by James Stefanile, ABR, GRI, SRES, QSC, REALTOR/Associate, Prudential New Jersey Properties
You know the sinking feeling. Your municipality announces a town-wide re-assessment of all properties. You immediately think your property taxes will skyrocket. Not necessarily. There’s no guarantee your taxes will go up (or down).
All properties in New Jersey, by state law, must be assessed by their respective municipalities at fair market value. You might ask, “Aren’t they already at market value?” Most certainly not. Your town’s assesment of your property’s value may have nothing to do with its market value. Many towns have a “differential” or “percentage”. The assesment may reflect a certain percentage of market value.
Some towns in New Jersey have not had a re-assesment for many years and some towns have accomplished this in the past couple of years.
A few words about how property taxes are levied and spent… About half of your local property taxes go to your Board of Education. The remaining half is divided between the local municipal government and the county government. If you live in a county with large, urban municipalities (for example, Essex County), the county levy will be large. If your town’s school system is regionalized (shared) with other towns or local and small, your Board of Education budget will be smaller. The municipal budget size depends on the population of the town and the kind of services it provides. Municipal residential property taxes also depend on the amount and kind of rateables (taxable properties) in the town. Towns with lots of retail, commercial and industrial properties will not have residential property taxes as high as towns consisting of mostly single family homes.
The good news is that municipalities cannot, by law, tax for more than they need in a given year. Towns don’t hold surpluses of taxed revenues. At the beginning of the annual budget process, it’s determined how much a municipality and school system needs to operate, a budget is developed and in many towns the Board of Education budget is subject to voter approval. County governments go through the same process, only they keep everyone in suspense by being the last to develop a budget which is why your last one or two quarterly tax bills are estimated. Once all facets of government have decided on exactly how much they need, a new tax rate is generated. The best way to see a representation of all of this is to ask your local tax assessor’s office for a copy of your property card. This is very interesting reading in general. It has many specific details of the physical characteristics of your home, when permits were taken and for what work. Your assessor can also provide information as to your property’s assessment and your local tax rate. You can also visit the NJ Association of County Tax Boards website at http://www.njactb.org/ and click on “record search” on the top left of the page, then choose your county and town, then enter your address in the appropriate search fields. You will see your assessment and tax history for the past 3 or 4 years.
Let’s say you have a property with an assessed value of $100,000. You may know that your home has a market value of $500,000, perhaps a REALTOR has done a market analysis for you or you’ve recently re-financed a mortgage and the lender has sent an appraiser. So the assessed value is about 20% of the market value. Your tax record will probably show a differential percentage of about 20%. Let’s say your municipal tax rate for 2010 is $12.50 (also shown on your tax record). Your property taxes are computed as follows: You are taxed $12.50 for every $100.00 of assessed value (you’ll notice that market value has nothing to do with this unless the assessed value and the market value are the same). So, you are being taxed for 12.5% of the assessed value or $12,500 annually. Another way to arrive at this (when the math isn’t so simple) is to divide $100,000 (assessed value) by 100 and then multiply that number by $12.50 (tax rate) and you’ll also get the annual $12,500 in property taxes. $12.50 is a very high tax rate which is a hint that your town is overdue for a re-assessment. The tax rate is what changes every year as taxes rise naturally (without any re-assessments) as municipal budget demands increase. Your assessment only changes if there is a town-wide re-assessment or if you do a major physical upgrade on your home. The assessor peruses the building permits and may pay you a visit if you add a third floor to your home or otherwise increase its size or features in some significant way.
What about that catastrophic tax increase that, you fear, will follow your town-wide re-assessment? Let me tell you what happened in Montclair when that township did their re-assessment in 2007. The tax rate at the time of the assessment was $5.36 and the last re-assessment was in 1989. After the re-assessment the tax rate fell to $2.00. Why? Remember, a town can’t tax for more than they need. With the new, higher assessments in place (at market value, as required by law) the tax rate had to go down or the tax revenue raised would far exceed what was needed in the municipal and education budgets. Typically, when a town re-assesses its properties, about a third of property taxes stay roughly the same, a third go down and an unfortunate third go up.
Let’s suppose you are in that annoying last third, your new assessment is much higher and you think your new property taxes will be off the chart. You have options. Many towns will allow you to speak directly to the appraisal firm right after the new property assessments are made public. Often, the appraiser will be available by appointment or during posted hours at the town hall during this process. The best way to make your case is to prove one of two things: Either the appraiser noted the features of your home incorrectly (they said you have 3 bathrooms and you only have 2), or you can show that comparable properties sold for less than the appraisal (or you recently purchased the home for less than the appraisal). Do not use your neighbors’ assessments or property taxes. They don’t figure in the thinking. Every home in a neighborhood may appraise differently and may have different taxes. Remember, you’re appealing your property’s assessment, not the tax rate. Since assessments must be at market value, comparable properties’ market value is the best proof. You will have received a mailed appointment notice for the appraiser’s visit at the beginning of the process. Make sure you are home when he or she arrives. You don’t want them to do a “drive by” appraisal. If they can’t get into your property, they may do their appraisal based on your home’s exterior which is bound to be inaccurate. When you meet the appraisal firm during the first appeal process, if they did a “drive by” lobby them to re-visit your property.
How do you get comparable properties? I thought you’d never ask. I do lots of tax appeals either right after a town wide assessment or any other year (permitted between January and April every year). I can supply you with the comps and a formal opinion of value based on a visit to your home. The comparables must be until October of the previous year – 5 total. Sometimes I tell my customers that they probably don’t have a case for appealing their assessment. I don’t want to waste anyone’s time. Very often, however, I can help customers navigate the appeal process.
The mechanics of the appeal process are pretty simple. If you’ve visited the appraisal firm at the town hall right after the appraisal and the appraiser will not change his assessment, you can appeal to the county tax board. In Essex County it’s located at the Essex County Board of Taxation, 50 S. Clinton Street, East Orange, NJ 07018.
As I mentioned before, in any year, you may appeal your property taxes to the county board between January and April of that year. In New Jersey, if your property is assessed at over 1 million dollars, you can appeal directly to the state tax court, bypassing the county. The state tax court is the ultimate appeal venue and if you do petition the county and lose (with any property value) you can appeal to the state. But back to the county appeal… you must file a petition (dowloadable at the NJ Association of County Tax Boards website http://www.njactb.org/ click on “forms” link at the top right side of the page and download the A-1 Petition of Appeal ). There is, of course, a filing fee, based on the assessed value of your property, ranging from a fee of $5 to a maximum fee of $150. Your petition must be received (not just postmarked) by the county tax board by April 1st and you must also file the petition with your local tax assessor and municipal clerk. There’s a very good downloadable brochure which covers the appeals process in depth, provided by the State of New Jersey at http://www.state.nj.us/treasury/taxation/pdf/lpt/ptappeal.pdf.
Do you need an attorney? Not necessarily though there are attorneys who specialize in the tax appeal process. Once again, I know who they are. Often, I will assist a homeowner and an attorney by providing the comps to the attorney who files the appeal petition. Do I charge a fee for my assistance in a tax appeal? – no, I do not. I cannot, by law, earn anything based on my real estate license that is not a commission issued from my brokerage. I provide this service to my customers as a courtesy. Attorneys who specialize in tax appeals are, of course, experts in the process (and they do, of course, charge a fee, typically a percentage of your tax savings for the first year) and you may feel more comfortable with their guidance rather than going it alone. However you choose to proceed, you’ll need comps, an opinion of value and the filled-out petition. There will then be a hearing date at the county tax board headquarters. You can, if you wish, get a professional appraisal on your property from a licensed appraiser (not free, either – typically $400 to $500). You may bring that appraiser as an expert witness with you to your hearing and, if you use an attorney, he or she can represent you at the hearing. The tax board will not allow me to testify on your behalf – only licensed appraisers.
Hearings are supposed to be between May and August of the appeal year but may be later based on the volume of appeals. In Montclair, the number of appeals are overwhelming the county tax board and delaying the scheduling of hearings. The Montclair re-assesment was done at the top of the market and those assessments may not be currently valid in this market decline, hence the number of appeals.
One final note: The tax board will only adjust your assessment if you can prove your true value is more than 15% lower than your current assessment. Anything less is considered, statistically, a wash.
So, as you see, you do have options. It’s a process, like everything else. There’s no reason to be frozen in fear. Taxes often elicit a knee-jerk panic reaction but taxes are a lot less frightening when you know what to do. Hopefully, you are feeling a little less anxious now.