“In this world nothing can be said to be certain, except death and taxes.” – Benjamin Franklin
For homeowners, property taxes can be a big hit to your everyday dollars. As we’ve watched home prices increase in 88% of U.S. cities, we’re unlikely to see a decrease in property taxes without some effort and the know-how to work the system.
Property taxes are unique (read: unfair) in how they work in a couple ways. First, most cities set a revenue target to meet their expenses and then they vary the property tax rate yearly to meet that target. This is in sharp contrast to the pre-set sales tax we pay when we make a purchase.
Second, the taxes are based on the value of our home determined by the city – the county assessor uses the size of our home + property and compares it to the value of similar homes in our neighborhood, as well as recent sales data – and the aforementioned varying property tax rate.
Because the city controls both the tax rate and the assessment value, we homeowners have little control over our property tax liability. For example, the city can set the tax rate at 2% so that our home assessed at $200,000 will collect $4,000. The next year, they can re-assess property values so that our home is now assessed at $250,000 which lets them drop the tax rate to 1.6%, allowing them to collect the same $4,000.
This helps to explain why the “assessed” value of our home can have little bearing on what our home may fetch on the market (and it’s why home buyers should always ignore any statement about the assessed value within real estate listings).
We do have one option for relief, and that is challenging the assessment in an attempt to get lowered. It isn’t difficult, but it is a step-by-step process just like we used to lower our insurance premiums. I’m going to show you how to navigate this process so you can save yourself some everyday dollars.
Step 1: Research
We need to gather the following information:
- Find our homes most recent property tax assessment.
- Confirm our assessment is based on accurate information (e.g. square footage, number of rooms and room dimensions, description).
- Locate ten recent comparable home sales.
- Determine when and how an appeal can be filed by checking the assessor’s website or calling them.
The key to a successful appeal will be the comparable home sales, or “comps”. We will need to convince local officials that our property has been incorrectly assessed by using the sales price of homes that are comparable to ours, in terms of square footage, property size, amenities, and neighborhood.
Step 2: Appeal
Using the comps data, if we feel our home is being overvalued by more than a few thousand dollars – or if we find a mistake in our assessment (e.g. it lists a bedroom as having more square footage than it actually does) – we should file an appeal with the assessor’s office.
Note, however, that a good reason to forego filing an appeal is if we recently performed renovations or significant upgrades in our home. A bathroom remodel or new granite countertops in the kitchen can have the unintended consequence of triggering an assessment increase.
Step 3: Court
In most states, the appeal process culminates in court with local officials. For the hearing, which is informal and lasts about 15 minutes, we want to be professional, dapper, polite and – most importantly – have the information to back our appeal that we gathered during our research.
The following evidence is what we will use to present our case:
- One document listing the sale price of ten comparable homes.
- The individual sales documents of those ten homes.
- Individual photos of those ten homes.
- Photos of our home.
A word of caution: for the comps, be sure not to rely on the home value data from Zillow or similar sites. Those figures aren’t official and aren’t likely to stand up as proper evidence during the hearing. Zillow is an excellent starting place to look for our comps and to collect photos, but we’ll want to use the sales data recorded with the assessor’s office (which most cities have online).
Additionally, we will want to make sure that the comps are “arm’s length”, which means the sale was between two unrelated parties – to exclude a parent selling a home to a child at an undervalued price – but can also mean sales that are foreclosures, short sales, or part of a divorce settlement. We can work with the assessor’s office to verify that our comps are arm’s length and will be accepted in court.