HIGH Real Estate Taxes

One of the major problems in the real estate market today, is that nearly EVERY home appears to have high Real Estate Taxes. Some properties and towns are a LOT worse than others, but every home today has tax bills that reflect their PREVIOUSLY HIGHER HOME VALUES. The County Tax Assessors do not automatically lower the taxes when home prices decline, even though they never miss a chance to raise them! In fact, our own personal real estate taxes have continued to rise by 5 to 7% per year, in spite of the fact that we have lost about 25% of our home’s value over the past 4+ years!

Not fair? No kidding! It’s a MAJOR problem! Not only for those selling their homes, but also for buyers trying to get a mortgage. Tax Assessors have a luxury that today’s Real Estate Appraisers do not have, and that is the ability to use Closed Comparable Sales Data that is up to 3 years old! Since most counties only assess property every 3 years, they are using inaccurate and dated data. In contrast, due to the changing market, today’s Real Estate Appraisers are forced to use closed sales that are no more than 3 to 6 months old for the comparable sales used in appraisal reports. Not only that, they are forced to use 6 closed sales (it used to be 3) as well as 3 current listings. Things have really changed since I was a real estate appraiser from 1986 to 1994.

I’d say the biggest problem with property taxes today, is that current tax bills reflect amounts that were applicable a few years ago, but are now too high for the current fair market values, which can prohibit buyers in those price ranges from qualifying for the mortgage. This is especially true for Bank Owned, and Short Sale properties, because they are priced well below current market value, when compared to other “similar homes”. As an example, I have seen properties in the $250,000 range with taxes that reflect a MUCH higher value, and there is no guarantee that they will be reduced based upon the future lower sale price. So if a property is NORMALY taxed at 2.5% of it’s current fair market value, at say $250,000 then it should have taxes in the range of $6,300 per year.

However, if the local tax assessor thinks the property is still worth $325,000 (because it once WAS worth that much) then the average buyer, who is Pre-Approved with a Lender in the $250k range will NOT qualify for the property, because their pre-approval is also based on an average tax amount for that price range (So, to amplify the point by example, the lower the owner reduces their price, the more ridicules the taxes appear to be? So at some point, drastically reducing the price will not make it sell, because that in turn makes it appeal to buyers in even lower price ranges, who again will not qualify for a mortgage based on the high taxes. So they end up selling primarily to investors who pay cash, and don’t have to worry about qualifying for a loan.