Property Taxes: You Can Fight City HallE.S. Ely
You can't avoid paying taxes, but there's a lot to be said for minimizing them. That's increasingly true for property taxes, which are climbing, often sharply, around the country, as localities wrangle with budget shortfalls.
Just how is another matter. It's one thing to explode over an unexpected jump in one's assessment and quite another to noodle through the arcana of assessment procedures, which vary by state, county, or even from town to town. Then there are those mass mailings landing on doorsteps: We'll Slash Your Property Taxes IN HALF! You Pay Only If We Win! Sign Here.
The hype from this growth industry of tax challengers brings further confusion. But there is a way to appeal your assessment that's straightforward, takes little effort, and will save the most money at the least cost. Your chances of winning are better than even, and you can expect a 10% or greater tax reduction.
COMPARABLE WORTH. Step One is simple: Go to the assessor's office and examine your property record card for errors. The card will contain a description of the house and grounds, along with the assessed value and the math by which it was arrived at.
Errors are notoriously common. You're down for four bedrooms when you have three. Your lot is 70 by 180, not 170 by 180. Your attic is not finished. The pool was filled in years ago. The big plus of fixing a record error is that the resulting tax reduction lasts forever. And it's easy. Just tell the assessor, who will usually fix it on your word without a formal hearing. You're out the door.
Assuming the records are correct, for Step Two you may well choose to hire an expert, though certainly not right off. Here you're convinced your house would not sell for anywhere near the value placed on it by the assessor. Keep in mind that a lot of jurisdictions show assessments at a set fraction of real market value. For example, a house at 100% might be worth $300,000, but the town assesses it at 90%, which puts the house down on the books at $270,000.
To challenge an assessment, you must demonstrate that comparable homes in your neighborhood are selling for less than your appraised value. Get a quick sense of this by talking to your local real estate agent. For free or for a small fee, most are happy to comb their listings to see what homes like yours are selling for and tell you what yours might fetch. You want to get data on three comparable homes that have recently sold and three that are now on the market.
Or you might tap a real estate appraiser. Many, such as Kenneth Nicholson of Nicholson & Co. in Overland Park, Kan., will do a partial appraisal for clients considering an appeal for a third or less of a full report. Nicholson charges $75.
If it turns out that the market value of your home is within several thousand dollars of the assessment, stop here. Your next step, in most states, is to appear before a tax panel, and experts say boards dislike dickering over small differences. Some jurisdictions won't hear your appeal unless your overassessment exceeds 10%.
If, however, you are substantially overassessed, you might want to go ahead with the formal appeal. You have two choices: Do it yourself or hire an expert. Going it alone became popular in the late 1980s, in the wake of the real estate turndown. Self-help books abound, but that route is time-consuming, and it's easy to lose if you don't understand the process. "Your worst mistake is to go in with a chip on your shoulder," notes Richard Singerle, president of Commercial Industrial Analysts in Albany, N.Y.
The art of winning an appeal depends on those houses you're comparing with yours. Remember that the houses are similar, but they're not exactly alike, so the expert's job is to adjust for the differences, adding for this and subtracting for that, to reach the true market value of your house. House A has two fireplaces to your one, but your house is newer by three years. House B is 25 square feet smaller, but it's on a larger lot. House C has a finished attic but also a soggy basement. Each asset or defect has a numerical value attached to it. "This is where it gets complicated," says Jeffrey Johnson, president of Rocky Mountain Property Tax Consultants in Colorado Springs, Colo. "This is what the appraiser knows how to do and the homeowner doesn't." Appraisers and consultants such as Johnson have another advantage: extensive databases of area home sales, including details on interior conditions and improvements. Says Nicholson: "The county doesn't have all those records."
Appraisers who are licensed have a special standing before boards as sort of expert witnesses. If they present an appraisal, boards usually side with their findings. A full appraisal can run to $300 or more, so whether it's worth it depends on how much it saves you and by how often the jurisdiction reassesses.
GET A REFERRAL. Another approach is to hire a property tax consultant. They charge on a contingency basis, so if they appeal your assessment and lose, you'll wind up paying nothing. In theory, at least, property tax consultants won't take on cases unless they're convinced they can win them. But as advocates, they don't have the credibility of appraisers before boards. In many areas, anyone can hang out a consultant's shingle. They can bungle your case and waste your time. Legitimate consultants, moreover, make their real money in commercial and industrial appeals and are generally reluctant to take on residential clients. A reasonable fee is one-third of the tax savings for the first year, but some will charge 50% for each year the reduction remains in effect.
Appraisers and property tax consultants are listed separately in the Yellow Pages, but the best way to locate one is probably through a referral from a real estate agent or a lawyer. Fighting City Hall was never meant to be easy, but with the right professional on your side, it can be a lot less taxing.