This Tuesday, December 9th, at 7:30 PM, the Aberdeen Township will hold a Revaluation Information Session. It will explain why the township had a revaluation, why it was the right thing to do, how the process works, and what you can do if you believe your assessment was incorrect. Allow me to save you the trouble and give you the information you need to know.
The New Jersey State Constitution dictates “All real property assessed and taxed locally or by the State for allotment and payment to taxing districts shall be assessed according to the same standard of value . . .” (Article VIII, Section I) The state has set a target that all municipalities assess their properties at 100% of value. The last time Aberdeen had a revaluation was sixteen years ago in 1992. The county therefore informed Aberdeen we were long overdue and insisted we reassess all properties.
Rather than save some money and request a shared bid with Matawan – both municipalities used Realty Appraisal Company – Aberdeen chose to postpone the revaluations for a year so as not to coincide with township elections. Unfortunately for our solons, that meant the property tax changes would take effect during an election year and next year’s a big one – the mayoralty and control of the town council are up for grabs. So, Mayor Sobel has asked the county to delay imposing the new assessments for another year, a non-election year. Our dear Mayor Sobel also has the fine distinction of being the only mayor in all of Monmouth County to make such a request.
Well, good luck with that. For the taxpayers who need to deal in reality, here’s what you need to know.
The preliminary assessment roll is $2,090,000,000. That’s 2.47 times the old assessment roll of $847,374,000. In other words, the average property owner’s assessment is 2.47 times his previous assessment. That means, if your new assessment is 2.47 times your old assessment then your “fair share” remains the same.
As an example, a home’s prior assessment was $100,000. If the new assessment is over $247,000, taxes are rising. If less, taxes are dropping.
To properly calculate the tax rate, you divide total appropriations (local, county, school, trash, etc.) by the total assessment roll. Rather than calculate total appropriations, I’ll take the lazy man’s route and just divide last year’s tax rate of 5.617 (dollars per hundred dollars of assessed value) by 2.47 and add 4% (my guesstimate for next year’s tax increase). Rounding gives a 2009 tax rate of 2.365.
In order to approximate your 2009 tax bill, multiply your new assessment by 2.365%.
The new tax rate doesn’t take affect until the 3rd quarter of next year, meaning your first payment under the new rate will be due in August.
The revaluations are revenue neutral so, applying the rule of thirds, one-third will see property taxes increase, one-third will see a decrease, and one-third will remain about the same.
Based upon what happened in Matawan and anecdotal information, homes on the lower end of the spectrum (apartments, condos, older homes, etc.) will get the biggest hit while homes on the higher end (houses built in the last twenty years) will see the biggest windfall.
(Full disclosure: I challenged my assessment early this year and received a 22% reduction prior to the revaluations.)
The question, now, is how to reduce your taxes.
The assessed value should be a close approximation of the sale price of your property. When the appraisal company visited your home, they matched what they saw against a data sheet provided by the municipality and made notations of any discrepancies.
The appraisal company then matched your home against recent sales as best they could. Given today’s housing market, their assumptions may have inadvertently inflated the assessment on your home but, because they used the same criteria across the board, everybody’s home was calculated the same way, your fair share remains the same, and your tax rate is unaffected.
In other words, the only way you can challenge your assessment is by demonstrating they made a mistake specific to your house.
Here are examples of common mistakes –
If you think your assessment is too high, challenge it NOW! Once the assessments get submitted to the county they will be virtually impossible to challenge. The county allows a 15% error margin before they’ll consider revisions.
However, don’t expect any major reductions. The vast majority of reductions will be less than 2%. Still, for most residents, even getting a $50 reduction in annual property taxes is worth the time.
To recap, the average assessment is rising by a factor of 2.47. If your new assessment is more than 2.47 times your old assessment, your taxes are increasing.
The guesstimated tax rate for next year is 2.365% of your new assessed value.
To challenge the assessment, follow the directions on your letter and do so now. When challenging, you must demonstrate a material difference between their records and your property – either their records are lacking information or have something wrong.
As for relying upon the town council for assistance, like the Genie said to Aladdin, it’s time to “wake up and smell the humus.” >>> Read more!
Sunday, December 7, 2008
The Property Revaluations – What You Need to Know
Sunday, January 20, 2008
Matawan Revaluations - Part II
"I, __________, do solemnly swear (or affirm) that I will faithfully, impartially and justly perform all the duties of the office of _________ according to the best of my ability. So help me God." - New Jersey State’s Oath of Office Preliminary 2008 Assessment 2007 Taxes 2008 Est. Taxes % Increase 67 BROAD ST $455,700 $7006.56 $9,660.84 37.88% A-2 CROSS ROAD $119,400 $1240.80 $2,531.28 104.00% B-9 CROSS RD $128,700 $2006.40 $2,728.44 35.99% C-3 CROSS ROAD $115,600 $1240.80 $2,450.72 97.51% D-4 CLIFFWOOD AVE $121,700 $1240.80 $2,580.04 107.93% 32 FIERRO AVE $329,900 $5522.88 $6,993.88 26.63% 136 JACKSON ST $292,600 $5174.40 $6,203.12 19.88% 246 JACKSON ST $275,300 $4572.48 $5,836.36 27.64% 39 LITTLE ST $413,000 $7571.52 $8,755.60 15.64% 183 MAIN ST $525,100 $7015.28 $11,132.12 58.68% 24 OAK KNOLL DR $380,200 $6040.32 $8,060.24 33.44% 32 PARK AVE $257,700 $4155.36 $5,463.24 31.47% 9 STILLWELL ST $218,500 $3368.64 $4,632.20 37.51% 59 WYCKOFF ST $331,000 $5934.72 $7,017.20 18.24%
Public officials from Aberdeen Township and Matawan Borough have been trying to reassure residents that the property assessment revaluations would not drastically alter anyone’s property taxes. Their argument is that the revaluations are revenue neutral and therefore, on average, will not raise taxes. At the same time, I have been arguing that revenue neutral simply refers to the average but that a small percentage of homeowners would be severely impacted. I further urged our elected officials to devise a means to assist those hardest hit and least able to cope.
Well, the preliminary assessment revaluations for Matawan were certified just after the election and some homeowners will be getting clobbered with monster tax hikes. (Please note, these numbers are preliminary as property owners still have the opportunity to challenge them.)
2007 property assessments were based upon 40% of the property's market value. I reviewed nearly 240 residential property sales in Matawan over the years 2006 and 2007. Of the 240, I found twenty properties (including four condos) whose market prices were significantly higher than the borough’s valuations. I then checked the preliminary property assessments and estimated 2008 property taxes based upon the presumption that Matawan will appropriate (raise in taxes) $22 million for the upcoming fiscal year; my estimated 2008 tax rate for Matawan is $2.12 per hundred dollars of value (total appropriations / assessment roll = $22 million / $1.035 billion).
Finally, I only listed those properties whose taxes will increase over 15% this year. The table below may not be a representative sample but it certainly disproves the claim that no one’s taxes will go up by that much. Also, please note that all the properties below were recently purchased just prior to the revaluations and that these homeowners do not have a history of underpaying their "fair share".
One correction that needs to be noted – A prior example I used was 59 Wyckoff St. where I suggested the property tax could jump 35% in one year. As the table above shows, the taxes will only be going up 18%. That’s because the borough has assessed the property for less than 80% of its purchase price (certainly a mixed blessing).
Another item to note is the dramatic impact the revaluations will have on condo owners – many, if not most, will see their property taxes double this year.
I urge Aberdeen Township to issue a notice to local property owners – if your property is worth more than triple your current assessment, expect a significant property hike. I also ask that both municipalities hold an emergency session to brainstorm possible means to assist those homeowners whom will be most severely affected.
At the very least, please stop telling homeowners there’s nothing to worry about.
>>> Read more!
Wednesday, December 12, 2007
Revaluations, Falling Home Prices, and the Equalization Factor
There’s some confusion regarding revaluations during a bearish housing market. People fear that their homes will be over-assessed because prior sales are not necessarily indicative of current values in a falling market. However, the focus should be on property taxes, not assessments. Will the current housing market affect individual property taxes? Yes but in ways that are impossible to measure, predict, or control.
Let’s assume that property taxes consist of local property taxes and county property taxes. Your property taxes are based upon your “fair share” and total appropriations at both the local and county levels. Your fair share is based on your property’s assessment compared to the total assessment for your municipality and your county.
In theory, a rising and falling market shouldn’t affect your fair share because all the properties are rising and falling at about the same rate. But in reality, that’s often not the case.
To illustrate this problem, let’s assume you own a “custom colonial” in the Strathmore section of Aberdeen. The appraisal company will assess your home using a comparable sales approach. Basically, they look at recent sales of similar homes in the same neighborhood. In a stable market, they would look at sales over the past year, maybe longer. In the current market, they’re more likely to use a 6-month horizon.
The problem for you is that there haven’t been sufficient sales of custom colonials in your area in the past six months to use in a sales comparison. So, instead, they will use the next best thing, country clubbers. But there haven’t been many recent sales of country clubbers either so they’ll use 4-bedroom Strathmore colonials.
The appraisal company will use the 4-bedroom Strathmore colonials as a base and then make adjustments to account for your basement, 2-car garage, square footage of living space, and the fact that you have a more modern home.
Here’s where the problem arises. The moment the appraisal company uses a different model house as the base, they’re assuming that your house is rising and falling at the same rate as the base model. That may or may not be true. If prices for custom colonials are falling at a faster rate, then you will be over-assessed.
Will the owner of a Strathmore colonial be affected? Only in that the total assessment roll may be off because some properties were assessed too much or too little.
The other issue is the equalization factor. Aside from revaluations, properties are generally not assessed at 100% of market value and the percentage varies for each municipality. To account for this, the county uses an equalization factor to “equalize” all assessments.
If you look at Monmouth County’s Equalization Table for 2005, you’ll see some interesting facts. Matawan has the pole position of highest taxes in the county. (Aberdeen is ranked 5th highest but moved to 3rd place in 2006.) Our school property tax rates are higher than the total tax rates of 16 municipalities in Monmouth County.
After the revaluations, the county will assume our assessments are at 100% of market value. Because the market is falling, our assessments at the county level may be too high.
Neither of these problems concerns me for a few reasons. 1) Markets are usually going up or down. 2) Assessments are an inexact science. 3) Appraisal companies try to account for market changes. 4) The errors are well within an acceptable range.
Another point to remember is that there is no remedy. Those who advise we wait for the market to stabilize are implicitly suggesting that we can predict when the market will stabilize since revaluations are always planned over a year in advance.
As my readers know, I have concerns regarding the revaluations and property assessments in general but the timing of this revaluation isn’t one of them. >>> Read more!
Monday, December 3, 2007
The Matawan Revaluations
For those wondering what will happen in the Aberdeen revaluations, it’s instructive to look at Matawan. Although the final numbers aren’t in, they won’t change much from the preliminary numbers. Next year, Matawan will likely appropriate (collect in taxes) about $22 million. The preliminary assessments roll is $1.035 billion. That leaves a tax rate of $2.12 per hundred dollars of value. In other words, to approximate your future tax bill, simply multiply your current assessment by 2.12%.
Most people will see a slight decrease or increase in their taxes up to a possible 10%. This is the standard annual tax increase +/- 5%. However, some people will witness dramatic increases or reductions in their property taxes.
For example, 59 Wyckoff St. was purchased in October, 2006 for $420,000. I was unable to contact the new owners but, even assuming an assessment a tenth below the purchase price, they’re looking at their property taxes jumping from $5,935 this year to over $8,000 next year, a 35% tax increase.
Both Matawan and Aberdeen have made their policies crystal clear: no assistance will be given to property owners to enable them to transition to the higher tax rates. Their reasoning is two-fold. First, everyone should pay his fair share. Second, the taxpayers would be unwilling to subsidize someone else’s tax deduction.
I disagree on both points. Although everyone should pay his fair share, I see no harm in allowing those hardest hit by the revaluations to transition to the higher property taxes. The municipality could provide financial assistance, essentially limiting a single year’s tax increase to 10%.
Secondly, I believe the residents of Matawan and Aberdeen are charitable enough to allow a few of their neighbors to transition to the higher taxes. 60% of our federal income taxes go to transfer payments. Our school district spends millions a year to help children with special needs. Certainly, we’d be willing to cut or postpone spending on certain projects to allow some of our neighbors a little time to adjust.
Matawan will not be implementing any assistance programs prior to the 2008 budget but there’s still time to pressure Aberdeen’s town council. Don’t be fooled by the “Don’t worry. Be happy.” crowd. Some of our neighbors will need our help. >>> Read more!
Wednesday, November 28, 2007
Aberdeen Plays "See No Evil" in the Upcoming Revaluations
Last night’s town meeting in Aberdeen saw some familiar faces from this past election. Mayor Sobel and Council Members Drapkin, Vinci, and Gumbs were all there. It was easy to recognize them in the crowd. They were the ones smiling.
They have lots to be happy about. It was through their neglect that the town did not have a property revaluation for over 15 years. As Neil Rubenstein of the Realty Appraisal Company explained, 15 years is a very long time to not have a property revaluation. Over that period, property assessments become increasingly disconnected from their market values. Eventually, Monmouth County had to force Aberdeen (and Matawan) to have a revaluation to ensure that everyone was paying their “fair share”.
However, as a result of waiting so long for the property revaluations, there are going to be some major readjustments. Over the next two years, scores of homeowners will see their property taxes rise over 30% while hundreds more will see over 20% increases.
Stuart Brown, the town manager, kept stressing at the meeting that the revaluations are revenue neutral. So what? If a family sees their taxes suddenly go up $1500, do you think they’ll care that their neighbors got a tax cut? Brown also made the point that the town portion only accounts for a sixth of the property taxes. Again, so what? Some homeowners will be facing a massive tax hike and they will rightfully blame the revaluations.
At the meeting, there were several complaints that homeowners were being punished for maintaining their homes. New Jersey property taxes are “ad valorem”, according to the value. A well maintained home is worth more than a poorly maintained home and is therefore charged a higher tax rate. The town insists there’s nothing they can do about that.
Let’s be clear – Mayor Sobel and the Town Council are personally responsible for any tax upheavals and there’s plenty they can do about it.
First, they should guarantee all homeowners that annual tax hikes will be capped at 10%. While still high, it’s far better than having a 20% or 30% tax hike. Those whose taxes would normally rise higher than 10% could receive financial assistance from the town in the form of a tax credit so that the net result would be a 10% increase.
Given the fact that Aberdeen has a normal distribution of property values, the vast majority of homeowners would not require assistance from the revaluation. Of those that do, nearly all of them would be phased out over the first three years. Ultimately, they will be forced to pay their “fair share” but at least there would be a transition period allowing them to adjust.
The program would cost under $3 million over a five year period. The money would come from the road maintenance program, where we spend $2.5-$3 million a year. Yes, the roads need to be improved but they won’t crumble because the program was under funded for a couple of years. I’d rather drive on a bumpy road then watch more people forced from their homes.
Next, the town should make certain this never happens again. As I’ve outlined in an earlier posting, the town could require each homeowner to assess his own property at least once every ten years. The homeowner could schedule his assessments prior to any major improvements. This would allow the homeowner to improve his home without any immediate tax penalties and to plan ahead for future assessments. It would also give fair notice to any future homebuyer.
Lastly, by postponing all new projects for one year, the town and the school could both have a one-year budget freeze. Not only would this create long term fiscal benefits, it would greatly help the public through the upcoming revaluations.
Unfortunately, the town plans to do absolutely nothing for those poor folk who are about to have their property taxes skyrocket. The town council created this situation through their neglect. The council has the power to help. To act otherwise is heartless and cruel. >>> Read more!
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. >>> Read more!