I am seriously beginning to think about buying a house, condo or townhouse. Currently I am renting. I’ve been looking at a realtor website which gives the price of the house and estimated property tax. One house is listed for $154,000 and the property tax is estimated at $1,400. Another house with the same listing price has tax estimated at $3,000. Both houses are in the same town within 2 miles. Assuming that the estimated taxes are correct, why would there be such a difference?
Property taxes are based on assessed value, not the listing or selling price.
E.g., If I want to sell my (assessed value) $250K condo for only $50K, I am free to do so but that’s not going to affect the present or future taxes on it at all.
It could be house #1 had some remodelling work done and so is worth 154k, but the assessor hasn’t made an adjustment yet for the new value of the house. In this case, when you buy the house at 150k expect the taxes to go up. Or else the house has been owned for a long time and is in a community that only allows, say, a 3% increase in prop taxes/year while property values have been going up at 8%/yr. Or one house has a homeowner’s exemption applied and the other does not. Or possibly the lower taxes are because they got an attorney to argue it down, or the assessed taxes are pegged to things like sq footage/number of fireplaces/bedrooms/bathrooms/pool/finished basement rather than estimated value.
Actually, it will affect the taxes, but only in a small, indirect way.
The tax rate is determined by taking the total assessed valuation of the municipality – its total tax base – and dividing it into the amount that needs to be raised in taxes. The resulting decimal then becomes the tax rate.
The assessed valuation is determined by taking the average of what properties have sold for over the last few years (leave that vague, since it may vary – multimillion-dollar estates come on the market far less often than yuppie townhouses, the yuppie family having been transferred to Phoenix or Kansas City and needing to sell its current home).
Hence several below-market-value sales may depress the assessed valuation for that category of home, and reduce the tax liability for it to some extent – though because it also reduces the total assessed valuation of the community, it will therefore tend to raise the tax rate slightly. In some cases, the two effects will cancel each other out; in others, the actual tax liability on the propery will be reduced because the impact is on the tax rate is not so great as that on the assessed valuation.
Correction to middle paragraph: “The assessed valuation is determined by taking the average of what identical or quite similar properties have sold for…”
It could be that the hosues are in different school or fire districts (or any other of the bewildering array of local taxing districts) so they’re being taxed at different rates.
As Gaudere says, the assed value of a property is determined using a lot of things. Some that I’m familiar with include: selling prices of houses in that neighborhood; selling prices of similar homes throughout the community; square feet of “livable” area; how many cars the garage holds; age of the house; number of bathrooms and a whole lot of other things that the real estate agent may or may not give a hoot about when recommending a listing price to the owner.
Sonme things real estate agents seem to care about tremendously, that the assessor doesn’t: full basement; decor; “updated” kitchen or bath; new roof.
Call the assessor in your locality. In Michigan, for example, if you go on advice given by people who aren’t familiar with Prop. A, then you’ll be seriously fucked. No blanked statements can really be made and you need to call your local assessor (not an appraiser, who is a private professional). The assessor’s job is to help give that info and explain why things are the way they are.
If the property tax situation is like Delaware’s, it could be that one house is older than the other. In DE (at least in my county), re-assessment has not been done since 1976 or so. What that means is that unless your house was built before 1976, it still has the assessment it was given when it was built. Therefore my house is assessed at its value in 1987 and my sisters house, which had roughly the same sale price, is assessed at its value in 2003.
This kind of screws the people with new houses, but its hard to get support for a re-assessment since a lot of people would see some sort of tax increase.
Not true everywhere. In my county, there’s a stated property tax rate, like $1.16 per $100 of assessed value. Each year, the assessed value is adjusted, based primarily upon recent sales. If that results in the county getting considerably more income, they either find a way to spend it, or they adjust the tax rate. However, in recent years, the occasional small reductions in the tax rate have still left a huge income bonanza for the county. In other words, to keep the county’s income constant, they would have reduced the tax rate by $0.20, but they’ve only reduced it by $0.04.
Value is not contained in an item itself, but within the eye of the beholder.
As someone else mentioned, the fact that the houses are in the same town doesn’t necessarily mean that they’re in the same taxing jurisdictions. They might be in different school districts, for instance (school taxes are probably a big portion of your property taxes).
Also, I believe that many jurisdictions have limits on how much your assessed value can go up each year. If a house’s market value has increased a lot in the recent past, the assessed value may not have kept up. A newer house (or an older house whose value has been more stable) may not be affected by this.
Another possibility: most jurisdictions have a procedure whereby you can challenge the assessment on your property. I’ve never done this, but I’ve heard that in some places they’ll cut people a break if they take the trouble to formally complain (the squeaky wheel gets the most grease).
Where I live, you can go to the county assessor’s web site and look up any property, and see exactly how its taxes are calculated – the assessed value, the different taxing jurisdictions and tax rates, and so forth. You might see if that’s the case where you live.
Just off the top of my head: It could be that the official assessments are very different, that one is in a different school (or whatever) district, that one of them is affected by a property tax cap and the other is exempt.
True. I was, however, referring to what the local government does, not some abstract concept. “Looking at the budget, we need to pay out $13,000,000. We’re getting $5,400,000 in state or federal aid, so we need to raise $7,600,000 in taxes. We can expect $100,000 from oddball tax revenue like county clerk fees, so we need $7,500,000 in revenue. Since the assessors have assigned assessed values to non-tax-exempt property in the county of $180,000,000, we need a tax rate $7,500,000/$180,000,000, or .041666… That raises the rate from the .040832 last year.”
If one house is currently assessed at below-market value, expect that it would go up to the purchase price the year after you buy. That’s how it’s done around here - my house had an assessed value of $245k when I bought it, but I paid $330k. The next year, the assessed value went up to 330.
It’s not an abstract concept. I’ve lived in places where they go through the process you describe. I’m trying to explain that in this county, that is manifestly not what they do. The process is very different - in effect, the reverse of what you describe.
In most years, they don’t even consider changing the tax rate, regardless of assessment amounts or budgetary needs. What they do, instead, is fiddle with the budgeted expenditures in order to match the revenues, and leave the tax rate where it is. If the tax rate results in a lot of extra revenue, because of rising assessments, they start putting money into a “rainy day” fund, or they tell the school system that there’s going to be more money, so they can request more funding for things.
Sure, they have to run the numbers to see what happens, but they’re not using the result of that computation to establish the tax rate. They’re using the result of that computation to establish the budget. Obviously, if the revenues aren’t going to fund that which is considered essential, they would have to raise the tax rate, but with rising property values, they virtually never have to do that.