Ways To Cut Your Property Taxes
by Larry Czaplyski
If you’re like most homeowners, you’ve seen your property taxes steadily increasing over the past several years. Each year there’s a larger tax bill. This can get frustrating. Especially if you believe the assessment is unfair.
Phil Butler, of Colorado Springs, Colorado had enough. “I got tired of seeing my mortgage payments continue to rise mainly because of my taxes.”
While each state tries to ensure that the tax load falls equally on each owner’s shoulders, it’s difficult to guarantee fairness. The result is that many homeowners end up paying more than their fair share. Only a small percentage of homeowners appeal their assessments, yet a significant number of those who do save money on their tax bill.
Phil Butler was one of them. “I decided to give it a shot…my tax base dropped by $16,000.”
How The Assessment Process Works
The property tax is an ad valorem tax (“according to value”) imposed on all non-exempt land and buildings within a taxing jurisdiction. The amount you pay depends on the assessed value of your property.
Your local tax assessor determines your property’s assessed value. The assessor does this by applying different social, economic, and environmental data to the two valuation methods typically used for determining the value of residential property. These methods are the market data approach and the cost approach.
The idea behind the market data approach is that the actions of buyers and sellers in the marketplace determine the value of different types of property. The assessor determines the value of a property by comparing it to similar properties that have sold recently in the same area and making adjustments for differences.
The cost approach assumes that an informed buyer would pay no more for a property than the value of the land plus the cost to build a replacement, less depreciation. The assessor uses a cost manual for information on residential construction costs.
After determining assessed value, the assessor provides the local taxing authority with the total assessed valuation of all taxable property. The taxing authority uses this information to set the tax rate.
The tax rate depends on how much money the local taxing authority needs for its operating budget. Local officials set the rate by dividing the money they need by the total assessed valuation of all taxable property.
For example, if a school district needs to raise $1 million, and the tax base is $100 million, then the tax rate is 1%. If the district needs to raise $2 million with the same tax base, the rate changes to 2%.
However, if the district needs to raise the same $2 million and the total assessed value has increased to $200 million, the tax rate is still 1%. In this case, there’s been a de facto tax increase even though the rate remains the same.
Not all tax jurisdictions actually assess property at full fair market value. Many use some percentage of fair market value other than 100%. Be careful if this is the case where you live.
As Jim Glaros, of the Hillsboro Florida County Property Appraiser’s Office says, “At 40%, 50%, or 60% of market value people aren’t going to complain. But the closer it gets to market value, the more chance there is for a reaction.”
Suppose your tax bill indicates the assessor values your property at $247,500. Because you know it would sell for $289,000 on the open market, you don’t pay much attention to your assessment. However, since the assessment rate is 80% of fair market value, what the assessor is saying is that your home should sell for $309,375. Your home is over assessed by $20,000. How do incorrect assessments like that happen?
The answer is that at any point in the assessment process errors may occur that can affect your property’s assessed value. These may be mechanical errors, valuation errors, or legal errors.
Mechanical errors include mistakes in measurement, incorrect description, or clerical errors. They typically occur when the assessor uses incorrect dimensions for your land or building. They are apt to happen if your home has an irregular shape or if the assessor doesn’t physically measure it.
Descriptive errors occur when the description of your property is inaccurate. The description may add non-existent features (e.g., a more expensive construction type) or it may fail to mention internal problems (e.g., aluminum wiring) that would reduce its resale value.
Clerical errors occur when a clerk enters data incorrectly or makes a computational error.
Each of the valuation methods mentioned earlier contains areas where errors can occur. For the market data approach, the assessor may compare your home to other homes that aren’t really similar. For the cost approach, the assessor may use erroneous construction data.
Legal errors are those that violate state laws governing the administration of the property tax. For example, the assessor may have failed to give official notice of a new assessment.
Determining If An Assessment Is Correct
There a number of steps you should take to determine if you are,in fact, paying your fair share of the property tax burden. The first is to gather information about the appeal process.
Jim Bone, a tax consultant in Lake Forest, California sees a typical pattern. “Homeowners frequently start the process without learning the rules. As a result, they don’t provide the correct information to the assessor at the right time…homeowners who plan to carry their own appeal should take the time to learn the mechanics and the system.”
Many tax assessor offices make information available to the public. This information can define terms and point you in the right direction for an appeal. Obtain all the information that your assessor offers.
Ask what forms are necessary. Get extra copies and make sure that you understand what each form requires. It is essential that you fill any forms out completely and accurately.
Also ask for a copy of the tax calendar. The tax calendar contains all the important dates of the tax year including the assessment date, the assessment appeal deadline, the tax payments due date, and the local board of assessment review meeting dates.
While they are customarily fixed dates, any one of them may be changed from one year to the next. If they are and you don’t know about it, you lose.
The assessor’s office also has key information about your own and other comparable properties. Available information includes the tax roll, lists of property sales, property record cards, and cost data.
The tax roll shows legal addresses, assessed values, and taxes paid or due. The lists of property sales show the most recent market prices.
The property record card is where the assessor enters and maintains information about individual properties. Examine it to see if your property’s dimensions are correct or if there are errors in your home’s age, size, or type of construction.
Cost data is the local construction data that the assessor uses in a cost approach to valuing property. Find out if the assessor uses a standard commercial manual or an in-house manual.
After you understand the process and have all the necessary information, it’s time to develop your own opinion of your property’s value. Most homeowners who appeal successfully use the comparable sales approach. The key to this approach is to find properties similar to yours that have lower assessed values or that have recently sold for less than their assessed values.
However, the cost approach is also useful. You can use it to get a ballpark estimate for what your assessment should be and as supporting evidence for an appeal.
Real estate agents or bank loan can help with information about comparable property values. Builders can help with data about construction costs.
Another area to check is exemptions. An exemption excuses you from paying part of your property tax. An especially helpful exemption is the homestead exemption that exempts a portion of your home’s assessed value. Find out what exemptions are available in your area and then apply for those that you qualify for.
The appeal process is something that a homeowner can do alone. Jim Glaros says that “Homeowners can do this themselves…but they’ve got to do some digging. I see people representing themselves and usually they’re not really familiar with the process.
If you don’t have the time, consider using the services of a professional appraiser, a lawyer specializing in assessment issues, or a property tax consultant.
An experienced appraiser will have extensive knowledge of the real estate in your area. The appraiser will provide you with a written expert opinion that typically includes a cost approach and a comparable sales approach. Because appraisers must make impartial appraisals, they charge a flat fee instead of a percentage of any savings.
Phil Butler says, “I had recently taken out a second mortgage and had a recent appraisal…I believe it was the key. They assessed the house at that value.”
If you decide to contact a lawyer, choose one who specializes in assessment appeals. Researching an appeal can take many billable hours, so make certain that fees are based on results.
A property tax consultant will represent you for a percentage of any tax savings that can be won. Because there are few formal standards for property tax consultants, ask for the names of satisfied clients.
Jim Bone suggests “the owner of a high-value home should engage either an experienced residential appraiser…or an appeal firm that uses experienced residential appraisers.”
When you have your own opinion, compare it to the assessor’s. If assessed value is less than 100% of fair market value, convert it to fair market value. Then look for mechanical, valuation, or legal errors.
If you determine that your assessment is incorrect, schedule an appointment to discuss your opinion with the assessor. Don’t let anger or some other strong emotion get the better of you during your meeting. Maintaining a firm rein on your emotions and focusing on the issues will ensure you get a fair hearing.
If the informal approach doesn’t work, you will need to present your findings using any required forms. Summarize your opinion of value in a one-page cover letter and provide your evidence clearly and succinctly.
If you have a strong case, the assessor is likely to lower your assessment. Even if your case is not particularly persuasive, the assessor may offer you a modest compromise to save the time and effort necessary to defend the assessment. Be sure you get any agreed compromise in writing.
If you can’t get any satisfaction, your next step is the local assessment review board. Most states have appeal levels that include a local board of assessment review if the assessor denies your appeal. Review boards are usually informal and provide a means for individuals to appeal their assessments without hiring a lawyer.
Boards usually do not require you to appear in person. You may be able to submit your appeal through the mail or designate someone to represent you. If you are going to represent yourself, attend some meetings to see how they work.
Don’t go without supporting evidence for your appeal. Listen to Jim Glaros, “Homeowners shouldn’t go to a hearing without strong factual proof.”
Because you probably won’t have more than 15 minutes to make your case, it is important that you present your case as concisely and unemotionally as you can.
If you lose at this point, your next appeal levels are in your state’s court system. You will need a lawyer specializing in property tax appeals.
Regardless of the path you choose, contesting an incorrect tax assessment can save you money each year that you own your home.
American Society of Appraisers
Call 800-272-8258 or 1-800-ASA-VALU for names of qualified appraisers in your area.
The Homeowner’s Property Tax Kit ($14.95, McGraw-Hill) by Lawrence Czaplyski and Vincent Czaplyski. Written specifically for residential owners.
Price Waterhouse provides a free brochure that explains the basics of the personal property tax. Call a Price Waterhouse regional property tax specialist: Atlanta 404 658-8806; Dallas 214 754-7956; Los Angeles 213 236-3346; New York 212 596-7000.
TAX-TRAX is software designed for real and personal property tax valuation. Contact Tax Management Group, San Diego, CA 92111. Call 619 560-6101.
James Bone & Associates
23832 Rockfield, Suite 185 Lake Forest, California 92630
(714) 458-5895 fax (714) 458-1037 E-Mail email@example.com
Jim Glaros,Assistant Chief Deputy fo Valuation, Hillboro County Property Assessors Office, Hillsboro County, Florida 813-272-6100
Phil Butler, Colorado Springs, Colorado 719-597-7738