DROdio Real Estate

Property taxes are one of the many hidden costs of owning a home. They’re not (directly) factored into the purchase price of a house or condo, and they’re not as obvious as the power or water bills. Yet they are a substantial annual cost, and homeowners can’t afford to ignore them – in fact, with some attention and a little research, you might be able to save a few hundred dollars every year.

But first, where do these numbers come from? Property taxes comprise two elements – the tax rate and the assessment.

The tax rate is usually determined at the city or county level, though some states impose an additional state-level property tax. These taxes rates are expressed in an amount per $100 of value. For example, in the District of Columbia, the property tax rate is $.85 per $100 of value. These rates vary from city to city and county to county, but most areas around metropolitan D.C. have rates below $1 per $100.

The assessment is a number that reflects what the government thinks your home’s fair market value is. It’s based on many factors such as location, value of nearby homes and the features of your house. As such, with all other factors equal, a house with a deck will be assessed at higher value than a similar house with no deck. These assessments are supposed to reflect what your home would sell for if you put it on the market.

The frequency of these assessments varies by state – in D.C., they’re done annually. Maryland assesses properties once every three years, and in Virginia, it varies from county to county.

Your property taxes are just the tax rate times the assessed value. So, if your house was assessed at $1 million and you live in Fairfax County, Virginia, where the property tax rate is $.92 per $100 of value, your annual property taxes would be $9,200. That’s a lot of money!
But there’s a good chance you can reduce your property taxes. As even the Fairfax County Web site declares, “Assessing property is not an exact science.” Assessments are “typically [based on a] mass estimating process, not individual property appraisals,” they add.  Using such a broad method inevitably leads to some miscalculations.

You probably want a little more precision when it comes to the government taking your hard-earned money, right? Fortunately, if you feel that the value of your house is lower than the assessment claims it is, you have recourse – an appeal.

As with the rest of the tax issues, the appeals processes differ among states, but the general procedure is usually similar. The first step is a simple supervisory appeal. If you disagree with the assessed value of your home, all you have to do is file a form stating your intentions to appeal and the basis for doing so. You then will have a hearing with an assessor.

At this meeting, and all the others that follow, research and evidence are crucial. Just saying, “You got it wrong” won’t convince the government to lower you property tax bill. Instead, you need to conclusively prove that your house is worth less than it was assessed at. You can do that by bring documentation of comparable houses.

If your house is 2,000 square feet with 3 bedrooms and two bathrooms, a good comparable might be a 2,100 square foot house with 3 bedrooms and two-and-a-half bathrooms. If that house sold last month for $450,000, but your house was assessed at $520,000, you have a good case and are likely to get some relief. The key is to pick comparables that are very similar to your house. The more like your house, the better, and the more comparables you can cite in support of your argument, the more likely you are to win your appeal.

Of course, you may not win the supervisory appeal. In that case, the next step is a hearing before a local tax assessment appeal board. Again, it varies by state, but usually a hearing before a board is similar to the supervisory appeal – it just has a larger audience and deliberative body.  In most jurisdictions, you and the assessor will each present arguments. Again, the quality of your research is the primary determinant of your success. If you find many comparables, and you make sure they are very similar to your home in quality and features, then you should be able to convince the board to lower your property taxes.

Should the appeals board also rule against you, your final resort is a tax court. Proceedings are more formal, but an attorney is still not necessary. Again, you will present evidence that your house is overvalued – pointing out comparable houses that sold for less and showing negative, value-reducing features of your home that were overlooked in the initial assessment. The assessor will try to argue that his or her valuation was correct.

Through all of this process, there are a couple important things to remember. The first and most important thing to remember is research, research, research! Contrary to what you might think, the assessor is not your enemy or out to stick you with a high tax bill, but nevertheless, you must convincingly argue that his or her assessment of your home’s value is too high.

The second thing to remember is to always keep the costs and benefits of appealing an assessment at the front of your decisions. You can hire a lawyer or your own assessor to help you in your appeal, but seeing as their services often cost more than $100 per hour, the costs of their assistance may negate or outweigh the benefits of having your tax bill reduced. Unless your house was overvalued by hundreds of thousands of dollars, which is rather unlikely, you’re likely best traversing this path on your own.

Still, don’t be scared off from appealing your tax bill. You have little to lose because appealing is usually free, and you can save yourself several hundred dollars on your tax bill. So if your next property tax bill seems excessive, consider appealing.

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This entry was posted on Monday, May 19th, 2008 at 11:16 pm and was filed under All About Home Financing & Loans, All the questions you were afraid to ask. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.