March 1, 2018
March 1, 2018
When it comes to refinancing, making a home purchase (or sale), or paying your property taxes, understanding your home’s value is important.
However, home value isn’t always straightforward. In fact, you might be surprised to discover that your home might be appraised at one value, but when your property taxes are assessed, your home might be “worth” less.
The fact of the matter is that a slightly different formula is used to determine your property tax bill — and that might not be a bad thing.
When an appraiser comes to your home to figure out how much your home is worth for refinancing, purchase, or sale, she or he is trying to figure out the fair market value of your home. This is what your home should sell for in a “normal” market.
Of course, “normal” varies from location to location. However, under most definitions, normal is a market that hasn’t been affected by an abnormal number of foreclosures or by a natural disaster.
When determining fair market value, an appraiser considers the home’s condition and any upgrades that have been made. These items are compared to similar homes in the area. Additionally, an appraiser considers the sale prices of those similar homes in the last couple of years. So, even if you are looking to refinance instead of buy or sell, the sale prices of surrounding homes can impact what your home might be “worth.”
When your city or county assessor looks at your property, it’s to determine what you will pay in taxes. This is known as the tax assessed value. You might notice on your tax bill notice that your tax assessed value is lower than your fair market value. This is because many taxing entities don’t actually base your property tax on the full market value of your home. Many cities, counties, and states turn to a formula that might only tax you on 80% of your homes fair market value.
Some areas might use a different percentage, like 70% or 90%. In some cases, your property taxes are figured based on 100% of your home’s fair market value, but the locality might have some exemptions that lower your bill.
Find out how your property’s value is taxed so that you can better understand the numbers that appear on your bill.
Also, realize that sometimes your property is only assessed every five years or so. So, your tax bill might be based on an assessment that is a little out of date. If you live in a market that has been heating up, you might see a suddenly higher tax bill if your county does an assessment every five years. If your home’s value has shot up, your tax bill will go up quickly because there hasn’t been an annual assessment to gradually adjust your bill.
In these cases, you might be able to get an exemption, or there might be some sort of formula used by your county or city to take this into account. No matter the case, it helps to be aware of the possibilities.
If you want a lower property tax bill, you might fight your assessment. Most taxing authorities have a way for you to dispute the value of your home so you can lower your property tax bill. You can point to some of the problems with your home, or you can argue that your local market isn’t “normal.”
Be careful, though. In some cases, if your home’s value is adjusted downward for the purposes of your attempt to avoid paying higher property taxes, you could end up seeing the effects if you sell your home. Generally, if you plan to sell your home in the next couple of years, challenging your tax appraisal isn’t the best move.
Pay attention to the way your county, city, or state determines your property taxes. Knowing where you stand is important, and it can save you money — or help you get a better price when it’s time to sell.