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Property taxes rising: Here’s what you need to know

Erik J. Martin
The Mortgage Reports contributor

Homeownership costs: Don’t forget about property tax

There are many things that add to the cost of home ownership. A big one is your monthly mortgage payment, of course. Another continuing expense is the dollars needed to maintain, repair, furnish and upgrade your property. But one cost that many buyers don’t look closely enough at is property tax.

Property taxes serve an important purpose. They help to fund local, county and state services, schools and other resources. But the amount paid for property tax can vary widely, depending on where you live. And this amount usually changes or increases over time. In fact, a new study shows that property taxes are going up, on average.

Before buying a home, find out how much you’ll pay in property tax. Learn what your taxes pay for. Additionally, explore how to reduce your property tax if you feel it’s too high.

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What new data reveal

A recent report by ATTOM Data Solutions has some bad news for many homeowners: Property taxes have gone up, on average. Among the findings:

  • Property taxes levied on single-family homes last year equaled $304.6 billion. That’s a 4 percent increase from 2017.
  • The typical single-family home pays an average of $3,498 in property tax. That equates to an effective tax rate of 1.16 percent.
  • In 58 percent of the markets studied, property taxes rose faster than the national average.
  • States with the highest effective property tax rates were
    • New Jersey (2.25%)
    • Illinois (2.22%)
    • Texas (2.18%)
    • Vermont (2.16%)
    • Connecticut (2.02%)
    • New Hampshire (1.99%)
    • New York (1.86%)
    • Pennsylvania (1.79%)
    • Ohio (1.69%)
    • Wisconsin (1.58%).
  • States with the lowest effective property tax rates were: Hawaii (0.37%); Alabama (0.48%); Colorado (0.51%); Nevada (0.57%); Utah (0.57%); West Virginia (0.58%); Delaware (0.61%); Arizona (0.64%); Tennessee (0.65%); and Wyoming (0.66%).

Why property tax is rising

Todd Teta is chief product officer with ATTOM Data Solutions. He says property tax is going up for several reasons.

“Many things affect homeowners’ taxes,” he says. These include changes in the cost of government and the level funded by state taxes. They also include the amount of tax-paying commercial development and tax rates being applied to different kinds of property.”

Robert R. Johnson is finance professor at Heider College of Business, Creighton University. He says property taxes commonly go up for a big reason.

“States and municipalities need to pay for all the services provided to residents,” says Johnson.  “Increasingly, many state and local governments are receiving less help from the federal government than in the past. That difference must be made up by increasing state and local taxes, including property tax.”

What property tax pays for and how it’s calculated

Property taxes are levied by your state and local municipality. They fund crucial services in and around your area. These include public schools, public transportation, road maintenance, courts, police, fire and emergency services, public parks, recreation and libraries.

“The largest portion of property taxes — up to 60 percent or more — usually pays for schools,” says Realtor and real estate attorney Bruce Ailion.

Your property tax is determined by your local or county tax assessor. The tax is based on a percent of the assessed value of your property — including your home and land. Your property is re-assessed every few years (depending on where you live) using a predetermined rate that changes.

What you may not know about property taxes

Rich and poor homeowners alike pay property tax.

“No matter where you live, you must pay property taxes. And if you fall behind on property tax payments, you might end up losing your home,” cautions Teta.

Also, property taxes are not a fixed amount — they often increase over time.

“Property values are reassessed periodically, at a time that can vary substantially from one area to another,” Johnson says. “When your property is reassessed, your property taxes can rise substantially.”

That catches many homeowners off guard.

For these reasons, it’s important to factor in property tax carefully in your decision about buying a home in a particular location.

“Property taxes aren’t static. They will, in all likelihood, increase over time and result in a higher cost of homeownership,” adds Johnson.

Teta believes your property tax should probably be a less important factor in choosing a home than finding a home that fits your needs and budget.

“Higher-than-expected property tax shouldn’t disqualify a home if you can still afford the tax burden,” says Teta.

Also, consider that, as with many things in life, you get what you pay for.

“Often, consumers overlook that, when they go to a market with lower property tax, they probably get lower levels of government services and poorer school quality,” Ailion says.

How to fight high property taxes

Johnson says property tax history, along with a history of assessed values, are provided as part of a home-for-sale’s listing on the MLS and sites like Realtor.com. Your real estate agent can also furnish these numbers upon request.

“You can also do your own research,” suggests Teta. “Ask neighbors near your desired property how much they pay. And contact your local tax assessor’s office to find out how property taxes have fluctuated in your market.”

Once you buy a home, you don’t have to accept your property tax.

“Every owner has the right to appeal the decision of their tax assessor,” says Ailion. “You can contest your assessed valuation with a little homework.”

First, review your property tax bill carefully. If you notice any errors or omissions, notify your local assessor’s office.

Second, collect “comps” on nearby homes. This means gathering market data—using real estate websites—on comparable nearby properties that have recently sold. Print out these comps.

Next, file an official assessment appeal with your local assessor’s office and provide them the comps and any other data you’ve assembled. Be aware that you may be called to defend your case in front of the assessor or appeal board.

Lastly, or alternatively, hire an attorney or tax appeal specialist to fight your property tax. You’ll likely have to pay this person a percentage of the amount your taxes get reduced if they are successful.

Check your mortgage eligibility

Property taxes can be frustrating, but overall, you still might pay less to own a home rather than rent.

If you’re looking to become a homeowner, get started and check rates at the below link.

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