Why Your Home's Value May Go Down but Your Assessment Goes Up

Remember when I told you that my home's assessment for property taxes went down? Well, it looks like not all the people in my neck of the woods are seeing red -- at least on paper. The details:

Holding the paperwork for his Highlander Drive SE home, Warren Jackson asked the city's Board of Review how the assessment on his home possibly could have gone up.

"I read the papers," he said. "I check the (National Association of Realtors) Web site. In just the last three months, our real estate values in Kent County have dropped. How can they possibly raise the value of my house?"

Even more people took the earlier step of calling their city or township assessors for an explanation of this year's painful reality: Even in a sharply depressed housing market, many homeowners will see their assessments and, therefore, their tax bills, rise.

That's a killer. Housing values going down and assessments going up. But what could be a reasonable explanation for this? Here's what the local tax authorities are saying:

It is a result of a state law from a 1994 referendum, known as Proposal A. For many years, the law held down tax bills because it capped the increase in taxable value to the rate of inflation or 5 percent, whichever is lower.

Meanwhile, the State Equalized Value assessment continued to grow at the true market rate, usually higher than inflation.

This created a gap in the taxpayers' favor.

When a property is sold, the taxable value is reset to the SEV assessment, eliminating the gap. Until a sale, however, the taxable value continues to play catch-up, even if assessments go down.

"People might think the system is working against them this year," Wyoming Assessor Gene Vogan said. "(But) we ask them to try to remember the good old days when assessments were going up 6 or 7 percent and taxes went up only 2 or 3 (percent).

"That's at least a 10-year benefit. Now, there's a little catching up that's going on."

In other words, the tax authorities are saying that people have underpaid property taxes in past years because home values have risen faster than assessments. And now they're paying more because of the breaks they've had in past years -- not because home values are actually increasing.

I thought I'd be paying less since my assessed value went down. Seems like I will -- but not that much less:

The average assessed value in the city fell by about 2.5 percent. But state law requires the taxable values to be increased by last year's rate of inflation, 2.3 percent (as long as it does not push it higher than the assessed value).

And one other note that will impact me:

When a property is sold, the taxable value is reset to the SEV assessment, eliminating the gap. Until a sale, however, the taxable value continues to play catch-up, even if assessments go down.

This means that when (or I should say if) we buy a new home, the assessment will be reset to the fair value of the house at that time -- something that should save me a ton of money versus what the previous homeowners were paying (if I buy at a substantial discount as I'm planning.)

Finally, for Michigan residents, the piece gives a link to the Michigan Tax Tribunal which gives details on how to appeal an assessment.

Comments

[Big Cheese]

The state isn't going to win on this one. Let's protest, people!

[geoff]

I contested my assessed value this year in Allen Park, MI. They had heard from many of my neighbors already, so I didn't have much to add. They told me I would hear in 3-4 weeks on the decission. I contested because the assessed value is about 30% above 1/2 fair market value currently.

[Chief Family Officer]

I live in Los Angeles County, where the tax assessor can only raise taxes a very small percent each year (thanks to Prop 13, I think it is). So even though my home's value has fallen about $100K in the last year (and $25K in the last two months!), our property taxes increase each year. But the assessed value is still WAY below its actual value.

[rwh]

CFO: I think that's the key. My house is assessed at about 230k. Fair market value 6 months ago was probably 300-310. Now it's probably 285-290. It's still higher than the assessed value.

[Minimum Wage]

All you Michigan homeowners have been subsidized for years under Proposal A''s nonhomestead tax.

So it's really really hard for me to have sympathy for you now.

Anyway, nobody can blame me since I voted against Proposal A.

[Mike]

As I read RWH's post I thought of the response and many other similar responses on other blogs.

There is an underlying disdain when it doesn't directly affect RWH - so why so much anger?

Why are middle class Americans so unsympathetic towards fellow middle classers? The same outrage is rarely directed at the upper (rich) class and money institutions.

P.S. I am fiscally conservative.