by Dean Hartman on February 10, 2011
In many municipalities, it is that time of year when homeowners have an opportunity to grieve their taxes. In most places, your real estate tax bill is determined largely by the value of your home. With the tumble in home values continuing, many homes have an over-assessed value attached to them. So, if you own a home, I suggest you explore the complete process: the forms required, the data you need, and the deadlines you need to hit. Real estate taxes are calculated by a simple formula:
Assessed Value x The Tax Rate = Your Taxes
The lower the assessed value is, the lower taxes. Understand that many municipalities cannot afford the loss in revenue, so they increase The Tax Rate to compensate. That means if you DON’T grieve your real estate taxes, your taxes can actually increase….even though your home has decreased in value!
The value of a tax grievance to a home seller
The value of a grievance starts with the understanding that home buyers buy primarily based on the future monthly mortgage payment (not just on the price of the home). Often, we have discussed that higher interest rates force prices lower to compensate for that. At the same time, we need to remember that real estate taxes are also included in that monthly payment; therefore, lower taxes on comparable homes can make one home more attractive than the others because of lower taxes.
As an example: A $100 reduction in the monthly real estate tax bill is equivalent to an $18,600 difference in a mortgage amount (assuming a 5% interest rate). That means that a buyer can offer $18,600 MORE in price to the seller and wind up with the same monthly mortgage payment.
“What about hiring someone to do the grieving for me?”
It is not unusual for people to get someone to do this work for them. Normally, you would pay half of the first year’s savings to such a service provider (and only if they are successful). Because it is standard operating procedure for most grievances to be rejected the first time, and court dates become a necessity, I have no problem with delegating this task, but the paperwork is not too onerous, so you might want to keep all the savings. (If you are selling your home and in the process of a grievance, make sure you communicate the responsibility of payment of any fees to your buyer).
As a homeowner, whether you are selling or not, look to make sure your tax bill is commensurate with today’s value, not an old assessment. For a buyer today, make sure you analyze the tax bill when determining affordability of a home you are looking to purchase and even look for a home that has grieved, is in the process of grieving, or is a good candidate for a future grievance.