Property taxes trip up naive homebuyers

Homeowners who maintain an escrow account should keep a close watch over the disbursements, because loan servicers sometimes neglect to make the payments on time and then pass along the late fees to the homeowner, according to a bulletin issued by the U.S. Department of Housing and Urban Development. If you notice any overcharges on your escrow account statement, send a letter to the loan servicer to request an explanation.

Property tax calculation varies

Property taxes are "almost always based on the value" of the home, says Bert Waisanen, a program principal for the National Conference of State Legislatures in Denver.

Beyond that, each state or locality typically uses its own peculiar formula to calculate property taxes. These formulae introduce a certain amount of complexity and unpredictability into property taxes.

Property taxes tend not to be volatile, yet they can increase (or decrease) over time. Some authorities only reassess properties when they are sold or improved while others conduct reassessments on a set schedule, such as every year or every three years. Either way, a reassessment can result in a significantly higher tax bill either because the property increased in value or the tax rate was raised -- or both.

Residential property taxes are based on:
  • Recent assessed value or sales price of the home.
  • Value of comparable homes in the area.
  • Improvements that enlarged or added value to the home.
  • Exemptions for which the home or homeowner qualifies.
  • Applicable property tax rate set by the taxing authority.

Most authorities offer an appeals process that homeowners can tap if they believe their property hasn't been accurately valued, according to Waisanen.

Sepp says homeowners should "never assume the assessor has correctly accounted for all the features of their property" and "should always at least consider an appeal regardless of (housing) market conditions."

Help for seniors, poor

Just about every state has some sort of tax relief that may be general or targeted to a specific population of homeowners, according to Waisanen.

Most common forms of relief
  • Homestead exemption.
  • Cap.
  • Credit or rebate.
  • Deferral.
A homestead exemption excludes a portion of a home's value from the tax assessment if the owner occupies the home as a primary residence. This benefit could be quite small, or could be worth hundreds or even thousands of dollars depending on the amount of the exemption and the way it's applied. Almost every state has a homestead exemption, though a bit of paperwork might be required to claim it.

A tax cap is a limit that may be applied to the total tax bill, annual percentage tax increase or other aspects of the assessment. Perhaps the best-known instance of a cap is California's Proposition 13, which limits state property tax rates and annual property tax increases.




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