Are You Paying Too Much In Real Estate Taxes?
By Bill Quinn with Pat Kilner
How can you confidently know that the real estate taxes you pay on your home are fair?
What if you could prove that 5, 10, or 15 similar homes, comparable in terms of construction, improvement quality, amenities, land size, age, and attractiveness, were being charged less than you?
With inflation at all-time highs, Kilner and Kirk partnered with tax appeals expert Bill Quinn to ensure all our clients and friends never pay more than they should in real estate taxes.
Here are six things you need to know about how your real estate taxes work:
1) The Calculation: State and local governments employ assessors. Assessors formulate value opinions on homes, which are used to calculate real estate taxes. The mathematical product between the assessor’s tax value multiplied by the government real estate tax rate equals your real estate taxes.
2) An Opinion Could Cost You or Save You: Because one of the tax bill inputs is an “opinion” of value by an assessor, citizens have passed laws that enable citizens to appeal the assessor’s opinion of value. Typically jurisdictions allow for an appeal to 1) an assessor or its supervisor, 2) an appeals board, which consists of citizens willing to serve, and 3) a tax or circuit court. The appeal process is replete with deadlines, appeal forms and requirements, and government processes designed to keep homeowners from easily filing and prosecuting appeals.
3) Tax rates vary by jurisdiction. Washington, DC is 0.85%, Fairfax County is 1.1% and Montgomery County is 1.1%. Areas such as Herndon have additional rates that are added to the standard rate. Also, tax bills may contain other fees, such as a solid waste or refuse charge, to make it easy for governments to collect approved fees. A $500,000 and a $1,000,000 tax value with a 1% tax rate results in tax bills of $5,000 and $10,000 respectively.
4) Do you have a cap? Often, jurisdictions have a cap on the yearly increase they can assess on a property. Such a cap presents more significant tax savings when appealing a home assessment.
Let’s highlight this with an example: A recent appeal in Montgomery County reduced the tax-assessed value of a home from approximately $2.5M to $2M. Using the 3-year phase-in employed by Maryland, the 5-year tax savings are estimated to be $20,610.
Had the same house been located in Washington DC and had the same case been possible for the reduced tax assessment, the estimated 5-year savings would be $31,750. The reason for this steeper discount in DC, is that Washington DC has a 10% cap on the annual increase. Thus, when you decrease an assessed value, it takes many years for the capped annual increase of what you are charged to get back up to what you would have been paying before your successful appeal.
5) Market Trends Matter: In an “upmarket,” we have observed that about 25% of the homes are over-taxed, but we can’t know which ones until we investigate the data. In a static or “down market,” about 50%-66% are over-taxed. The most significant factors that cause over taxation are 1) the occasional zealous government assessors who seem to endorse high taxes, 2) unequal application of the sale comp data, which results in two comparable homes having radically different tax liability, and 3) miscategorization of the construction and improvement quality of a home. Please note that buyers do not make “price” decisions based on the low or high-value opinions of government assessors – so don’t let your sale timeframe influence having an annual review.
6) Surgical Market Analysis: Kilner & Kirk’s market analysis method is designed to surpass any computation done by an algorithm. In fact, our approach is so effective in defending the value of a property that we've had the opportunity to teach thousands of agents our method.
Bill Quinn is CEO of My Real Estate Tax, Inc., the market leader in residential tax appeals and an exclusive partner of Kilner & Kirk.
