- The Washington Times - Thursday, June 10, 2010

Ask more than a few Washington-area residents about “sticker shock,” and they may tell you they never truly understood the meaning of the term until the day they got their newest property assessment.

Property taxes can be an especially sore point in a tightened economy - actually, any taxes are. But the fact that property taxes can take such a big chunk out of your yearly budget can make them very hard to swallow.

You may not have to swallow everything, says Pete Sepp, executive vice president of the National Taxpayers Union (NTU), a nonprofit citizens group that lobbies for lower taxes and smaller government.

“Property tax collections are growing, unlike income and sales taxes,” Mr. Sepp says. “There’s motivation for people to challenge their assessments.”

The NTU estimates that up to 60 percent of taxable property may be overassessed now that the housing bubble has burst. According to Standard & Poor’s Case-Shiller Home Price Index, home prices have fallen 30 percent on average since they peaked in 2007, and the most recent numbers reveal continued weakness in the housing market. Yet U.S. census data reveal that property tax collections increased about 10 percent from December 2007 to December 2009.

“Property tax rates are going up faster in Northern Virginia counties and are steadily high in Prince George’s and Montgomery counties,” Mr. Sepp says. “Loudoun County has especially lost value, and the assessment cycle has yet to catch up with that.”

So it can be surprising how few people actually mount a challenge - less than 5 percent, Mr. Sepp says.

“Many people believe that the assessment appeal process is onerous and time-consuming,” he says. “But people will spend hours waiting to dispute a $100 or $200 parking ticket. This might only take a small amount of research.”

Thanks to streamlined appeal processes and the Internet, it can be easier than ever to challenge an unwelcome assessment. In Fairfax County, you even can file entirely by mail and wait for a response - no waiting around for the hearing. If you decide you don’t want to go through with things after all, most jurisdictions allow you to withdraw an appeal once the process has begun.

Part of homeowners’ confusion stems from the different ways jurisdictions assess property and provide for an appeal process. In the District, for example, property is reassessed every year, while Montgomery County works on a three-year cycle. During a volatile market, property values may change drastically in the time it takes to reassess.

“Every area is very local,” says Brian Block, managing broker at Re/Max Allegiance in McLean, Va.

So how are assessments determined? Property taxes usually are calculated by multiplying the assessed value of a property by the town’s established mill rate, or tax per dollar of a property’s assessed value. In many cases, towns only tax a certain percent of the assessed value instead of the entire value. The mill rate is set by the town, applies to all properties and cannot be changed.

Mr. Block also notes that the more recent stabilization of the market has made for more equitable assessments.

“In the last couple of years, assessments have been a lot more accurate than a couple of years back,” Mr. Block says. “With the market stabilizing, tax assessments are more in line.”

Another reason homeowners do not regularly challenge their assessments? Many never have to deal with paying the bill directly.

“Many people have their property taxes escrowed,” Mr. Sepp says. “They’re shocked when the bill comes, but then they say, ‘Just let the mortgage company take care of it.’ “

Obviously, mortgage companies are not interested in challenging an assessment for you.

Meanwhile, cities are struggling to meet their residents’ needs. According to the National League of Cities (NLC) report “City Fiscal Conditions in 2009,” property taxes, which make up the bulk of city revenues nationwide, are beginning to slow as real property assessments are adjusted to reflect declining housing values. The NLC notes that there can be a time lag from 18 months to several years for the fiscal climate to reflect current economic shifts.

“In 2010, we expect to experience a further decline in sales and income taxes and a more immediate decline in property taxes,” says Michael Pagano, dean of the College of Urban Planning and Public Affairs at the University of Illinois in Chicago. “And that’s just the beginning. Cities will experience at least two more years of low property tax receipts. Cities have not yet seen the worst of the fiscal crisis.”

According to the Lincoln Institute of Land Policy, an organization that addresses issues relating to land and land use through taxation and regulation, the current drive to limit assessed values can result in higher taxes as municipalities raise rates. So if too many people successfully challenge their assessments, or if a continued drop in home prices means lower assessments down the road, localities may have to raise funds in a different way, increasing sales or other taxes, for example.

These days, some homeowners actually are discomfited by lower assessments because they fear it means they will not be able to sell their homes for as much money as they hoped.

Mr. Block says he always advises clients that the tax assessment is not an indication of true market value.

“Assessors typically don’t come into the house,” he says. “They won’t see your upgrades, your degree of maintenance, etc. Those are the things that buyers often see first.”

And once again, market value is very localized.

“Especially in this area, there are desirable neighborhoods, bidding wars, etc.,” Mr. Sepp says. “I’d say a low, consistent property tax bill is better than a high assessment in selling a house.”

The NTU offers a booklet, “How to Fight Property Taxes,” which is available for $9.95 through its website (www.ntu.org/tax-basics/challenging-property-taxes.html).

If you think you have a case, a little groundwork and a bit of research may make for a successful outcome.

● First, be aware of deadlines. Although you can appeal an assessment at any time, if you want to reduce your assessment for the current fiscal year, you will have to file by a certain date.

● Familiarize yourself with the process. Check with your locality to find out what paperwork you will need to go forward, what costs are involved, and whether you will be required to be present at a hearing. Consider what will happen if your appeal is denied and what the process will be if you still want to move forward at that point.

● Check for accuracy. See if the assessor could have made a mistake. Do you have two bedrooms when the assessor said there are three? Is your basement totally finished? Have you torn down an old addition? Converted two rooms into one? Depending upon your jurisdiction, you may be able to contact your assessor directly and resolve things quite easily.

● Consider developments in your immediate area. What’s altered in the landscape? If your home was surrounded by woods and now you have strip mall on one side, that change can affect your home’s value and alter your assessment.

● Research comparables. Find out how similar homes have been assessed. Generally speaking, a comparable home is one with the same square footage, in the same or similar neighborhood, of the same age and with similar improvements or upgrades.

● The Internet offers a number of sites that will enable you to check home values. These include Zillow, Domania, Equifax and others and will help give you a sense of whether your grievance is genuine.

● Your best bet, Mr. Sepp says, is to do things the old-fashioned way: Head over to the assessor’s office. There, you should request to see your property card and worksheet to check for mistakes. (These records also may be called “tax assessment records” or “property records.”) You also can check for similar properties in your area to see how they were assessed.

“Nothing beats doing research at the assessor’s office,” Mr. Sepp says. “Internet sites can help, but they shouldn’t be all you do.”

● Collect and organize your data. These may include photographs of comparables, a comparables chart or spreadsheet and any supporting documents. You don’t want to show up at your hearing lacking a key piece of evidence.

While there are plenty of people who say they can help you successfully challenge your assessment - for a fee - you can do most of the work yourself in a fairly limited amount of time for free. Meanwhile, trooping into your hearing with a band of lawyers and experts in tow may not dispose the board in your favor.

Because property taxes usually are administered through a municipality, you can’t be sure the appeal process will work the same way in two areas of the same state. Deadlines, forms and procedures all may differ from jurisdiction to jurisdiction. So does who is eligible for certain tax breaks.

The District, for example, allows a homestead deduction before the tax is calculated for owner-occupied dwellings, while Virginia and Maryland do not. And many localities offer “circuit breakers,” which set a maximum percentage of income that an eligible family might be expected to pay in property taxes.

Virginia offers a circuit breaker for the elderly and disabled, while the District and Maryland permit all households to participate in the program.

Will you win your challenge? Possibly. Mr. Sepp says about one in three appellants across the country get some kind of reduction.

“That seems logical,” he says. “You wouldn’t appeal if you didn’t think you had some hope of winning.”

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