Understand Your Property Taxes
The Right Appraisal Can Save You Thousands
Property taxes are based on your city's assessment of your property value. Understanding how your home is valued and the appeal process can keep money in your pocket.
Property taxes can be a large expense of homeownership. On the positive side, property taxes support good schools and community services. Conversely, they come directly out of a homeowner’s pocket and can even prevent future homeowners from qualifying for a mortgage. Most importantly, if they are not paid on time the city has the right to repossess your home. Many homeowners have no idea how their property taxes are calculated or even where the money goes. Understanding property taxes can save you time and money.
Property Tax Calculation Methods
This varies from city to city. Smaller cities have appraiser go house by house on a yearly (sometimes every five years) basis to appraise every home in their jurisdiction. This value is then applied to whatever tax rate the city has established to cover their expenses. In larger cities they use an automated valuation method (similar to Zillow’s estimates). Again, this value is applied to the local tax rate. To learn more about the appraisal process, check out How to Influence Real Estate Appraisals.
After the city completes their estimate, a homeowner typically has a small time period to appeal the valuation. Many homeowners assume the city always gets it right and don’t take advantage of this opportunity. This is a mistake. At the very least a homeowner should thoroughly go through the appraisal. This will provide the homeowner a good idea of what the value of their home is currently.
More importantly, catching a mistake in this process could literally save you thousands of dollars a year. This is especially true in larger cities because of their use of an automated valuation method. To get an idea of the accuracy of these methods, check out Zillow. Better yet, Google Zillow estimate accuracy and check out the many ways it can be wrong.
Recourse to Reduce Taxes
If the valuation of your property seems way too low, do a small dance and keep quiet. However, if the valuation seems too high you will need to follow up with the city. If you have had an appraisal recently this will be as simple as sending a letter contesting the city appraisal. Attaching your most recent appraisal and some recent sales should help your case. Typically the city will reappraise your property, hopefully getting closer to the right value.
It is very important that you do research and state your case with numbers. This can be accomplished by working with a real estate agent, who can provide you comparable properties and recent sales. If you feel like the value is way off, it may be worth it to hire your own appraisal firm. The appraisal will cost about $500, but it could save you several thousand dollars per year for the next five years.
Watch out when using sites like Zillow or Truila. These sites do not provide a good basis for reassessment of property values, so don’t bother using them in your case for a lower property value. They can give you a general idea of what houses are going for in your area, but they do not take into account the many unique details of your home.
Understanding property taxes can save you real money. Make sure you know what value your property has on record with your tax authority to maximize your yearly savings.
