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Trim your property taxes
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February 9, 2000: 7:06 a.m. ET
Insiders estimate 30% of homes are overassessed, impact resale value
By Staff Writer Shelly K. Schwartz
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NEW YORK (CNNfn) - If you're a homeowner, you already know that real estate taxes come with the territory.
It's a necessary evil used to pay for public amenities, including sewer lines, schools and fire department services.
What you may not know, however, is that a large number of homeowners -- in some parts of the country, an estimated 30 percent to 40 percent -- are paying more than they should. That's because the estimated assessment value on their homes, used to calculate property taxes, are too high.
"I would say that approximately one-third of the homes on (New York's) Long Island are overassessed," said Mark Lewis, of Mark Lewis Tax Grievance Service in Centereach, N.Y. "Another third are underassessed and the rest are close to the fair market value. That's because this is not an exact science."
What's worse, he said, by failing to challenge their property assessments year after year, all those overassessed homeowners lose out on an opportunity to boost the resale value of their homes.
"We believe that a $1,000 tax reduction equals about $10,000 more on the overall value of your home," Lewis said. "If you were in the buyer's market and you were considering two similar homes on the same block, and one has taxes of $10,000 and the other $9,000, wouldn't you pay $5,000 or even $10,000 more for that home? Most people would, since they usually plan to stay there for at least 10 years."
The way things work
Property values are reassessed each year, giving local jurisdictions the information they need to compute real estate taxes.
According to the International Association of Assessing Officers, a non-profit public information group, there are more than 13,000 assessment jurisdictions in the United States today. Some are city officers, while other states pass that duty on to county authorities.
The fair market value of your home is assessed in one of three ways: It can be compared to the price of similar homes that recently sold in your neighborhood; it can be calculated based on the amount of money it would take, at current material and labor costs, to replace your property; or it can be based on how much income your property would produce if it were rented.
Bear in mind that the estimated value of your home can change for many reasons.
For example, the IAAO said your assessed value would change if you added a bedroom, garage or swimming pool to your property. The same is true if all or part of your property is destroyed by flood or fire.
The most frequent cause of a change in value, however, is a change in the market itself. Even in a stable neighborhood, with no extraordinary pressure from the market, inflation may increase property values.
The appeals process
If you believe your home was overassessed, you'll want to start the appeals process by doing some digging first.
The IAAO suggests you find out how the assessor in your neck of the woods determines the value of your property. Also, ask the assessment office how you can gather information about your own home and similar properties in your area and ask them for guidance on how the appeals process works.
Don't forget, all assessment offices operate on deadlines. If you miss your window for filing an appeal this year, you'll have to wait until next year to make your move.
The association said you can appeal an assessment, which determines your tax bill, when you can prove at least one of three things:
- Items that affect value are incorrect on your property record. For example, you have one bath, not two. You have a carport, not a garage. Your home has 1,600, not 2,000 square feet.
- The estimated market value is too high. You have evidence that similar properties have sold for less than the estimated market value of your property.
- The estimated market value of your property is accurate, but inequitable, because it is higher than the estimated value of similar properties.
(Click here for step-by-step instructions on filing an appeal.)
"In most states you can just go on over to the assessors office and call up all the information you need on your property," Aubrey said. "Many offices now also have the information on their Web sites and that will also tell you what an assessed value is and records on properties that have sold in your area."
She noted real estate agents are another good source for tracking down comparable sales information.
If you want to pay someone else to do your dirty work for you, there are plenty of consulting firms out there willing to oblige -- for a small fee.
Most companies charge a percentage of the first year's tax savings, and only if your appeal is successful.
Mark Lewis Tax Grievance Service, for example, charges clients one half of the first year's tax saving. If the company saves you $1,000, you pay them $500. Thereafter, you reap the full benefit of the tax reduction.
Lewis noted the onus is on the homeowner to appeal their assessments. Failure to do so means you accept the tax bill you have to pay.
"It's an unfair system," Lewis said. "You can go to one particular block in Long Island, for example, where 11 houses got a tax reduction last year because they filed grievances. The remaining 4 homeowners who didn't file a grievance are still overpaying. In most municipalities, if you don't file it means you accept the assessment value of your home."
Cause and effect
Keep in mind, though, that just because the assessed value of your home rises, it doesn't necessarily mean your taxes will rise too. Likewise, if the assessed value on your home falls, your taxes may not drop with it.
Here's how the IAAO explains it:
Each local jurisdiction uses its own calculation to determine how much money they need to raise each year in property taxes. If the assessors decide $1 million is needed, they estimate the total assessed value of all taxable property. They then devise a tax rate by dividing the amount of tax to be collected by the total assessed value of all taxable properties.
In the example above, if a town needs to collect $1 million in property taxes, and it estimates the total value of all taxable property is $100 million, then the tax rate would be 1 percent.
If your home's assessed value is $100,000, your tax bill will be .01 x $100,000, or $1,000.
If total assessed value doubles to $200 million, and the amount to be raised stays the same, the tax rate will be $1 million/$200 million, or 1/2 percent. Therefore, if your home doubles in value, you will still be paying $1,000 using the calculation .005 x $200,000.
Finally, if the assessed value increases and the tax rate remains the same, taxes will rise. The taxing authorities are demanding more money, even though they have not changed the rate. If your property value doubled to $200,000 and the tax rate remained steady at 1 percent, you'd be paying $2,000 a year.
"I think there's a lot of different perceptions on property taxes out there, and the essential thing for people to remember is that the value determines their share of taxes -- and it's supposed to be a fair share," said IAAO spokeswoman Annie Aubrey. "The closer an assessed value is to market value, the fairer it is for everyone." 
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