Why You May Be Overpaying in Property Taxes

You may be overpaying in property taxes without knowing it. Property taxes are based on the value assessed by the local Tax Assessor and, in the aftermath of the biggest real estate collapse in recent history, it’s entirely possible that the current assessed value on your real estate is higher than the current market value.
And if the value assessed on your real estate is more than true market value, you are overpaying in property taxes.
How did this happen and what can you do about it? That’s what you’re about to discover: How local governments have been fleecing property owners and what you can do to put a stop to it.

Secrets of Local Government Budgets and Spending

Local governments handle their finances far differently than for-profit companies and persons. They construct budgets for different departments and initiatives, and then those groups are expected to spend their entire budget each year. If they don’t spend it this year, the following year their budget will be reduced to the amount they did spend the year before.
Therefore, each department has a big incentive to spend everything they get, rather than use any surpluses to go toward the next year’s requirements.
My mother worked in local government for a few years and was shocked when her superior required her to buy a new computer when she was adamant that the current one was more than adequate. She was instructed that if she didn’t spend all the money that her department was given that year, she would get less the next year. Therefore, to ensure she at least got the same amount as the current year, for next year, she needed to spend, spend, spend.

Happy Residents, More Money, Win-Win

Quit paying for excessive property taxes.

Looking at your property tax bill can be a mind-numbing experience, with different tax rates for different services, such as schools, roads, (in my area: beach patrol, lifeguards, mosquito control) and usually much, much more.
And local politicians understand the property tax equation all too well. They know that it takes two to tango, both the tax assessment value and the tax rates.
Local politicians know that raising any of the tax rates will get a tremendous amount of press, and the public outcry could result in them no longer in office the following term.

My Property Value Went Up!

They’ve also discovered a peculiar glitch in human psychology. Rather than get upset when the tax assessment letter is sent showing an increase in tax assessment value, often real property owners get excited. They think to themselves, “Oh great, my property is worth more than last year, terrific!” When, in fact, they should be concerned about the increase and should immediately verify with recent comparable sales what the true market value is.
Local politicians know that the secret to raising taxes is not to tinker with tax rates, but to push the limits on tax assessment values. It’s a win-win for them. They produce happy residents and get more money. Local governments are funded, in part, by property taxes. Every piece of real property has a tax assessment value that its property taxes are based off of and as real estate prices increase, so does the tax assessments and the total income generated for the local government.
Since local governments spend all they get, rather than use surpluses from the boom times to spend less the following year, instead, they spend more and more, year after year, regardless of economic conditions, population changes, or market adjustments.
But what if the economy shrinks dramatically? What if real estate prices plunge and therefore decrease the amount of money flowing into local governments? Much like a business that has to tighten its belt when times get lean, shouldn’t the local government do the same? Ahhh, good question.

Why You May Be Overpaying in Property Taxes

As the real estate market skyrocketed in the mid 2000s, local governments became quite accustomed to the larger income streams from the increased property values. But, when real estate values began to tumble, rather than reduce tax assessment values (and make due with less money coming in), in many areas, they left values the same or only slightly less.
As property values proceeded to plunge by as much as 50% or more, local governments, in many places, did not bring down the tax assessment values to match this massive drop in market values. Today, property owners all over this country are overpaying in property taxes because their tax assessment value is far higher than the actual market value.
I spoke with a seller yesterday who was adamant about selling his property for the tax assessment value. The problem is his tax value was $45,000 more than the market value of his property! I showed him comparable sales to prove it. It finally dawned on him that he had been overpaying in property taxes for the past several years, and boy was he mad!
Are you in the same boat as him? Is the tax assessment value on your property MORE than the market value?

How to Lower Your Property Taxes

If you’re in the unfortunate situation of having a higher tax assessment value than the current as-is, market value of your property, there is a way to avoid being the sucker overpaying property taxes. You will need to make an appeal to your local Tax Assessor for a re-assessment of your property’s value. Provide comparable sales to prove your point.
Each county handles re-assessments differently. In many cases, you have a very short window each year in which to appeal. Even if you can’t take advantage of this strategy today, set a reminder for yourself for when you can. You may want to share this information with friends and family. Maybe even help a neighbor out? Yeah, so maybe you think your neighbor is a jerk, but helping him save a couple bucks in property taxes may mend some fences.
Let’s have some fun. Let’s see who is the biggest sucker in the CREonline community, shall we? Who is overpaying the most in property taxes? For either your primary residence or any investment property you have, comment below on what your tax assessment value is versus your as-is market value.
Let’s see which parts of the country have the biggest thieves (and hopefully vindicate those areas that have the most honest and truthful local governments). Who is going to get the award for overpaying the most in property taxes?

By Phil Pustejovsky

Real estate mentor, investor and author passionate about changing lives through the power of creative real estate investing.