# Understanding (and correcting) the property tax assessment

Imagine, if you will, Tinyville, a community of only ten houses. All ten houses were of the same size and style, built at the same time on similar sized lots, using similar architectural drawings and building materials, each with comparable views and amenities, and each sold to its original owner for the same price, \$250,000. Assuming that the fair market value of each of these houses was \$250,000 (because after a reasonable time that is the price at which sellers and buyers met, without being coerced), the Tinyville tax assessor appraised each property at \$250,000, resulting in a total underlying property value of \$2.5M for all of Tinyville.

Like any municipality, Tinyville has expenses: police and fire departments, schools and libraries, water and sewer, sanitation workers, judges and clerks, engineers and inspectors, tax assessors and collectors, civil servants and clerks. To simplify the math, let’s imagine Tinyville’s annual budget is only \$100,000 and it has no other sources of income (such as parking meters, local sales or income taxes, or hunting/fishing permits). To cover your annual expenses, Tinyville’s tax assessor divides your \$100,000 of budgeted expenses (known as total taxes) by each property’s proportionate share of the community’s \$2.5 million total assessed value. Dividing \$250,000 by \$2.5 million means that each house is responsible for 10% of Tinyville’s property tax. Each homeowner (or their mortgage lender) receives a \$10,000 tax bill.

For years, everyone is happy in Tinyville. Each of the families have children in Tinyville schools, march in Tinyville parades, and compete in Tinyville Pie Eating Contests. In the natural course of events, two of the original families were more prosperous than others and moved to better housing in Mediumville, one retired to Southville, another transferred to his company’s office in Westville, and one died in a tragic accident. car accident, but his heirs in Bigville did not want to return to the family home. Anyway, five of the houses went on the market and since the market had been good for the past few years, four sold for \$300,000…except for the deceased couple’s heirs, they let the house fall apart. in disrepair, stopped mowing and eventually the squatters moved in and started trashing the place. When they finally sold it as a “maintenance special,” they got \$150,000 for it.

Before any year’s tax assessment is “final,” it is sent to each owner for review. Each owner has the opportunity to dispute the assessment. The original five homeowners continued to be appraised at a rate commensurate with their \$250,000 property value, and knowing that many of their neighbors sold their comparable homes for \$300,000, they quietly accepted this appraisal. The four new owners who paid \$300,000 each are also appraised at \$250,000. Strangely, it is illegal for a municipality to conduct a “spot appraisal” of individual properties, so even though the “fair market value” of those four houses has increased 20% since the last appraisal, they are still appraised at \$250,000 each. The tenth house, purchased by the handyman for \$150,000, is also appraised at \$250,000, but he questions his appraisal. He argues that the fair market value of his house should be based on its recent purchase price, and through the various legal methods available to him, he causes the house to be appraised by \$150,000.

Assuming the total tax lien does not change by \$100,000, what happens to each owner’s property taxes? Nine of the ten houses are still appraised at \$250,000 each, but the last one is now appraised at just \$150,000. One might quickly (and incorrectly) guess that houses with unchanged appraised values ​​would have no change to their \$10,000 property tax bill, and that the 10th house would pay only \$6,000, but that doesn’t add up correctly; Tinyville needs to collect \$100,000 in taxes to balance its budget, and this formula only adds up to \$96,000. What actually happens is that the denominator also changes. The total assessed value of the Tinyville property is recalculated based on each property’s assessed value and now amounts to just \$2.4 million. That means each of the \$250,000 homes now accounts for just over 10.4% of the total, and is now responsible for that percentage of the \$100,000 lien, increasing each of its assessments to \$10,417. The handyman’s \$150,000 appraised value represents 6.25% of the total, so he is now responsible for only \$6,250 of Tinyville’s tax collection.

Some (including handymen) would argue that the handyman’s home is worth less and therefore should pay less in taxes than his neighbors. Others (including your neighbors) would argue that your house is the same size and shape, occupies the same amount of land, and makes the same demands on Tinyville’s police, fire, schools, libraries, sewer, and other services, and that must pay the same amount as the other houses. Some (including the original five families) would argue that resold homes should be assessed at their new, higher market values, and that the new owners should pay proportionately more taxes. Others (including the four new owners) would argue that the fair market values ​​of their homes (as evidenced by their sales prices) are indicative of the actual fair market value of the five unsold homes, even though those homes have not been been sold. t changed hands recently. These are the kinds of issues that confuse homeowners and plague tax assessors, appraisal review boards, and courts in every municipality, every year.