My Home's Assessed Value Dropped 2.9%

Just got a notice from my local assessor's office notifying me that my home's assessment has dropped 2.9% versus last year. I have a few thoughts on this:

1. First of all, I don't completely understand how they calculate real estate taxes other than assessed value times some rate equals my real estate tax liability for the year. Assessed value is such a strange figure because it is no where near my home's value (specifically, my home is probably worth $180k and the assessed value is $100,300.)  Anyone want to give me a layman's version of how this works? 

2. I was glad to see that they're taking into account the softness in the local market, though I don't think it's low enough. My home's value has dropped probably 10% in the past year, why wouldn't my assessed value too?

3. There's no mention of the overall tax liability. It's possible that the assessed value dropped but my rate increased and I have an increase in total taxes -- isn't it?

4. The notice gives me dates to walk in and challenge the assessed value. I'm wondering if I should do it or if it's even worth the effort. Anyone have suggestions/thoughts/comments?

Comments

[Money Blue Book]

I don't think the softness in the housing market has been realized in full by many yet either, even by appraisers. We still have quite a long ways to go. I don't estimate a housing rebound or even a pricing plateau until 2010 in most markets. Just my two cents.
-Raymond

[cory]

Your house's tax-roll appriasal is based on a market appriasal multiplied by a certain determining factor, in your case, it seems to somewhere around 55%. So you take your actual market value, multiply by 55% and you get your tax roll assessment, divide that by 1,000 and multiply that by your state, county, and city tax levies, and voila! You have a tax liability.

However, the assessment ratios and tax levies are subject to change every year, so a 10% decrease in actual market value does not correlate to--and may not warrant--a 10% decrease in assessed value.

[cory]

Apparently, I can't spell 'appraisal.'

[K]

Re #3. Assessment is done once a year, but the tax rate can change pretty much at any time. It's not the assessors' job to know what your tax rate is, or more to the point, will be. If the rate goes up (or down), your assessment still holds until re-assessed.

[Amy]

Hope mine goes down too.

All I know about tax assessed values is that they aren't supposed to equal "fair market" values, which is usually a good thing for the homeowner, since the tax assessment won't increase as quickly as the market value will (hopefully, again, one day.....). Challenging assessments is usually reserved for a serious discrepancy in the value (i.e. if the appraisal is significantly higher than your neighbors property assessment, etc.)

[Finance Monk]

Hmm, that's an interesting question and probably an obscure answer. It could vary from district to district, no?

We have a very different 'govt tax appraised value vs. market value' in our neighborhoods as well. I wonder which compensation they give if your house is taken over to build a highway through Eminent Domain.

[Mark]

Also, since you live in Michigan your assessed value is capped per Proposal A from the 1990's. Your assessed value can only increase a certain % each year that you live in the home, so if you have been there a while it is most likely dramatically less than the market value. i.e. in the 1990's the market value may have increased 5% per year, but your assessed value only increased 1% per year.

However, when someone buys your home it will re-adjust to the "market" value, so that person will have a much higher tax bill than you did. The same goes for your new house, you are going to have a substantially higher tax liability when you move.

[Curtis]

In Missouri, the assessed value is a fraction of the appraised (or suggested market value). My county is 1/6th.

The total tax received by the county is capped by a percentage increase by law. So, after all the new assessments are in, and people have argued their values, they can then see how the actual rates line up with any new legislation that may have passed. If those new values are too high, they have to adjust the rates down for everyone.

Basically, whether your assessment went up or down isn't the issue, it's really your assessment in relation to everyone elses. If yours raises more, your taxes will go up. If it raises less, then your taxes may still go down. Just the opposite would apply if your assessment went down.

[Mauricio Gomes]

Finance Monk is absolutely correct about Proposal A in MI. Another important thing to realize about Proposal A is for people who bought their homes in the early 90s, their assessed values are still much below the market value of their home. This means that even though the housing market is in dire straits, as is the MI economy, taxes will appear to increase for these people until their assessed value reaches a more 'normal' level.

[beastlike]

Property taxes should be illegal!

[JACK]

The impact of Proposal A in MI has been something to watch. I didn't realize when I lived there (not being a property owner) what it was all about. But I've talked to many who found the tax burden on the market reset to be as much a barrier to selling their place as anything else.

[Amy2]

I live in Michigan, too, and I think I've finally figured out what they are doing here.

Mark is close, but it isn't the ~assessed~ value that is capped, it is the ~taxable~ value. The taxable value can only go up 5% or the rate of inflation, whichever is lower, until it reaches the assessed value. This taxable value is the value to which millages will be applied and your taxes calculated. If you look at your notice, that number probably went up, especially if you have lived in your house a while, even though your assessed value went down.

The assessed value is supposed to be about half the market value. This is what your local government is evaluating every year.

Since you are planning on selling your house, it very well might be worth appealing the assessed value if you feel it is more than half of the market price. Mark is correct when he points out that purchasers will have to pay taxes based on the uncapped value, which will be the assessed value. If that is lower, it will be more attractive to buyers.

A friend of mine appealed her assessment last year (also a Michigan resident), and it was interesting to hear the results. She provided sale prices for comparable homes in her area. The assessors office denied her appeal, and so she appealed to the Michigan Tax Tribunal. She lost that, too, but what they said was that she was providing current home sales from the 2007 time frame, but the assessment was based on the previous year. For example, she was contesting her 2007 assessment (received in January 2007), but that is based on values in 2006. They said that the prices had not yet dropped in 2006, but that she would likely win an appeal of her 2008 assessment based on the prices she found for 2007.

So you might feel that your home is worth less than the assessed value right now, but it seems that what matters is whether the price had already fallen last year.

The Headlee amendment plays into this somehow, too, but I've just gotten as far as understanding Proposal A! Headlee has something to do with capping the overall amount of taxes that a locality can collect.

There is a lot of talk in Michigan where people don't understand why their property taxes are going up when their property values are going down, but it all has to do with the capping of the taxable value. The system is set up so that the amount of tax increases lag the property value increase, and don't go up as much as they could in a booming market. It's like a damper or brake that is absorbing the increasing values. But when the market goes down, the damper is still absorbing the increase in value, and doesn't reverse immediately.

[Meg]

I don't know where you live, but how they calculate assessed value varies from state to state. Usually (at least in the last decade or so) the assessed value is far less than market value because many states have laws restricting how fast assessed value (i.e. property taxes) can increase. So many people in CA, for instance, are sitting in $5M homes that are only assessed at about $1M. These laws keep you from buying a home and having your property tax bill jump by 10% a year.

It's probably not worth it to fight the assessment; usually people only do that when their assessment increases sharply. If you didn't fight the assessed value last year, you can't really justify fighting it this year, since it's actually decreased. Keep in mind assessed rates don't really have that much to do with market movement, except over long periods of time.

[Tim]

Some tax assessor's offices in Michigan (believe it or not) use linear regressions as tools to assess the value of a home, using recent single-family-detached sale prices regressed upon a number of factors (square feet of the house, number of rooms and bathrooms, age of house, school district, etc.). The point here being that if recent sales have brought the economic average down, all else equal, then the assessed value of your home will go down as well.

[No Debt Plan]

Money Magazine ran an article about this in the most recent issue. http://money.cnn.com/2008/02/12/real_estate/tax_squeeze.moneymag/index.htm

The link above offered tips on how to fight it. Best of luck!

[Ryan]

You are lucky. My actual house selling price went down 10% this year, yet the assessment went up 30%. The assessment is still slightly below the market value, so I have no grounds to challenge it.

[Douglas]

I read with great interest the comments on market value, assessed value, and Taxable value. What I need to know is what is the best way to fight city hall. What specific data is best and where do I get it from to prove that my market value has dropped (everyone in michigan) thus the assessed value has dropped and if the asssessed value is very close to or equivalent to the taxable value, as is my case, my Taxes should be lowered (assuming the tax rates or levies are the same)

Any help would be appreciated

[Fran]

Before appealing the appraisal, you might want to call the appraisal office and ask why your house was appraised for that amount. I live in Texas, and last year my house was appraised much higher than the year before. I called the appraisal office to question it, and an appraiser explained to me how the appraisal amount is calculated, and also gave me examples of similar houses that had recently sold in my neighborhood. It turns out that housing prices had really risen that much, and the appraisal was reasonable.

[Mike]

I live in Illinois, and there are lawyers that will appeal your property tax assessment for you, on contingency. They take half of whatever they save you for the first year, and you get the other half plus the following 2 years (assessments are on a 3 year cycle). We get postcards from these lawyers every time tax assessments come up. We've done it once and we did get a reduction, and I've heard other people say they do it every time and always get some level of reduction.

If you have similar options available, why not do it? The process was pretty effortless for me, I filled out a 1 or 2 page form, faxed it to the lawyer, and didn't have to do another thing until he told me what my reduction was and asked for payment. You could DIY and possibly get better results - this is clearly a volume business for the lawyers and they probably won't push that hard for any particular property. But that means going to hearings and preparing your case, spending a lot of time and effort for results that may or may not be better than what the lawyer would get for you.

[MikeD]

I have a place in urbana that I'm renting and I recently received a letter from the Board of Review stating my new assessed value. I was shocked to see that it went down by 40.4%. What does this say about the equity i had on the place? down the drain? geeze.