- The Washington Times - Thursday, February 3, 2005

Every time it snows in the District, complaints come fast and furious about unplowed streets and unfair property taxes. The consensus? The former are too deep, and the latter are too high. The District is hardly alone when it comes to rising property taxes and anxious homeowners. Nor is the grumbling limited to a few snowy days.

Nationwide, home prices have risen 36 percent in the past four years, according to a CNN Money report Jan. 11.

States crunched by budgetary shortfalls expect municipalities to fill the gap. For homeowners across the country, that means home assessments will likely increase, property taxes might rise dramatically, and buying and selling choices may well be affected for years to come.

It’s important to know your rights and know what to do if you think your assessment is too high.

“Plan to spend a few hours to check assessment records,” says Richard Roll, founder and president of the American Homeowners Association, an advocacy group. The AHA has produced “The Homeowner’s Property Tax Reduction Kit,” a step-by-step guide for homeowners interested in challenging their assessments.

Estimates of overvalued property nationwide range from 30 to 60 percent, according to the January issue of Consumer Reports Money Advisor.

“A property tax has a lot of appeal, but it can be difficult to administer,” says Ellen Roche, vice president of research at the National Association of Realtors. “It asks the question: ‘What is the value of your home?’ ”

In the case of property assessments, beauty may really be in the eye of the beholder, and what is not valuable to the homeowner may be more valuable to the assessor. Yet few homeowners who feel they have been overassessed actually challenge their assessments, the AHA says.

Yet when they do file a challenge, some 75 percent win a reduction, the AHA says.

“People are put off by the process,” Mr. Roll says.

How is your home assessed?

The answer is not a simple one because different localities use different criteria to determine the amount you owe.

Essentially, your home will be compared to what tax experts call “comparables,” similar homes in similar neighborhoods with similar wear and tear. Assessors look at several factors when determining the value of your home, including its size, condition and location.

Thanks to modern technology, software systems enable assessors to plug in variables such as topography, zoning, neighborhood and other attributes of your home to determine your assessment. Of course, that means that the assessor might not actually come out to your house.

In the District, for example, homeowners are divided into three groups, with one receiving a physical inspection and the others appraised via mass-appraisal software.

Where can things go wrong?

Often, Mr. Roll says, assessments contain simple errors, such as a statement that you have 2 bathrooms when you have only two, or that your basement is heated when it’s not.

Mechanical errors can lead to a miscount of the square footage in your house. If your home is on a slope, it should be valued differently than a house on flat land. And your house may have been compared to another that really isn’t an equivalent property.

How is your tax calculated?

Rising home values don’t automatically drive up property taxes. Increases are often spurred by the budget for the taxing district. Elected officials in a specific jurisdiction generally set tax rates at a level to meet the qualified expenses in the jurisdiction’s annual budget.

Often, “sticker shock” results when a home has been re-evaluated. Maryland appraises every three years, while Virginia may appraise in a cycle ranging from one to five years. The District’s Office of Tax and Revenue uses an annual assessment.

Why the scramble to assess?

The new emphasis on property taxes and the assessments that bring them about has a lot to do with how municipalities raise revenue. Property taxes are the main source of revenue for most localities, providing funding for the police and fire departments, schools and street cleaning, parks and recreation.

“Medicare is becoming a huge expense, larger even than education,” says Mrs. Roche.

Meanwhile, states generally are contributing less to school district budgets than they have previously, passing the burden to municipalities, which often raise the needed revenue by increasing property taxes.

“One of the ways that states solve fiscal crises is to cut local spending,” says Iris Lav, deputy director for the Center for Policy and Budget, a research and advocacy organization for low- to moderate-income families. “But when you push down in one place, it pops up somewhere else.”

During economic downturns, such as the one the nation experienced recently, property taxes can seem to take an even larger bite out of homeowner income.

Additional taxes, including the real estate transfer tax, can mean that both buyers and sellers have to re-evaluate their options.

A real estate transfer tax is assessed on real property when ownership is transferred. State transfer taxes of 1 percent or more are imposed in 37 states and the District.

“People don’t notice it,” Mrs. Roche says. “It’s not broad enough, so it’s easier to get passed politically.”

According to the National Association of Realtors, transfer taxes have a negative effect on housing costs because low- and moderate-income home buyers will have to shoulder a larger part of the tax burden relative to their incomes.

And the rates are often higher because there is a smaller number of properties being taxed.

“It hurts first-time home buyers and people on the margins,” says Robert McNamara, policy representative for the NAR, “but it’s not really a big revenue raiser.”

Added costs might mean that the increases in the number of home buyers will slow down, according to the NAR.

“The (Washington metropolitan) area has homes with pretty high prices,” Mrs. Roche says. “Any tax will increase the cost of buying a home or owning a rental property. And some people who may have to pay an additional $1,000 at closing may have to have a higher income to afford the same house.”

Property and transfer taxes also are subject to the cyclical nature of the housing market. The National Association of Realtors cites the market downturns of the late 1970s and early 1980s as evidence of the instability of the housing market as a revenue source.

The recent economic upturn may mean good news for homeowners, though.

“The states are in better shape in terms of balancing their budgets,” Mr. McNamara says. “There’s less urgency.”

And perceptions about property taxes may be somewhat different from the reality, Mrs. Lav says.

“There is a buzz that property taxes are at high levels,” she says. “That’s not really true. Property values are up. Property taxes between 1960 and 2004 were on average about 3.3 percent of national income. The current level is 3.1 percent, which is below the average of the ‘60s, ‘70s and ‘80s.”

Still, knowing that your home has been assessed far higher than its recently appraised value can be cause for concern, particularly if you want to sell your property in a less-than-stellar real estate market. And because the market is cyclical, even the Washington region’s hot market will eventually take a downturn.

“The Homeowner’s Property Tax Reduction Kit” provides strategies and advice to guide you through an appeal in straightforward, easy-to-understand language. The kit includes forms, addresses and links to various Web sites to get you on your way.

The kit is available from the AHA at www.homeownertaxcut.com for $29.95 and is free to AHA members. First-time members can sign up for a 30-day trial membership and can download the kit for $1.95.

Meanwhile, the National Taxpayers Union offers its own guide, “How to Fight Property Taxes,” available for $6.95 plus $2 shipping and handling from NTU headquarters at 108 Alfred St., Alexandria, VA 22314, or via the Web site (www.ntu.org).

If you are getting ready to challenge that last assessment, here are a few things to keep in mind before you take it to the judge — or at least the review board:

m 1. Don’t mount a challenge unless you have grounds.

• 2. Act quickly. Many municipalities place a limit on the amount of time you have to appeal after receiving your bill.

• 3. Talk to the assessor. Often, issues can be resolved without going to court.

• 4. If you need a lawyer, be prepared to pay for one, but you may be able to recoup your costs in the long run if your assessment is reduced.

You should also ask which homes were used as comparables in your valuation.

Check assessment records to see if the taxes you paid also matched. Time was, you would have to trek down to the tax assessor’s office to do this; today, a variety of real estate and government Web sites allow you to do it online.

Thanks to homeowner complaints, legislators are beginning to place limits on the amount your property tax can rise in a single year. They also have enacted safeguards for elderly and disabled residents. The District has a tax cap.

“Circuit breakers,” allow tax rebates or tax credits for low-income homeowners, and some localities include veterans, disabled and elderly residents, as well.

Meanwhile, homestead exemptions specify a dollar-amount reduction for some owner-occupied homes.

“You can’t get a sudden spike on assessments anymore,” Mrs. Lav says. “Most localities have tax caps.”

And, she points out, increases in home values mean increases in equity, as well.

“It works both ways,” she says. “If you live in Columbia Heights or another area undergoing gentrification, you may be moving out for a number of reasons. You may want to benefit from the fact that your house has tripled in value.”

Bottom line? Never underestimate the power of the homeowner. California’s Proposition 13, which placed a 1 percent annual cap on property taxes, came out of a real estate market gone wild in the 1970s.

Today, homeowners from a number of other states are eyeing it with envy.

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