Friday, November 23, 2007

Losers and Winners in the Upcoming Property Revaluations

Matawan recently announced that its property revaluations have been completed. Aberdeen will be having a public meeting on November 27th to discuss their 2008 property revaluation. It’s no surprise these announcements took place after the elections. The news isn’t good.

Property taxes are determined according to a property owner’s “fair share” of the tax burden. The taxing body “assesses” the value of all taxable properties (ratables) within its jurisdiction. The total value is called the assessment roll. A property’s fair share of the tax burden is equal to its share of the assessment roll, or “ad valorem”, according to its value.

To simplify the math, taxing bodies express taxes in terms of a tax rate. The tax rate is equal to the appropriations (needed tax revenues) divided by the assessment roll and expressed in dollars per hundred dollars of value. For example, if a school needs to raise $5 million in taxes and the total assessment of all ratables is $100 million, then the tax rate would be $5 per $100 of assessed property value. If a home is assessed at $500,000, that home’s annual tax burden would be $25,000.

The municipal revaluations are being mandated by the state. Previously, assessments were a percentage of market value. For example, in Aberdeen, a property’s assessment was 45% of its estimated market value. The state now requires that all property assessments be uniform at 100% of market value.

In theory, property revaluations should have no effect on an individual’s tax burden because they don’t change the property’s fair share. For example, if there are ten homes of equal value, each homeowner would be responsible for 1/10th of the tax burden. If all the homes suddenly doubled in value, each home would still be responsible for 1/10th of the tax burden.

The problem is that current property assessments in our neighborhood are wildly inaccurate. Aberdeen’s last property assessment was in 1992. Following the Rule of Thirds, after the revaluations, a third of the properties will see their tax bills decline, another third will see little change, and the remaining third will see their taxes go up.

For example, Aberdeen Township estimates the value of 2 Campbell Ct., a custom colonial, at $470,700. In 2007, the home sold for $625,000. Between the revaluation and next year’s estimated tax increase of 5% (the state’s 4% tax increase cap allows for certain exceptions) the homeowners at 2 Campbell Ct. could be looking at a 25% property tax increase.

119 Courtland Rd., a country clubber, is valued at $348,000. Last year it sold for $450,000. It, too, could be looking at a 25% property tax increase.

681 Cliffwood Ave., a modest house on a small lot, has an assessed value of $210,000 but sold this year for $365,650. The homeowners could be hit with a 60% tax increase.

12 S Atlantic Ave., a condo by the train station, sold this year for $175,000 but the town only valued the property at $90,700. It’s facing a possible 80% tax increase.

At this point, it’s impossible to know how much property taxes will change until the property revaluations are completed. Obviously, there are far more homes that are undervalued than overvalued since homeowners are quick to challenge high property assessments. For this reason, I've tried to give conservative estimates for possible tax hikes. Still, if the Rule of Thirds holds, many homeowners could be subjected to property tax increases over 20%. (Percentage-wise, the more affordable homes are facing the largest increases.)

As for the municipalities, they see it as a good thing that these homeowners will finally be forced to pay their fair share. There is no cap for how high property taxes can go up and there is no assistance available for those families facing a huge tax increase.

The easiest way to see if you’re at risk of a huge tax increase is to visit the New Jersey Tax Records site and look up your home address. Divide the total assessed value by 0.40 to get the assessed market value. If the actual market value of your property is more than 10% above the municipal estimate, be concerned.

If you’re thinking you can sell your home before the new assessments, think again. All realtors are required to inform prospective buyers of the revaluations.

Matawan and Aberdeen will be talking about tax rates but the only thing that matters is the tax bill. Some homeowners will be facing massive tax increases next year. If these homeowners have adjustable rate mortgages as well, expect to see more foreclosures.
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Anonymous said...

As a really concern resident, I know this revaluation will bode no good for residents of our town. I've been residing in Aberdeen for the past three years and my property taxes have gone up steadily. With the revaluation who knows how much it will be now. I would not be surprised if my property taxes will double or triple. It makes me wonder if I'll ever be able to afford my mortgage now.

Anonymous said...

The Timing could not be any worse. With record forclosures projected without a revaluation one could only imagine the impact this will have on creating many more forclosures in Aberdeen. The local government might have tried to hide the revaluation before the November elections were completed but they will not be able to hide the mess that they are about to create for this town. A prudent government would try to defer the reassessment for a future date when property values stabilize. An example of that is in Red Bank where the local government requested and was approved a delay in revaluations from the county and state because of the current real estate problems.

Anonymous said...

I hope all the people who voted for the incumbents are happy. Before the election the democrats said the revals weren't being done until 2009 at the earliest and don't forget about the surplus money being used to keep the taxes artificially low as well.
I guess all those BIG signs fooled alot of people.

Anonymous said...

You just don't get it. If the current rate is $5 per $100 of value and total value in the town doubles, the rate would drop to $2.50, meaning that taxes would not go up. Your postings really show your ignorance. Perhaps you should spend more time reading and less time blogging.

Aberdeener said...

I'm afraid you didn't read my column carefully, particularly paragraphs 5 and 6. I stated very clearly that if they simply doubled everyone’s assessment, there would be no change. But that’s not what’s going to happen. Some homeowners will see their assessments rise far higher percentage-wise than others. They will see their taxes go up while others will see their taxes go down.

The reason for the revaluation is that about half the town is not paying their fair share. That means that some people are paying too much and others are paying too little. Fixing the problem requires charging some homeowners more in taxes while cutting taxes for others.

I’ve spoken with Aberdeen’s Town Manager and Tax Assessor. I asked the realty appraisal company this very question at the town hall meeting. There is absolutely no doubt that many homeowners will see a dramatic rise in their property taxes in 2009.

Anonymous said...

I was at the meeting on Tuesday and the manager did not say that there would be dramatic increases. Stop posting lies and trying to acare people. You are obviously just a malcontent that feels important behind a keyboard. You obviously know the terms but don't know how they fit together.

Truth In Matawan said...

Anonymous, I can't determine why you are so rabidly insisting there won't be dramatic tax increases for some property owners--wishful thinking perhaps? That's "The Secret" after all--the power of positive thinking, after all. Good luck with that, hope it works for you.

Glad to hear you were at the meeting, but do you seriously mean to say that if the township manager didn't tell you some people were getting huge increases, you don't think it's going to happen? That's just a little bit, naïve, no? It couldn't be that in the interest of preventing a run on the Council, he didn't want to out-and-out say "Hey, guess what, some of you are going to be blasted!"

I think your content is uninformed, and your tone is rotten. In other words, a typical anonymous internet poster. Aberdeener is one of the most knowledgeable bloggers I've ever come across, all his/her posts are well-researched and well thought out. He/she's gone to the lengths of speaking with the Town manager and tax assessor to break down the political jargon into plain speak so even sub-morons such as yourself can understand it. On the election threads, Aberdeener went to the length of contacting the county clerk for fact verification. In other words, real reportage, and follow through. Finally, Aberdeener just plain has some good ideas that should be followed up on both at the highest levels of government, and the lowest levels of citizenry--of which you are firmly entrenched.

P.S. Aberdeener, any luck finding out who those write-in votes were for?

Aberdeener said...

T-I-M, thx for the strong encouragement. It's most welcome and appreciated.

As for anonymous, I am glad you were at the town meeting. I hoped you stayed through the question and answer period. Neil Rubinstein, the town's appraiser, made it quite clear he could give no estimate how high some homeowners' property taxes might increase. It's quite reasonable to believe that 1% of the over 6100 homeowners could see their taxes readjust 20% higher. That's in addition to the annual property tax increases.

I don't know why people insist that no one will see major tax increases when the people most involved say otherwise. The naysayers are insisting that, 16 years after the last revaluation, virtually everyone is paying close to their fair share. To me, that assumption appears illogical and without any factual basis.

Let's hope anonymous is right but plan ahead in case he's wrong.

(PS - haven't gotten the write-in names yet, but will. Had to wait till after the recount.)

Anonymous said...

Aberdeener isn't informed - just has to much time on hands and presents erroneous conclusions as facts. Taxes do not go up by 20% if your assessed value goes up by that percentage. Insinuating that is just plain wrong. Do you also believe that the sky is falling?

Anonymous said...

I am a first time homeowner this year, maybe I am not understanding all this since it is quite new to me but I was assessed at 180,000. Using the formula they sent in the letter I come up with $4,734 which would reflect a 32% increase over my current taxes for my 1 bedroom condo.

Aberdeener said...

The number on the letter was for example purposes only. To approximate your property taxes for next year, multiply your assessment by 2.26% (township's numbers) or by 2.365% (my forecast).

Either way, your taxes will be much lower than your current estimate.

Anonymous said...

As a 39 year resident of Aberdeen, how worried should I be about the coming assesment. I was at a 224,000 property evaluation, and my new assesment is for 450,000. Do I have to wait to see how bad it will be for me, a senior, to afford to stay in my home? Any thoughts, anyone?

Aberdeener said...

You can relax. You won't see any changes till the second half of next year but your property taxes will be substantially reduced - over 10%.