I don’t know whether this is a significant number, but I just finished paying my yearly home insurance and tax bill. I note that I paid almost exactly 2% of the value (the value as defined by the assessment. I am assuming that is approximately correct-it seems right for me and this area) of the house in taxes and insurance. Note that isn’t principal and interest, just taxes and insurance. Is that an unusually high or low percentage? How do real estate professionals judge the “load” or cost of taxes and insurance on a home? Is a % of value a common method?
It varies all over the place. In some areas, the tax assessment value is maybe 10% of the price the house would sell for today. In others it’s closer to 100%.
Since it’s a 100% artificial number that exists solely for determining taxes within a single jurisdiction, all that matters is the assesment of your house & that of your neighbors roughly correlate with the difference in their current market prices. There’s no need for the assessed value to correleate with reality so it usually doesn’t.
In areas that have recently seen huge price spikes, the assessments usually lag reality, which has the effect of reducing the tax as a percentage of the market price. Then the assessments catch up, just in time for prices to soften, and the apparent tax percentage jumps a bunch. And voters whine.
Once we start talking about actual market prices instead of artificial assessed value, then the real estate taxes can vary from maybe 1/10th of a percent up to maybe 3%. Some states have low income taxes but make up the difference with high real estate taxes. Other states do the opposite. Some have both taxes high. Or middling. Or low.
Insurance varies a bunch too. Do you live where hurricanes are a risk? You’ll pay more than where they aren’t. Ditto for earthquakes. And wildfires, and …
Also, insurance protects the house, not the land.
In beachfront California, you have $2 million lots with 1950s beach shacks on them which cost $8K to build & would cost $150K to rebuild. Insurance on the house is comparatively tiny versus the property taxes since they’re insuring less than 10% of the value of the combined land & building, but the taxes are based on the combined value.
Here in semi-rural MO, there are lots of fatcats who’ve bought half a square mile of hilly forest 20 miles beyond the edge of suburbia for $40,000 and put a $2 million house on it. These folks need to insure 98% of the combined value of land & building. All else equal, their insurance would be much higher compared to their property taxes versus the Californians.
Bottom line: for any given locale the load will be comparable for houses & lots which are comparable. Across locales or across wildly different types of houses & lots, loads will not necessarily be comparable at all.
Even that won’t be true if you are in CA with prop 13. Two nearly identical houses next to each other can be paying very different taxes. The homeowner who has been in the house several years is paying a lot less tax than their neighbor, who just moved in.
Yeah. I left that out since the story was already getting complicated. When my Dad died a few years ago we sold his Prop-13-protected house, the one I grew up in. The new owner’s taxes were 8x what his were. Same house.