Homebuyers are learning that the refinancing bonanza of recent years has offered some good news and some bad news -- with the bad news becoming apparent only after the contracts are signed.
You already know the good news: Interest rates are down and home values are up. The marriage of these two factors has made for some pretty lucrative refinancing deals. But here's the often-overlooked bad news: When home values go up, so do property taxes.
The link isn't necessarily immediate, or even automatic. But increasingly, cash-poor local governments often seem to be making a greater effort to collect whatever income is owed to them. That doesn't mean property taxes are being raised, per se (although in many cases they are -- see
States' Sorry State Will Pinch Tax Breaks). It's just that the tax base (the value of your home) gets large, and that means you owe more.
Many counties, townships and municipalities have a regular (even annual) assessment schedule -- essentially, whenever the time comes for homes in your neighborhood to be reassessed, the local government will determine what your home is worth and what the tax base is. There's no way of dodging that scheduled assessment.
Other local governments, though, have arrangements through banks or smaller bureaucratic offices (such as those that conduct title searches), so a home refinancing spurs a county assessment, according to Pete Sepp, a spokesman for the National Taxpayers Union, a nonprofit, nonpartisan group that lobbies to lower taxes.
"If there's an actual triggering event, it arrives like a bullet," Sepp says. "You'll get a notice of reassessment within 30 to 90 days." You can check with your local -- not state -- department of revenue (such as the county assessor's office) to see how assessments are conducted.
Higher taxes won't necessarily wipe out any gains from refinancing, though. And there are several reasons to consider refinancing, not the least of which is arranging lower monthly payments. "But that could definitely be a drawback if higher taxes kill off your monthly savings," says Keith Gumbinger, a vice president of HSH Associates, a publisher of mortgage and consumer loan information. "Maybe that's the dark side of a new computerized age."
Fighting City Hall
That doesn't mean you have to take the county's assessment lying down. Local governments use two general methods of calculating property assessment -- replacement and sales. The replacement method determines the market value of your property by establishing how much it would cost to replace the property in the same neighborhood. The sales method is more subject to the real estate market, and is essentially what the property would sell for if sold tomorrow.
Neither method is necessarily preferable -- what's more important is that neither requires a visit to your home. So whatever the final number the assessor reaches, pay close attention to it. "Most people simply get their property tax bill, send it to the mortgage company and tell them to pay it out of escrow," Sepp says. "But if you don't look at the assessment, you could be paying too much."
You wouldn't be alone -- anywhere from 30% to 60% of all homeowners are overassessed, according to the National Taxpayers Union.
What to Look For
When you do finally open that bill, check for two things -- first, that the assessment is based on accurate information. If most homes in your area have three bathrooms but you only have two, your assessment may be based on a three-bathroom home.
The same goes for square footage -- and remember to consider how much square footage is usable for only part of the year. If you have a large, unenclosed porch that's too cold to enjoy six months of the year, you could have your square footage reduced. "In cases of pure error, just contact the assessor and clear up any inaccuracies," Sepp says. "You can request that your assessment be lowered accordingly, and they should do it."
If you're arguing for a lower assessment on a comparability issue -- if, say, your home shouldn't be valued as highly as others in your neighborhood because it's located at a high-traffic intersection -- the process may take a little more time.
The administrative appeals process, though, isn't nearly as daunting as it sounds. Indeed, sometimes it can even be done by mail -- check with your local county office about the paperwork required. The process may involve
going before a local board to explain why you feel the assessment is unfair. "It's not a court of law," Sepp says. "It's more like traffic court. You don't need an attorney."
And that's far easier than most refinancing deals.