Assessed Value, Market Value & Taxes

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Assessed Value, Market Value & Taxes

Plymouth and Cape Cod real estate is doing okay. But let’s have an open discussion on property Assessed Values, Market Values and Tax Rates. Many buyers and sellers put a lot of weight on assessed value. Well in the current market and with the need of municipalities to balance their budgets, the data are not always what they seem. Or better yet, the data are the data and how they are used can differ by who are using the data. I’m trying to be politically correct here. My point is buyers and sellers must find the true value of their property and cannot use just the assessed value.

    ASSESSED VALUE. Cities and towns have an Assessors Department whose job is to assess all real estate in their geography as to current market value. The term 100% valuation means they assess the property at 100% of what they believe the property to be worth and can be sold for at the time of assessment. They then multiply their current tax rate (typically $3.00 to $20.00 per thousand dollars of assessed value) by the assessed value of each property. Example: if you have a home assessed at $400,000 and your local tax rate is $3.00, your taxes are $1,200.00 per year. If your tax rate increases to $4.00 your annual taxes are increased to $1,600.00 per year.

    Hopefully once this is done annually for each property, there is enough income to satisfy the current year budget for the municipality. If not, the tax rate is either raised and property assessments are adjusted down or vis-a-versa. Are you starting to get the picture? This can be complicated by local referendums calling for minimum increases in taxes or rates. Heard of Proposition 2.5%?

    MARKET VALUE. In 30 years of real estate investing, development and hundreds of transactions as a Realtor, I’ve learned a few things by surviving several bad and some great markets. In a healthy housing market, generally, assessed value will be between 80%-90% of its current market value. Market value being defined as what someone will actually pay you for your property today. Some municipalities assess only every 3 years and/or there is a lag between assessments getting on the books and what is happening in the market. Markets are dynamic and wait for no one. Though many make the same argument regarding taxes.

    We are just now getting back to a healthy market. Many market values are still below their assessed values and/or the market value is less than the current mortgage on the property. Thus the term “underwater.” This of course has created a problem with the budgets and income for municipalities who must balance a budget while paying for a new school, senior center, roadwork and other infrastructure needs, some of which are critical. It is also affecting sellers and buyers of property and their lenders.

    TAX RATES. I’m not certain whether this is an art or a science but municipalities set their tax rates based on many criteria. Bottom line is anyone choosing to live in a particular municipality must weigh what that city or town provides in terms of services and standard of living vs. the cost to the residents/owners. If you’re looking for a great school system, parks, access to transportation and detail to maintenance and updating – you will pay for this.

    Simply put, a municipality looks at its costs and the income from its tax base. Shortfalls have to be covered or taken from reserve funds or borrowed. Inevitably costs have to be covered or cut. Changing tax rates is a tool that is used as necessary.

    Those who work for a municipality are either voted into office, hired by someone who is voted into office or a volunteer. Like most they want to keep their jobs and they want to be seen and recognized for doing a good job. So raising taxes is not a popular move. But rising assessed values makes owners happy as they see the American dream before their eyes.

Ideally, assessed values continue to climb and tax rates remain flat or even decease. Well that was then and this is now. All bets are off. Municipalities are cutting services, raising tax rates to cover decreased property values and assessments where some increases are tough to find or justify even in the current market. Top cities and towns usually survive due to financially healthy owners and good management, but no one is sacred. With prices coming back this should be a break for some municipalities.

So when you get your next tax bill look into where any change may be coming from – a rate increase or your assessed value. Ask if you are taking advantage of services provided. Are you getting what you pay for? Are you confident in management? Can you help? Can you afford to cover your costs of ownership? If not then you may decide to vote with your feet.

Each city or town is different and each has its own situation. What is yours? I’d enjoy your thinking.

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