough for most homeowners to review their property tax assessments.
But homeowners need to be educated that they can do this. One study, conducted in Boston over a ten-year period, found that homeowners, who made up about 40 percent of the real estate in the city, filed only 10 percent of all property tax appeals.
Q: Why don't more people appeal to lower their property tax?
Some myths that prevent more homeowners from appealing their tax assessments include:
Another reason many property owners do not carefully review their property tax and assessment is that property taxes are often included as part of their monthly mortgage payment, as a payment to an escrow account from which the property taxes are automatically paid. When using this method, the amount of property tax is less noticeable as it is paid as part of a monthly payment and therefore less of a concern than one large bill paid as an annual amount.
Q: How much can a homeowner typically save if they can successfully appeal to lower their property taxes?
Consider this example: say you bought your home two years ago during the height of the real-estate boom and paid $320,000 for it. Now the builder who built your home is selling similar homes in your area for $250,000, or 20 percent less. In this example, you would have a very good case to make an appeal to lower the assessed value of your home and reduce your property tax. In this example, if your property tax is currently $7,500, and you can reduce the assessed value of your home from $320,000 to $250,000, your property taxes could be reduced by about $1,500 per year, which is a savings of about $125 per month!
Another benefit of reducing your home's assessment and property tax is that it may help you to sell your home in the future, as a lower property tax bill will enhance your home in the eyes of a potential buyer.
Q: Are there professionals you can hire to do this for you? What do they charge and should you hire one?
There are consultants whose sole business is to assist with property tax appeals - these folks advertize themselves as "property tax savers" and claim that they are effective at successfully appealing and obtaining a lower assessment for their client's homes.
Often these folks will charge an upfront retainer fee of $100, an appraisal fee of about $600 and a contingency fee of 10 percent to 20 percent of your first-year's savings on your property tax. With this fee structure comes a reluctance to work with folks who own homes of average value. Some local law and accounting firms also offer these services and their fees and fee structures will vary.
While it is true that the property tax system can be complex and is different from one local area to the next, the average person can learn how their property tax system works and can take steps to make sure that their property tax is not unfairly high.
Q: What are the steps to take to get your property taxes reduced?
The first thing to keep in mind is that in order to lower your property taxes, you will need to successfully appeal your home's assessed value. An appeal is a process, and to be successful, you will need to have the facts and information that support your claim of a lower property value assessment. A properly submitted appeal with the right facts will be handled with respect and is much more likely to be successful. But an appeal that is based merely on the reason "My taxes are too high because my neighbor pays less" is not likely to be successful. While the specific steps in the process will vary from one town to the next, the basic steps include:
Your town's tax assessor's office will have a "culture" of how things get done and anyone considering an appeal of their property taxes will need to become knowledgeable of how the process works, who to work with, what forms and information is required to appeal the assessment on your home. You will also need to know the filing deadlines for when any appeals will be heard for the coming tax year. The point is that you do not want to overlook a simple technicality that could jeopardize your chances of winning an appeal.
All properties assessed a tax are on a public document called a tax roll. Get a copy of the tax roll and the Property Tax Card for your home. The information on these records is the basis for the assessed value of your home and the resulting property tax you pay.
Check to ensure that the tax records contain correct information on the number of bedrooms, bathrooms, dimensions and square footage. Also check to see that the records indicate the correct year the home was built. If you removed any buildings or filled in an in-ground pool, be sure that the records properly reflect this. If the records state you have a fireplace or a finished basement and you do not, this can result in a higher tax assessment. If any of this information is not correct, you will have good grounds for an appeal.
The most common appeals for homeowners are based on either errors in fact (incorrect data used by the assessor in valuing your home) or errors in judgment (where the homeowner believes the tax is based on a home value that is too high). Of course, appeals based on errors in fact are easier to win. Appeals based on your belief that your home's tax value is too high will need to include several appraisals of lower values and additional information.
You should prepare a list of at least three similar properties, but the more comparisons the better. You can of course hire a professional appraiser to appraise your home and similar ones for the purpose of comparison, but that will involve additional costs. Professional appraisals may also include several valuation methods, including: Comparable Sales, Current Use, and Replacement Cost and Economic Age/Life methods. You may feel more comfortable if you believe that a professional appraisal will be more convincing and provide the information you need to support your case. You just need to make sure that the potential savings in lower property taxes is worth the cost of the appraisal.
Finally, you will need to present your information and follow the process required by your local property tax board. Work with your property tax assessor and the less formal and fewer people involved, typically the more effective and efficient the result. Be aware of the deadlines and dates required by the process - if you send in your corrections after the assessor has sent his final record to the tax board, even before it is certified, it is harder for the assessor to change it and still "save face." If an assessor agrees with the facts you present, he can intervene before the tax board certifies the tax roll, which saves time and money for all involved.
If you answer "Yes" to one or more of these questions, you should appeal to lower your property tax:
1) Are there any errors that describe your property on your tax record card (such as the number of bedrooms, bathrooms, incorrect size of the lot, etc.)?
2) Have homes in your area that are comparable to yours recently sold for less than your home's appraised value?
3) Do your neighbors who own similar houses have lower assessments?
4) Does your home have "value-killers," like drainage problems, easements, re-zoning, heavy traffic areas, nearby railroad tracks, freeways, industry or toxic waste?
5) Does your home have depreciation factors? (such as age or quality of materials, electric heat instead of gas or oil, cracks, deterioration, or chronic defects.)