Assessments Challenge Local Home Value

Peter G. Miller
OurBroker®

Few local issues are more sensitive than the matter of property values. For reasons of finance and ego, rising values are seen as great and wonderful -- at least until property tax bills arrive.

Property taxes are the engine that largely underwrites government at the local level. A rate is set -- say a tax of $1 for each $100 in value -- and then tax bills can be determined by calculating individual home values. In this case, a home valued at $100,000 would have an annual tax of $1,000 -- or $85 a month. A homeowner with a more expensive property would have the same tax rate, but a higher tax bill.

Property taxes are always a matter of debate because, well, they're taxes and the general rule of life -- something as universal as the law of gravity -- is that lower taxes are to be preferred if one is both a homeowner and lucid.

Lurking beneath a general veil of fairness and logic, property taxes are often contentious. Owners wonder if they're paying what they should, or if assessments are too high.

A new book on the subject, Save a Fortune on Your Homeowners Property Tax! by Harry Koenig and Bob Lafay (Real Estate Education Company, ISBN #0-7931-2937-0) claims that "studies have shown that in about 60 percent of America's households there is sufficient evidence to warrant a tax reduction."

Koenig and Lafay contend that tax reductions may be due as a result of mathematical errors, incorrect property records, the failure to consider exemptions (say special allowances in some jurisdictions for veterans), and other factors. At the very least, owners should review how assessments are made and how one appeals in the case of a dispute. Local assessment offices can supply such information, and there are also private assessment fighting services.

But even if assessments are entirely correct, property taxes are at the center of several important debates.

One core issue is the matter of "gentrification." In essence, what happens is that neighborhood property values rise because of recent sales. Higher values mean higher taxes -- good news for local governments, but not good news for long-time residents with fixed incomes. In effect, property taxes (unlike income taxes) are determined by neighbors who buy at higher values or upgrade their properties.

In an odd way, property taxes penalize those who want to improve their homes. Add a new kitchen and the property is more valuable -- which means taxes go up. Don't improve and rates remain low.

Maybe a different approach to home improvements is needed. Perhaps there should be a moratorium on higher vlaues from improvements for a period of ten years or so. While property taxes would not instantly rise from such upgrades, local employment and retail sales would go up, increases which are surely good for local communities.

Property taxes are also at the heart of a political argument. Local officials can say with a straight face that tax rates have not risen under their reign. This is entirely true -- and very misleading.

With property taxes it's not necessary to raise rates to increase tax bills. Rising values --whether caused by more demand or merely by inflation -- mean that tax payments rise automatically.

Alternatively, raising local taxes is surely a better choice than sending more tax dollars to Washington. Taxing close to home means that local people -- those most impacted -- will determine how their dollars are spent.

Question Of The Week

Q I have an opportunity to take a course and become a home-based mortgage consultant. Is this a good business?

A The issue is not whether you work from home or from a downtown office tower, it is that you must first determine what licensure rules, if any, apply in your state.

If you can instantly get into the mortgage business, you then need to ask how you will fund client loans. Many lender programs will be off limits unless you can meet certain capital requirements.

Rather than starting your own mortgage business, an alternative approach is to work for an established lender. Learn how the business works, develop contacts, and then -- at some point in the future -- you may want to start your own firm.

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