Real estate tax assessments: What you need to know about the process - and your options
School district real estate tax assessments should be received soon
It’s that time of year: Pennsylvania school district real estate tax bills have been mailed out.
Property owners who do not have a mortgage or pay their taxes (not through an escrow) dread receiving this bill. Owners making monthly payments to their lender for taxes and insurance may not “see” the property taxes paid until the year-end statement or an escrow analysis is issued by the lender. Do homeowners just pay the bill, or should they have a better understanding of what the tax bill really means? Let’s take a further look.
Real estate tax terms you need to know:
- First, let’s cut through some real estate tax jargon.
“Assessed value” is the amount used as the base for computing the tax.
- “Common-level ratio” (CLR) is the average ratio between the assessed value and the market value within a county. More to come on that shortly.
- “Market Value” is the price a willing buyer would pay, and a willing seller would accept for property.
- “Millage rate” or “mills” is the tax rate applied to the assessed value to compute the tax due. 1 mill represents .001, so $1,000 of value at 1 mill equals $1.
Now it’s time to look at a real estate tax bill and understand what it means. An example: Your school district’s real estate tax bill reflects an assessed value of $212,000, 22.4870 mills and tax due of $4,767.24. The math is 212,000 X .022487 = $4,767.24. Makes sense for the real estate tax bill to correlate with the market value of the property, right? Well, kind of. Since it is not administratively practical for counties to adjust every property to its market value each year, the CLR does the “conversion” (which is not perfect.) The CLR is the result of the compilation of property sales data for the year compared to its assessed value. Since assessed values do not generally change, except maybe when there is a countywide reassessment, a permit is submitted for improvements or an appeal is filed, the CLR factor increases or decreases with the average market value changes. The Common Level Ratio is updated annually by the State Tax Equalization Board, which is published in an annual notice that comes out mid-summer. The CLR can also be obtained on the Pennsylvania Department of Revenue ‘s website.
How the Common Level Ratio is applied
In our example, the CLR factor for the county is 1.64, which means the market value is approximately $347,680 (assessed value $212,000 X CLR factor 1.64). Comparing the estimated $347,680 market value to what the homeowner might expect to receive, if they sold the property, would provide a better understating of whether the owner is overpaying or underpaying their share of the real estate tax burden. If the property would sell for $250,000, the owner could be overpaying, but if it was more likely to sell for $375,000 or more, they might be underpaying.
Counties can adjust their “base”, which means all assessments were reset to the market value resulting in a CLR factor of 1. This is a burdensome task and generally not done often, so over time properties in areas where the market values are consistently higher than the county average will generally have a lower tax bill compared to the value of the property, while the opposite is true for the properties below the average.
Another example: If the county adjusted their tax base in 2000, two properties with a market value of $100,000 would have their assessed value changed to $100,000. After 20 years the CLR might increase to 1.75 with a tax rate of 18.7 mills. The tax burden for both properties is $1,870 and based on the CLR the market value should be approximately $175,000.
How many properties within the same county appreciate at the same pace over 20 years? Probably not many. Let’s say the first property, owned by Spade, is now worth $190,000, while the second property, owned by Diamond, only increased to $120,000. Spade and Diamond received the same $1,870 tax bill based on their $100,000 assessed value, but Spade’s tax rate compared to the market value is < 1% while Diamond’s rate is >1.5%. This hardly seems fair, but it’s the reality of the property tax system. As previously mentioned, assessments generally do not change, unless there’s a triggering event. It might be worthwhile for Diamond to file an appeal for reassessment. Although the appeal process is rather similar across the state, each county has their own filing dates, deadlines, appeal form and the documentation requirements. It is important to note that any changes resulting from the appeal will not impact the assessed value until the following year, so the property owner retains their original tax bill for the current year regardless of the outcome.
Should I appeal my real estate tax assessment?
The decision to appeal an assessment should be done with caution and proper guidance because the Board’s decision may or may not go in the property owner’s favor. By filing an appeal, the owner is on the hook to prove the market value is less than the CLR applied to the assessed value. Often, the proof should come from a third-party. It is best to work with a local real estate attorney or realtor, who specializes in filing appeals and knows the expectations and documentation requirements for their specific county. A personal example: Although I successfully reduced my home’s assessment by almost 30% with the support of a single real estate appraisal and personal testimony, that might not be the best route for others and it really comes down to the specifics of your county.
Recognizing that assessed values can be unchanged for a long time, depending on the county and its last adjustment, it might be worth a periodic review to see how a property stacks up against others in their county. And if you find yourself like Diamond, it might be time to contact a local professional, who can guide you through the process of filing an appeal.
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Article compiled by Jeanettee Hassis.