Are you confused by your tax assessment? How it's calculated? What it means? How you can lower it? If so, read on!
If you are one of the many people who have looked over your tax bill and been thoroughly confused, then be assured, you are not alone! In fact, The Maryland State Department of Assessments and Taxation even states just that on their website "property assessments and taxation have historically been confusing issues for property owners." Some of the questions that most people have are dealing with property assessment (which is what your property taxes are based on) and current market value which is the value that would be assigned to your property by a Real Estate professional or appraiser. Another issue that seems to cause many people some consternation is analyzing the balance between the amounts of revenue received by the government from real estate taxes and how, if that balance shifts, our tax burden changes along with it.
The basic questions, answered
First, let's take the basics, what is a tax assessment? According to the Maryland State Department of Assessments and Taxation "An assessment is an estimate of the current market value of your property as determined by the Department of Assessments and Taxation. Local governments will apply their tax rates to the assessment in determining your annual property tax bill." To clarify, this explanation specifically mentions "current market value"meaning that the tax assessment office or tax assessor for your region does a "sales analysis"this analysis looks at "comparable properties"which are properties which have recently sold in your immediate area that closely resemble your property. This differs from an appraisal and/or Real Estate Professional CMA (comparative market analysis) is one key aspect: the tax assessor never visits your property. If the tax assessor doesn't come into your home, he/she can't see that you've replaced your kitchen countertops with granite or completely re-done your bathrooms or finished your basement, these are all things that a real estate professional or appraiser would take into account.
What if I think my assessment is wrong?
Another frequently asked question "what do I do if the real estate market values trend downward?"Good question and here's how the Maryland State Department answers this one: "The Department constantly monitors the market statewide. All sale transactions are processed through the local assessment offices as deeds are recorded. Each property's sale price is compared to its assessment. The Department reduces assessments if a downward trend occurs". But, supposing your property value has gone down and the department doesn't reduce your assessment, what can you do then?
You can "appeal"your assessment. SDAT (State Department of Assessments and Taxation) states that there are three occasions when appeals may be filed:
- upon receipt of an assessment notice.
- by a petition and for review; and
- upon purchase of a property between January 1 and June 30.
If you feel the value of your property has declined in recent years and you can provide "supporting documentation"such as recent home sales in your neighborhood with lower values, then I would encourage you to take those steps and assert your rights as a homeowner. The State, as well intentioned as it may be, is looking out for its own interests and revenues. As a general overview, Metropolitan Regional Informational Systems (our local multiple listing service) March 2008 shows an overall market decline statewide of 6.1% with the average sales price in March 2007 of $352,565.00 and a current average sales price of $330,960.00, so the time may be right to think about a real estate tax assessment appeal. For more detailed information on the tax appeal process go to http://www.dat.state.md.us/sdatweb/qa.html.
Real Estate and tax revenue, what's the big deal?
So, what is the correlation between property values and the revenue generated by housing sales and mortgage refinances, how do these elements fit together with our current tax burden? Most people don't realize all the taxes that are levied in conjunction with real estate transactions and how when the real estate market falters it does have a profound affect on City, State and County revenues. Anyone who has purchased a home and gone through the refinance process knows that you need to pay "closing costs". "Closing costs"is a catch-all term used to describe all of the combined fees charged by lenders, title companies and state and local governments in order to transfer or refinance a property. The fees imposed by the local and state governments are known as transfer and recordation taxes.
Typically, in the State of Maryland, these fees are split equally between the Buyer and the Seller in a purchase transaction. As an example, I will use a townhouse in Howard County, MD which sold for $265,000.00 to a first time Maryland homebuyer. The total amount of fees charged to the buyer and seller that went directly to the state and local governments as a result of this transaction was $4,777.50! As you can see from this example, if real estate sales slump, government revenues decline and then the government needs to come up with ever more creative ways to replace that lost money. Because all of the taxes levied are based on a percentage of the home sales price, falling values also eat away at local tax receivables.
The Baltimore Sun in an article entitled "No Tax relief this year"reported "The collapse of the housing market and the decline in home sales in Baltimore have cost the city money can't easily recoup."Similarly, an article in the Washington Post which appeared in the May 6th issue brought more "declining revenue growth"in Alexandria, VA to our attention. The article states that Alexandria "wrestling with declining revenue growth"and a "worrisome financial future" compared expenses and increased the property tax rate slightly". Interestingly enough, the article also states that "the average homeowner's taxes will drop $7, however, because declining real estate values have caused assessments to fall"so maybe there is a "silver lining"to consider in all of this recent news!