You may be paying too much in property taxes. Property taxes are based on an appraisal the tax assessor provides on every piece of real property in its jurisdiction. The higher your tax appraisal is, the more your property taxes will be. Too often, in political circles, the focus is on tax rates. When it comes to property taxes, there are two parts to the equation; tax rate AND tax appraisal. The quieter, less politically disruptive approach to raising property taxes is to raise tax appraisals. And sadly, many property owners get excited when they see a higher tax appraisal because they think their property is worth more. One's reaction to a higher tax appraisal should be the exact opposite because it signifies an increase in property taxes. In fact, what you're about to discover is how local governments have been fleecing property owners and what you can do to stop paying too much in property taxes.
How Government Spending Works
As you may be aware, governments handle their finances in a very peculiar way. They base their money matters on budgeting, and more specifically, on how much each department spends each year. If a particular department spends their entire budget, they will typically get that same amount the following year. Then, as new initiatives and programs arise, budgets increase. And so long as those new programs spend their entire allotment (which, it turns out, people are quite adept at spending money), typically they get at least that same amount the next year. My mother worked in local government for a short time and she couldn't understand why the local government demanded she spend all the money that her department was allotted when she didn't need to spend it all. Her superiors would tell her that it was the way government worked and if she wanted her full budget next year, she needed to spend all the money allotted to her that year, even if it was wasteful.
That's what is so interesting about how governments spend money. Rarely do they spend less because the way the system has been established is to encourage wasteful spending. In most cases, government budgets grow and grow, year after year, regardless of economic conditions, population changes or market adjustments. But what if the economy shrinks dramatically? Much like a business that has to tighten its belt when times get lean, shouldn't a government do the same? Ahhh, good question.
Why You May Be Paying Too Much in Property Taxes
The real estate bubble of the past decade has created an interesting phenomenon in property tax assessment. As the property values rose dramatically in the mid 2000s, tax appraisals went up accordingly. Local governments boomed. Money was flowing in for new projects and new initiatives. Cut backs turned into budget increases. Life was good. But as we now know, their was a big storm brewing. Then, like a freak thunderstorm, the real estate bubble burst and property values began to plunge.
Local governments had meanwhile become quite accustomed to the larger income streams coming from the higher tax appraisals. When the real estate market began to tank, surprisingly, tax assessment offices didn't jump to re-assess property values. Rather, they made no sudden moves and perhaps hoped it was just a temporary adjustment and not a sign of things to come. But it was just the beginning. In some areas, property values dropped as much as 50% or more over the course of the next 5 years. It turned out to be the biggest "correction" in real estate values in American history. All the while, local governments didn’t bring down the tax appraisal amounts to match the drop in market values.
Today, there are property owners paying way too much in property taxes because their tax appraisal is far higher than the actual market value. I spoke with a seller yesterday who was adamant about selling his property for the tax appraisal amount but the problem was that the tax appraisal was $45,000 more than the market value of his property. I showed him comparable sales to prove it. When it finally dawned on him that he had been paying too much in property taxes for the past several years, boy was he mad! Are you in the same boat as him? Is the tax appraisal on your property MORE than the market value?
How to Lower Your Property Taxes
If you have the unfortunate situation of having a higher tax appraisal than the current market value of your property, there is a way to avoid being the victim of overpaying in property taxes. You will need to make an appeal to your tax assessor for a re-assessment of your property's tax appraisal. Provide comparable sales to prove your point. Each county handles re-assessments differently. In many cases, you have a very short window each year in which to appeal. But even if you can't take advantage of this strategy today, set a reminder for yourself for when you can. And hopefully in the near future, by following this, it will help prevent you from paying too much in property taxes.
The reality of appealing your property tax is not for the average taxpayer, many assessors are trained to deny your appeal in the hope you will go away or sometimes they will throw you a bone in the hope you will go away. Do not bring a bank appraisal an expect a reduction . If you are going to fight your assessment hire an appraiser for that specific reason and you need to qualify the appraiser and be sure the person has experience at the Tax boards and of at the court level. All appraisers are not the same ever when licensed. I have dealt with many assessors for one reason or another.