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Laura Rowley Money & Happiness

Laura Rowley, Money & Happiness

How Homeowners Can Benefit from Falling House Prices

by Laura Rowley

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Posted on Wednesday, August 6, 2008, 12:00AM

With home values down sharply and projected to decline further this year, this may be the time to challenge your property tax assessment. In fact, a few tax authorities are beating homeowners to the punch.

Crunching the Numbers

Some jurisdictions are performing blanket reviews and proactively cutting property taxes on homes purchased at the market's top. Los Angeles County, for example, says it reduced assessments on 128,000 homes, with average savings of $750. California's Proposition 8, adopted in 1976, allows for reductions in assessment due to declining home values.

"It's not common -- we did this in early '90s, but haven't had this type of real estate recession since that time," says L.A. County Tax Assessor Rick Auerbach. "L.A. County reviewed everything purchased in last three years, as did most counties in the state."

Tax offices are also inviting homeowners in declining markets to do the research and send in a challenge themselves. Craig Withers, a banker, bought a three-bedroom, 2,200-square-foot home in January 2007 in a suburb of San Diego. "I guess you could say I caught a falling knife," he says. "When I bought, prices were already 10 to 15 percent off their high -- then they kept falling."

Withers received a notice from the assessor suggesting he log on to its website and follow the instructions to seek a reduction. "They wanted recent sales comparable to your home and what you thought your property was worth," says Withers, who ultimately won a 10 percent cut in his assessment. (Property taxes are determined by the home's assessed value multiplied by a local tax rate.)

Take the Challenge

The National Taxpayers Union estimates that just 10 percent of homeowners nationwide protest their property assessments, but many more could benefit from a challenge.

"It depends on the jurisdiction, but there are accounts of properties being 30 to 60 percent over-assessed," says spokesperson Pete Sepp. "Some have to do with losses or gains of market prices, others with sloppiness or inaccuracies, others with the changing character of the neighborhood -- in that the classification of properties is no longer accurate."

An estimated 30 to 50 percent of appeals are successful, says Sepp. "People shouldn't be intimidated by the appeals process -- it's like traffic court. Think about it as if you're protesting a parking ticket," he says.

With big hikes in property taxes in recent years, though, this protest can add up to much more than a parking violation. According to the Taxpayers Union, the most successful challenges come from long-time homeowners who have never viewed the factors that went into their tax assessment or the worksheets used by the assessor.

"Maybe you tore down a screened-in porch three years ago -- that's a simple error that can be fixed without a formal appeal," says Sepp. "You may also want to consider an appeal if home sales have taken either an upward or downward turn, or there have been major new developments around your neighborhood on previously vacant land."

Reassessing Values

That was Aimee Bennett's basis for appeal. The Colorado homeowner was one of the first residents to purchase in a new development in 2003, which was surrounded by vacant lots. "The assessor's office even admitted they didn't have a lot to go on -- they had to base the assessment on houses that were kind of nearby, but not really. A few miles away it's a whole different [neighborhood])," she says.

Properties in her area are reassessed every two years. When the Bennetts received their 2005 valuation, they noticed that it surpassed home sale prices in the same period. Bennett consulted a local website to run comparisons; you can also find comparable sales by asking a real estate broker or using a website such as Yahoo! Real Estate's Home Values page. (Homeowners can also hire professional appraisers -- just check if your jurisdiction allows it, Sepp says.)

"I went online and found all of the [recently sold] homes," says Bennett. "It took me time to walk all over the neighborhood, and I wrote down numbers of the homes that matched our model." She asked for a reduction of 20 to 25 percent in the assessed value of her home, and got 15 percent.

An Appealing Prospect

You may also have grounds for an appeal if your home has a unique flaw that differentiates it from your neighbors' houses. Maybe it's the only house on the street with a railroad running behind the backyard, or it's on a busy corner where there's minimal street parking. In that case, bring supporting evidence to the assessor's office, such blueprints, building records, or photographs.

Timing of an appeal is important; the filing deadline is typically 60 to 90 days after receiving either your notice of assessment or your property tax bill -- and some jurisdictions require you to file in as little as two weeks. There may also be a fee for filing an appeal. If you lose, you can appeal to a higher authority, typically a state board.

For a first appeal, don't hire help, experts say. Earlier this year, the L.A. County Assessors Office warned consumers about companies charging anywhere from $99 to $999 to file appeals. "Within California, the person can fill out a simple form saying 'this is the property address and I think it's worth less than the assessed value,'" says Auerbach. "It's a simple thing any taxpayer can do easily."

Homeowners may want to hire a professional if the challenge is declined, and they must appeal to a higher level, Auerbach adds. If you do hire an attorney, try to find one willing to work on contingency (in which the firm would receive a percentage of a successful reduction).

No Boom, No Bust

Meanwhile, if you feel your property has been overvalued, it's not a bad idea to check in with the neighbors. Counties will sometimes reduce assessments in an entire area if they receive enough appeals. That was the case in Wake County, N.C., which includes the cities of Raleigh, Durham, Chapel Hill, and Cary, where some homeowners were pleasantly surprised by an automatic reduction in their assessment.

"If we get a high number of appeals in a certain section we sometimes will go back and adjust the entire section based on the grade or quality of construction -- so the appeal of a few may affect several," says Marcus Kinrade, Wake County appraisal/collection manager. The county does a revaluation every 8 years, and only 8 percent of homeowners appealed following the re-assessment that ended this past January. Residential property values rose 43 percent countywide since 2000.

"We didn't boom here as much as other places -- it was very steady and controlled growth," says Kinrade. "Sales are slowing down, but because we didn't boom like other places, we weren't as affected when things went bad."

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  • Yahoo! Finance User - Tuesday, August 12, 2008, 8:31PM ET  Report Abuse

    • Overall: 1/5

    Why in the world would anyone want the value of thier home to drop? Usually better stories from L.R.

  • Howard - Tuesday, August 12, 2008, 8:21PM ET  Report Abuse

    • Overall: 1/5

    What an idiotic story. Chasing pennies. You might just as well advise that I search down the back of my couch for some loose quarters.

  • Yahoo! Finance User - Tuesday, August 12, 2008, 9:56AM ET  Report Abuse

    • Overall: 1/5

    penny wise....dollar foolish advice.....why would you want your house to be worth less?....try picking up all the garbage you and your family drop on the floor, then your house will be worth more

  • Yahoo! Finance User - Sunday, August 10, 2008, 11:37PM ET  Report Abuse

    • Overall: 1/5

    I think the city always remembers to charge more tax when real estate value goes up but mostly forgets to lower tax when it drops.

  • Yahoo! Finance User - Sunday, August 10, 2008, 10:06PM ET  Report Abuse

    • Overall: 2/5

    The idea that tax rates and valuation amounts move in opposite directions is based on a flawed theory that the people who run the town aren't idiots. The last town I lived in during the peak raised valuation amounts 40% in one year and the actual tax bills went up the full 40%. They wasted the money on programs they can no longer support and drove a number of people out of the town. Some of the time spent appealing property values should be spent challenging out of control city budgets and working to elect competent city leaders. As for the story itself, what happens to the city if everyone takes your advice?

  • sam - Sunday, August 10, 2008, 10:02PM ET  Report Abuse

    • Overall: 4/5

    Many responses evidently did NOT read the article. It identified, for example, those who purchased at the top of the market and therefore hit with assessments on that valuation. With declining values, those homes could well be appealed. Many homes will likely have not been assessed for years and therefore not overvalued. The 'they'll just adjust the rate and you won't save' comments only work if the whole town has turned over at the market top (highly unlikely) or reassessed recently. But for purchasers at the top of existing or new homes, the advice makes perfect sense.

  • JimmyP - Sunday, August 10, 2008, 9:37PM ET  Report Abuse

    • Overall: 3/5

    To repeat..you will be paying higher taxes ! They need to pay the city state,and Govt big wigs their inflated salaries...Those won't be going down. That shortfall willneed to come from somehwere...In Ca? Pop 13 people beware...it's a'comin.Guaranteed. The biggest boom in history and shortfalls ??

  • Peter - Sunday, August 10, 2008, 8:54PM ET  Report Abuse

    • Overall: 1/5

    I agree with all the previous comments. In a falling market, the RAR (adjustment ratio) will rise unless your locality is benefiting from a current year full assessment (RAR = 1.00). As the market values decline in your area, the RAR goes in the opposite direction (again, unless your locale is at current full assessment) for ALL homes. Thus, your home and all the homes surrounding yours all have a lower FULL assessment. Since your tax amount due is the total amount of the locale's tax bill divided by total value of the entire amount of taxable assessed value in the locale then multiplied by your particular assessed value (usually represented in "per $1000"), its pretty obvious that as the entire value of real estate in the locale goes lower, the % per thousand of assessed value will go higher. Everyone in the locale must pay taxes on the same %. It would be ridiculous to believe that the entire town would receive a tax break because the values of everyone's home has dropped! However, if you are able to seek and successfully get a reduction in your "assessed value" (not your full market value - again, which is adjusted by the RAR ... or in some instances full reassessment) then you WILL be seeing a reduction in your tax liability. Sometimes it will result in a lower tax bill, and sometimes it will still result in a higher tax bill, but remember, not as high as it would have been if there was no challenge in the first place. Besides all that, I'm not quite sure why the timing of this article is in August. I would believe, but could be incorrect, that most locales have their tax assessment grievances within the first 4-6 months of the year - at least that's the way it is in N.Y. Was the author fishing for something to write about? Seem's this story should have been incorporated into a much larger story with some meat-and-potatoes and with better timing. Just my thoughts.....

  • Adam - Sunday, August 10, 2008, 8:28PM ET  Report Abuse

    • Overall: 1/5

    absolutely correct are alot of posters here. Towns/cities have a budget to meet. Drop the assessed value, the towns will just up the rate. Annual taxes will NOT drop at all. To suggest that people will save money simply because an assessment is high is ridiculous.

  • Horatio - Sunday, August 10, 2008, 7:01PM ET  Report Abuse

    • Overall: 1/5

    Towns need money. Declining property values don't change that fact. Declining values increase the tax rate. Article very stupid!!!

  • thomas - Sunday, August 10, 2008, 12:40PM ET  Report Abuse

    • Overall: 1/5

    I agree with some of the previous comments on the calculus of property taxes - lower assessments simply change the denominator for most towns and school systems who still need to meet their expected/budgeted spending - a lower total assessed value for the town simply increases the tax rate on the assessed value. Its basically a case of short term arbitrage if you can get your property reassessed first and have an immediate tax adjustment - but it is more likely the town will delay any such "individual actions" until a fiscal period end or until an across the board assessment can be done, washing out any arbitrage gain.The only real benefit happens in towns where no reassessment has been executed for a long period - NJ has many of these - where older homes have been benefiting from initial assessments that may be 10-20 years out of date, and newer area homes are assessed at time of purchase - blanket reassessment then can equalize the tax burden fairly, lowering taxes for new entrants.

  • Yahoo! Finance User - Sunday, August 10, 2008, 8:48AM ET  Report Abuse

    • Overall: 4/5

    In my opinion, property taxes should be abolished. Most jurisdictions simply have no ability to restrain spending, and so property taxes normally rise with increased government spending. In short, there's no end to it. To be sure, some states are better than others. Still, why don't the states look to income and sales taxes to fund their runaway spending? Leave the poor homeowners alone.

  • Yahoo! Finance User - Saturday, August 9, 2008, 8:18PM ET  Report Abuse

    • Overall: 3/5

    In Virginia the county I own property in hires an independent appraiser from across the mountains. His job is to raise the property values as high as he can. If people complain the city says he was an independent appraiser, they dont tell you he was hired to raise property values. Everytime property values went up towns people were somewhat pleased that their homes were worth more, even though if they tried to sell them they wouldn't get the tax appraisal value. I challenged my appraisal and was given all sorts of false information about my property. Appraiser said it had been recently remodeled, it hadn't. Said he'd do a reappraisal. I got a letter a week later saying they had dropped the value, but it was still valued too high, read appeasement. If the appraisers don't raise values enough they don't get rehired. The message is clear. How do you think we got in the current mortgage mess. Appraisers were pressured into justifying high home values so people could get mortgages that fed real estate agents, lenders, loan originators, and the rest of the real estate market. Appraisers knew if they didn't play the game they wouldn't get work. In general people love to hear that their home is going up in value. That is until they try to sell.

  • Fred F - Saturday, August 9, 2008, 6:53PM ET  Report Abuse

    • Overall: 1/5

    Local government tax rates are essentially based on what is needed to run the joint divided by assessed values. As total assessed values drop, tax rates go up to keep the total tax collecitons in line with spending. Ultimately lower valuations across the board won't reduce the total property tax bill, it will just mean you pay more taxes as a percentage of the value of your home.

  • Bloke - Friday, August 8, 2008, 10:34PM ET  Report Abuse

    • Overall: 4/5

    In June I protested my parents property taxes in Texas recently and was able to reduce the value of their home by $48,000. Two areas of reduction: (1) The home structure description on the tax rolls was not fully correct and (2) falling market prices were not accounted for in the tax assessment statement which assumed climbing market values in October 2007 would continue to go up for 2008 assessments and likewise affecting 2009 tax payments. In Texas we have to watch assessment values and the rate on these assessment values, plus insure homestead and senior citizen discounts are registered. I learned of protesting taxes when in Houston my home and neighborhood was destroyed by a Hurricane and yet my taxes increased when sales were non-existent. Thanks for bringing this article to us for knowledge awareness.

  • Will B. - Friday, August 8, 2008, 9:46PM ET  Report Abuse

    • Overall: 1/5

    This is the worst, most incompetent article that I have ever read. If you believe for a second that your property taxes will decline, simply because your assessment is reduced due to falling home prices, then I have some beach front property in Arizona to sell to you. All localities are hurting for tax revenue; if property values fall, they most likely fall across an entire jurisdiction's tax base. In order to offset the decline in valuations, the jurisdiction will simply have to increase the tax rate applied to the assessment to pull in the revenues required to balance the budget. You will still pay for the same slice of the pie (the value of your home) and the taxing authority will get their money out of you, don't worry.

  • Yahoo! Finance User - Friday, August 8, 2008, 6:26PM ET  Report Abuse

    • Overall: 1/5

    Nonsense. Some will benefit from falling home prices, but it won't be homeowners. The best options for exisiting homeowners is to try to stop the blood loss by paying off the mortgage early and skipping the interest. I suggest opening a Mortgage Savings Account. MSA's have been saving Australians hundreds of thousands of dollars in mortgage interest for 20 years and Americans need to jump on the bandwagon and stop paying through the nose for their mortgages. If you have a 30 year fixed, ARM or interest only mortage, you better take the responsiblility to educate yourself about MSA's. You can google "Mortgage Savings Accounts" or research www.maxhouse.com, but get educated!

  • Yahoo! Finance User - Friday, August 8, 2008, 5:08PM ET  Report Abuse

    • Overall: 1/5

    Didn't you hear, no more Alt A loans. That means 20% down to buy a house like back in the old days. The prices are going to keep falling. Should have sold your house in '07 before it really hit the fan. But '09-'10 will be great to pick up income property!-

  • LawrenceF - Friday, August 8, 2008, 4:50PM ET  Report Abuse

    • Overall: 4/5

    First of all, don't think that the county will increase the tax rate due to a lowering of the assessed value. Cities received 10-20 times more revenue due to property taxes over the past few years. Where did this windfall go to?? Did you see millions more go to teachers' salaries? Roads? Hospitals? NO. IT went into the politicians pockets. Reducing the tax burden will lower it down to NORMAL rates, which means the less that can be stolen by the greedy politicians.

  • Yahoo! Finance User - Friday, August 8, 2008, 4:22PM ET  Report Abuse

    • Overall: 4/5

    Man, there are some angry bitter people out there. While it may be true that long-term city budgets may require adjustments to the property tax rates if values keep falling, the reality is that this year, there will be people that take advantage of the weakness in the housing market and protest their property taxes, and there will be people that don't take the time and end up paying more. Most city governments were doing fine five years ago before the bubble hit, and while they may have to make some cutbacks in big new initiatives they planned to spend their property tax windfall, they will be ok. I don't understand why people have to constantly criticize every article, instead of taking it for what it is: a commentary on a certain dynamic that is going on in the current market, that may be relevant to some people and not to others.

  • Yahoo! Finance User - Friday, August 8, 2008, 3:46PM ET  Report Abuse

    • Overall: 1/5

    If only it were as uncomplicated as the article makes it sound. Assesment is only one piece of the puzzle of how your tax bill is computed. Governments have a required minimum budget requirement they need to collect from property taxes. They then look at the total assed vaule of property in their jurisdiction and divide the requirement by the total assessed property values and come up with the Mill Rate. Your property taxes are determined by multiplying your assessd value by the Mill Rate. If you complain that you were over assessed they may decrease your taxes but then they will be running a budget deficit resulting in a higher mill rate in following years.

  • pbergn - Friday, August 8, 2008, 3:36PM ET  Report Abuse

    • Overall: 1/5

    Nonsense - the homeowners cannot benefit from the falling house prices. In fact, noone benefits, not even the government or banks or speculators, or builders or, err, you name it... I am dumbfounded on the fact that one can even suggest such a preposterous idea!

  • Yahoo! Finance User - Friday, August 8, 2008, 2:34PM ET  Report Abuse

    • Overall: 3/5

    I usually think LR's articles are crap, but I really liked this one. Moreover, I thought the responses were even better. Am I wrong, or is LR just giving advice on how to get back some caysh without a whole lot of effort. Seems like quite a few of the comments were just knee-jerk reactions to the words "Housing Prices" and not a comment on the gist of LR's article. Oh, and BTW, that "Hillary with a big nose" comment was a bit below the belt.

  • Yahoo! Finance User - Friday, August 8, 2008, 2:15PM ET  Report Abuse

    • Overall: 3/5

    Asking prices are still high and appear to be begging for a half price offer.

  • binderzz - Friday, August 8, 2008, 1:57PM ET  Report Abuse

    • Overall: 3/5

    Any benefits from falling property taxes are likely to be short lived. Unless you can convince your local police, fire and schools to cut their pay by a like amount and leave their services unchanged, I don't see anything but problems in the future. We've begun a slide down a slippery slope. When we get to the bottom of the hill, it's going to really, really hurt.

  • Yahoo! Finance User - Friday, August 8, 2008, 1:56PM ET  Report Abuse

    • Overall: 3/5

    I'm a big fan... This wasn't your best week Laura. That's ok. You'll knock it out of the park next week.

  • Andrew - Friday, August 8, 2008, 1:50PM ET  Report Abuse

    • Overall: 1/5

    wow. really speechless. wow. I will not waste much time here but to point out. 1. in CA, the property tax is based on its sale price, not based on appraisal value. 2. in NY, for example, the property tax is based on your house value relative to your neighbor. If whole neighbor house value go down with yours, there is no property tax adjustment. As usual, I skimmed thru her article and found the usual, useless article.

  • Irock - Friday, August 8, 2008, 1:43PM ET  Report Abuse

    • Overall: 1/5

    Speechless

  • Marcus - Friday, August 8, 2008, 12:33PM ET  Report Abuse

    • Overall: 1/5

    Where is MICK?

  • Pretzel - Friday, August 8, 2008, 12:31PM ET  Report Abuse

    • Overall: 1/5

    What world do you live in?! Property tax percentages will be increased to make up for the deficit due to falling housing prices. When housing prices recover, the tax percentages will likely not be decreased, so we will all be stuck with higher taxes when prices recover. You should have a little more realism and foresight before saying that lower housing prices are a silver lining in the form of a tax reduction. The certainly is not the case, quite the contrary in the long run actually.

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