The Next Shock for Homeowners: Rising Property Assessments
Anne Van Donsel said she didn’t really believe it when her hometown of Burlington, Vermont sent her a new property assessment last year showing her home’s value had doubled, raising her property taxes by 20%.
Her property taxes have jumped to around $12,000 a year from $10,000 previously, a rise she says is adding to financial strain as inflation drives up the cost of food and other necessities. Although Van Donsel appealed the assessment, she only got a small reduction in the value of her home, which did not impact her new tax bill.
“I hadn’t planned on spending thousands of dollars more on property taxes for the year,” said Van Donsel, 59, a state employee.
These hardships are the flip side of soaring residential real estate prices, as county and city officials blast new property assessments to homeowners across the United States. The housing market surged during thedriving the value of a typical US home to $344,000, 37% higher than in February 2020 before the crisis.
Now, higher property taxes could increase the cost burden on long-time homeowners and new homeowners, further squeezing budgets at a time when inflation is at its peak..
Cities and counties typically reassess property values every one to two years, although some areas have gaps of several years between reassessments. That means homeowners are only now seeing the housing boom reflected in their tax bills.
According to John Whitehead, the Knox County real estate appraiser in Tennessee, who in April sent new property assessments to his residents, his first in five years, some homeowners are now receiving “sticker shock” when they receive new property assessments. Values in the county, home to the city of Knoxville, rose an average of 40% in the new assessment.
“We had about 10,000 calls” on about 210,000 parcels of property after the county sent in its new assessments, he added. “A lot of them complained that it grew too much – some grew 50%, some 100% or more – and they complained that it grew too much at the same time, and I understand that. It’s the shock sticker.”
Save property taxes
The average property tax payment reachedin some counties, according to an April report from Atom Data Solutions, a real estate data company. Even so, property taxes have lagged behind home prices, with the former rising less than 2% last year while single-family home values jumped 16%, Attom said. That means property taxes could soon reflect higher home assessments, the company says.
Some major cities and counties are now sending new assessments, much to the dismay of some homeowners. In Philadelphia, for example, residential values are now 31% higher than when the city was last assessed three years ago; Milwaukee saw an average increase of 18%, while in Knox County, home values rose 40%.
This could impact the budgets of long-term homeowners as well as the millions of first-time buyers who purchased property during the pandemic. It could also be an unexpected cost for today’s house hunters, who are faced with higher house prices as well as mortgage costs, meaning the typical mortgage payment is more than 50% higher than that of ‘one year ago.
Higher tax bill?
It’s important to note that a higher valuation doesn’t necessarily mean a bigger tax bill, said Richard O’Donnell of O’Donnell & Cullen Property Tax Consultants. A former Westchester County, New York, tax assessor, O’Donnell explained that the question is whether your assessment — as a percentage — has increased more than the city or county’s average increase.
A Knox County homeowner whose home value increased by 50% would end up with a larger tax bill because their home exceeded the county’s average 40% increase, Whitehead noted. Someone whose home has increased by less than 40% in value would see a reduction in their property taxes.
New assessments are typically designed to be revenue-neutral, meaning the city or county cannot generate revenue from an assessment, experts say. For example, new assessments impact taxes if a neighborhood appreciates faster than the city as a whole. In this case, the owners of this district will probably pay higher taxes.
“Will some older homes be less marketable than newer homes, and will some areas appreciate at a faster rate? Absolutely, and that can create a shift” in the distribution of taxes among homeowners, said O’Donnell.
School budgets and taxes
Homeowners can certainly face higher taxes when their properties are reassessed, but the biggest cause of property tax increases is usually school budgets, O’Donnell said. Since property taxes are the main source of revenue for funding local schools, an increase in education budgets generally results in higher tax rates.
“Most people don’t participate in the budget process,” O’Donnell said. “There are a number of working sessions and hearings to discuss the budget. As a local official I have been to many of them. They have a 2,000 seat auditorium and half a dozen people there -down.”
Landlords in cities or counties who wait several years to reassess properties are more likely to face a nasty surprise when the new assessments arrive, he added. “The longer it elapses between valuation one and valuation two, the bigger the swings will be and the more upset people will be.”
For Van Donsel, it had been 15 years since Burlington, Vermont, had last published property assessments.
“The value didn’t seem believable to me. The idea that I could sell it for as much as they appraised it seemed ridiculous,” she said, declining to give her home’s new estimated value. But, she added, property values have only risen since then. “Maybe it could now.”