Home Prices Dropped but Property Tax Bills Remain

by Oliver 15. October 2008 17:42
 
Local tax authorities will be sending out property assessments for 2009 soon. This will inform homeowners how much are the value of their properties are and how much their tax bill would be.

Most assessments, if not all, won't reflect any of the steep home price declines for the last year or so. Even if property assessments do drop, property tax bills won't necessarily be any lower as nobody ever wants to lower the assessment.

Property taxes rocketed earlier this decade as home prices rose. This year Americans will pay more than $400 billion in property taxes, up about 25% from levels in 2004 and double what they paid ten years ago.

Estimates showed that 80% of county residents will have the value of their homes decline. The median price of existing homes fell more than 25% in 12-month period ending June 30, according to the Housing Opportunity Index compiled by Wells Fargo for the National Association of Home Builders.

But even if local prices are way down, taxpayers may not win a lower assessment, because there can be a big lag time between when the home sales used to calculate them take place and when the assessment is actually issued.

To calculate 2009 assessments, for example, assessors will base their computations using home sale prices from 2008 or even earlier. This usually works to taxpayers' advantage, since price increases take a while before they are fully reflected in assessments. This makes most homes undervalued.

Also, assessors use as basis the last resale price or the acquisition cost of the home. So even with a decrease or an increase in home value, the assessed value would remain which will be the basis of computing the property tax. Unless it is reevaluated, this is very unlikely.

Also, there are times when assessments go down, rates go up so that the tax collections stay roughly the same as tax collectors are pressured to keep revenues up.
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