A little over three years ago, we bought our first home. It was a modest home, purchased out of foreclosure during the depths of the real estate crisis, and we got a heck of a deal on it. And knowing the county’s property tax millage rates, we were pretty comfortable that our property taxes would be well within our comfort range.
So you can imagine the displeasure when a couple months after we closed on the house, we got our first property tax bill and it was double (yes, 2x!) what we were expecting to pay. Not to mention the taxes computed at the closing of the house had been prorated at the expected amount (~$1,700), so now we would not only have have to make up the difference for the part of the year that we owned the house, but for the rest of the year that the seller had owned the house as well. F-abulous.
Fast forward three years, and we’re incredibly happy with how much we pay in local property taxes. So what happened?
Quite simply, we fought “the Man” and won. And here’s how we did it.
Step 1 – Learn the Rules of the Game
There were two main reasons that the bill we got was for over $3,400 instead of the $1,700 we were expecting.
1. The homestead exemption had been dropped. In Florida, if you are a permanent resident, you can homestead your primary residence to get a $50K credit against the home’s taxable value. This is called your homestead exemption. (The amounts differ in other states, but many have homestead exemptions.) When the bank we purchased the house from had foreclosed on the house, due to the timing, the homestead exemption was dropped. We could renew it for the next year, but there was nothing that could be done about it for that year. We had to eat the taxes on $50K worth of house that year. Sucks, but that’s the rule. Okay.
2. The country property appraiser jacked up the taxable value of the house. Did I mention this was in the middle of the RE crash? And our county was one of the worst hit in the entire nation. And yet, our county property appraiser was claiming that our home was worth over $226K when we had just purchased it for a net price of about $130K. Something smelled funny, so I had to learn the exact rules.
Here’s the gist. Property appraisals in our county (and many others) are based on what the house was worth on January 1. So any sales that occurred AFTER January 1 are not taken into consideration when figuring out the value of the home. That meant our home sale wouldn’t be taken into the calculations for the taxable value of the house until more than a year after we purchased it. In a housing market where prices were changing incredibly quickly, this was a huge delay.
Step 2 – Before You Fight, Make Sure You’re Right
Now that I knew the rules – basically that I needed to know what our house was worth on January 1, not on the day we bought it – I did a gut check to see if what the property appraiser was claiming was realistic.
If he was right and our house was worth $226K on January 1, that meant that in the ~8 months between then and when we bought it, the value dropped by $96K, or about 42% during that time period. Prices were changing pretty rapidly, but seriously, 42% in 8 months… that’s insane! And Trulia.com agreed. Stats on our zipcode indicated that prices dropping pretty steadily at a rate of only ~20%/year over the last 20 months. So 42% in 8 months was insane. Our property appraiser had to be wrong. The only teeny detail was that I couldn’t use our sale to prove it (since it happened after January 1). So I had to find another way.
I felt confident I was in the right, even if I didn’t have usable evidence yet, so I filled out a request to formally challenge our home’s valuation with the local Value Adjustment Board. (That’s what we call it in Florida, but most places should have a process for this type of challenge.)
For the evidence, I used the property appraiser’s own methods against him. Legally, the property appraiser had to share his market comparable analysis (aka comps) valuation with us since it’s a matter of public record. So I picked it apart and showed why the comparable sales he chose were “bad” comps, and why the comparable homes that I chose (with the help our relator’s MLS database and some diligent public records searches) were much more appropriate comps.
- His comps were built about a decade after our “older home” was built, so I expanded the comps pool to include homes so that the average age of my comps pool was the same as our home’s age.
- I adjusted for differences in the size of the homes, since ours is one of the smallest homes in our area in terms of “livable square footage”. Note – livable square footage is different from total square footage, and is the correct number to use when calculating $/sqft.
- None of the comps he included had pools, and he was adjusting the value of our house up by $20K for having a “pool package”. I made sure my group had some with pools, and some without. I used his same $20K for a basic pool adjustment, and an additional $5K adjustment if the comp had a jacuzzi since ours does not.
- I also added an adjustment for garage space. His analysis had our 1-car garage as on-par with 2-car garages. If you’ve ever had a 1-car garage, you know that’s a load of bull. I added a $10K adjustment for each car space in a garage in the comps list.
- I adjusted for the time between the date of the sale and January 1 using the percent change that Trulia.com had recorded in our zip code the previous year. The county appraiser was using a smaller percent change to create his time adjustments.
With that baseline, I made an easy to read spreadsheet where I showed each of the comparable sales, and then the adjustments that were needed to their sale values to make their features “apples to apples” with our home. For example, if a comparable home had a jacuzzi where ours didn’t, that’s a -$5K adjustment. If a home had no garage where ours has a 1-car garage, that’s a +$10K adjustment. With 12 sales on my list to his 3, the averages ended up hitting exactly where I expected them to after all the adjustments were made.
My analysis conceded that our home was probably worth ~$150K on January 1. More than what we paid for it, of course, but in line with the trends that produced our sale at a net of ~$130K later that year.
Following the rules, I submitted my analysis ahead of our “court date” and waited.
Read on to Steps 3 and 4, which continue in Part 2.
Have you ever done this type of analysis or really tried to understand how home values are calculated? Would you give it a shot if you thought there was a chance that you could lower your tax bill by almost $2K every year in perpetuity?