For many homeowners, the local property-tax bill will arrive in the next few weeks. Sit down and take a deep breath before you open it, because it may shock you. The National Taxpayers Union, a nonprofit advocacy group in Alexandria, Va., expects an average increase of 10% nationwide and 20% to 30% gains in some spots in already high-tax states such as New York, New Jersey, and Connecticut.
In part, the soaring bills are the downside of the real estate boom and higher property values. The rest you can blame on the recession, which has forced state governments to cut back and foist more costs on municipalities.
Take heart: You can fight back. You're not going to knock down the tax rate. But if you can show that your assessment is too high, you're likely to win a tax-bill reduction that can amount to hundreds or thousands of dollars a year. And making a case isn't so hard. That's because experts say there could be errors in the information that the authorities used to calculate the assessment of the property. "When appraisers come to visit your house, they often don't have time to make an adequate inspection," says James Lumley, author of Challenge Your Taxes: Homeowner's Guide to Reducing Your Property Taxes ($19.95, John Wiley & Sons Inc.).
If you're not at home when the assessors visit, they might simply peek in the window or drive by the property. In larger jurisdictions, assessors often rely on computer records of past assessments and new improvements. Also, appraisers can assume houses with similar exteriors contain the same number of bedrooms and bathrooms. Such mass assessments take a lot for granted.
Common mistakes are goofs in the house's square footage, listing five bedrooms when you have three, or including improvements you lack, such as a finished basement. Ron Napier, a real estate consultant in Oak Park, Ill., says he often finds errors for houses built 75 years or more ago. That's because such dwellings, while varying greatly in style, can be lumped into an "older home" category.
CONSIDER THE NEIGHBORS
Even if the assessor got everything right, you may be able to get your assessment lowered if you can prove similar properties carry lower values. That strategy worked for James Lucas of Arlington, Va., who took action last year after the assessment on his three-bedroom condo--as well as his tax bill--shot up 40%. Although adjacent condo owners saw similar reassessment hikes, Lucas reviewed neighborhood assessments on Arlington's Web site and found the assessor had valued the land next door, where an apartment building stands, for much less. Result: Lucas got his taxes reduced by $429, to $3,824.
Nationwide, a mere 3% to 5% of homeowners challenge tax assessments, Lumley figures. He estimates that more than half of those who do so win a reduction. But success rates vary greatly.
To decide whether you have a legitimate case, you must first decipher the tax bill. This is calculated by multiplying your property's assessment by the tax rate, or "mill" rate. The number is usually stated in dollars per $100 of assessed property. The tax rate is often set each year by local elected officials or popular vote.
Your property's assessment is supposed to reflect its fair market value at a certain time. Here's where it gets tricky. Many local governments reassess properties only every three to five or 10 years. Typically, reassessments are based on recent selling prices of similar houses. In the interim, the assessment may remain constant, and reflect only a fraction of market value. So a house worth $800,000 might be valued at $500,000.
In other cases, the jurisdiction might add, say, a 6% hike to your annual assessment based on how much real estate prices climbed in your neighborhood. To add to the confusion, some states, such as California, limit property assessment increases except when a house is sold. (In California, the cap is 2% a year.) Even if your assessment doesn't change this year, your bill will rise if the tax rate does. Typically, property taxes amount to 1% to 2.5% of your house's value.
Homeowners can usually challenge tax assessments at any time. But they tend to do so when a reassessment is done because that's when valuation can change dramatically and when errors in property description might have been made. (If you've had a recent reassessment, you'll probably get your notice in late winter.) The notice includes a detailed property description. Otherwise, you can obtain a description from the assessor's office or online.
After checking the property description for errors, look at assessed values of similar houses in your neighborhood. Even if there are no big differences, you might be able to argue for a lower assessment if your home has defects such as a cracked foundation or water in the basement. Or perhaps your house fronts on a busy street, or your high-rise condo's view is less spectacular than that of your neighbor's. You might also want to hire a certified appraiser to provide an independent valuation. Appraisers charge $200 to $500.
WHERE TO TURN
A terrific resource is a local taxpayer's advocacy group. These organizations can give you practical tips and let you know your odds for winning an appeal in your area. Mike Sessa, the chairman of the Macomb County Taxpayers Assn. in Harrison Township, Mich., says he has assisted thousands of homeowners with appeals in the past 25 years.
If you think you have a legitimate case, call the assessor's office. The assessor may simply visit your house and make a decision. More often, you'll need to fill out paperwork to lodge an appeal or schedule a hearing with the appraiser. If you get turned down or are unhappy with the reduction, you can make your case to an appeals board. Your last resort is the appropriate court in your jurisdiction.
Remember, many local authorities give you only 30 days to 45 days after the reassessment to appeal if you want any reduction to apply to the current year's taxes. If you lack the time or desire to protest on your own, you can hire a real estate consultant to conduct the appeal for you. Typically, you pay a consultant only if you win. The fee might be 25% to 50% of your first year's tax savings.
Appraising a property is as much art as science. So there's room for you to persuade appraisers that they've erred. After all, no one knows your real estate--warts and all--better than you.
By Susan Scherreik