The Squeeze on Homeowners
Feel backed into a corner by property taxes that are rising even as home prices fall? If you think your assessment is unfair, appeal it.
According to legend, tax assessors in ancient Egypt were valued so highly for their skill with hieroglyphics and their ability to collect revenues that when a Pharaoh died, they were the only servants not killed and buried along with him. Today, sentiment has shifted, to say the least. Rarely have people been so up in arms about rising property taxes, which continue to climb dramatically even as home prices fall.
The most recent data show that from 2000 to 2005, property-tax revenues rose 35%, second only to cigarette taxes. The fuel, of course, has been rising home prices, which soared nearly 50% over the same period. During much of the economic boom of the 1990s, property taxes were relatively constrained, and the growth in personal income outstripped the increase in our property-tax IOUs. But since 2002, it's been the other way around. Adding insult to injury, home prices have started to slip. The National Association of Realtors expects existing home prices to fall 1.3% this year and predicts new-home markdowns of 2.3%.
Unfortunately for many homeowners, the squeeze is only going to tighten. Many states limit the amount that property taxes can increase in any one year. For instance, California caps increases in property-value assessments at two percentage points a year, but property values there have been rising at double-digit rates for most of the decade. "It may be you're behind and have to play catch-up," says Gerald Prante, an economist with the Tax Foundation, a research group.
Some local jurisdictions -- about 50,000 governmental units levy property taxes -- reassess property values infrequently. If your property is assessed at the peak of a boom, you might wait years before the value is adjusted. And some localities are contemplating raising tax rates, now that lower property values threaten to deplete budgets.
Little wonder tax revolts are springing up across the country. Your best chance for a lower bill is to appeal the assessment. According to the National Taxpayers Union, up to 60% of properties are overassessed. You have grounds to appeal an assessment if it has a mistake or it's unfair. Check the math and the recorded dimensions of the house and land, and check to see whether the assessor missed defects that could reduce your appraisal, such as a wet basement, run-down backyard, pest problem or cracks in the walls. Find out whether comparable homes are selling for less.