With Home Prices Falling, Look to Reassess for Lower Taxes

The county's assessor, Gregory J. Smith, issued a notice in January alerting property owners that, under state law, their assessments can be reduced if the market value falls. Like other areas of the country, San Diego has seen demand for its coastline real estate stumble as interest rates have risen. "We had a great run," Smith says, "but in 2006, we went from a seller's market to a buyer's market. Prices did go down."

Now, property owners who submit paperwork, such as comparable sales or current listings or a recent appraisal, by mid-May are eligible for relief. Property taxes are roughly 1% of the assessed value, according to Smith. So if a homeowner bought a condo a year ago for $400,000 that now would sell for $350,000, that $50,000 price drop would result in about a $500 reduction in property taxes.

Not all homeowners live in a place where the local government is actively encouraging them to dispute their assessments. But even if they don't, property owners can always appeal a too-high value that typically carries with it a heftier property tax. Because reassessments in some areas of the country occur every three or five or even 10 years, some homeowners are just getting the unpleasant news that property taxes now match yesterday's hot housing prices.

"There is a lot of evidence around the country to suggest that the post-housing-boom assessments have finally caught up with homeowners, and they are suffering from sticker stock," says Pete Sepp, spokesman for the National Taxpayers Union. With many new homeowners still recouping closing costs while simultaneously worrying about adjustable rate mortgages, the higher property taxes "are hitting people when they can least afford to pay them," he says.

To file an appeal, a homeowner first needs to understand how the assessor came up with the value that's placed on the home — and there's no set answer, as assessments and property taxes (which often are derived based on a fraction of the assessed value, multiplied by a set tax rate) are calculated differently depending on the city or town or county office that handles the process. Assessors in some areas will value a home based on the latest purchase price; others will assign a value based on the estimated replacement cost, or the amount needed to rebuild the home.

Many government agencies conduct a "mass appraisal," a systematic approach (sometimes computer-assisted) to valuing groups of properties that, while practical, doesn't take into account the unique characteristics of an individual home or lot. In other areas, appraisals "can be made from the car window," Sepp says. "An assessor might look at three stacks coming out of the roof and say, 'Well, that must be three bathrooms.'" Homeowners should keep in mind that many times, "property assessments are just good guesses," he says.

All homeowners have the right to see assessment reports, which are public records available either online or at the assessor's office. The first step is to check for obvious errors on the property record card. Assessments often get lowered if key specs are wrong, or if the home is in need of serious repairs, or if the home doesn't match up to similar properties in the area.

Homeowners typically don't call in private appraisers, because of the extra cost (and some localities won't accept them, because of the possible conflict of interest). But it's helpful to know what a professional appraiser looks at when valuing a property. Typically, that's "the amenities of the property: the lot, the location, how much acreage, square footage, its condition, how many bathrooms, how many bedrooms, porch, terrace, patio, pool," says Jonathan J. Miller, president of Miller Samuel in New York, which often performs appraisals of luxury properties for mortgage lenders, divorce attorneys and estate planners. "We look at the physical characteristics and then we compare them to competing properties in the neighborhood or area."

The market value of similar homes can be obtained through real-estate listings. Homeowners can ask for assessments of other properties through the assessor's office. "Even if you don't think your assessment is all that high compared to others, you should still use everything to your advantage to lower your tax bill," Sepp says. "Say you've located 10 properties that are comparable, but yours faces the railroad tracks." That drawback may get your bill reduced, he says.

Appeals are handled in different manners (and on varying time frames), depending on the jurisdiction. Homeowners who live in Oregon, for instance, might want to read up on the process — in that state, property owners must file a petition between late October and Dec. 31. But that's different than homeowners in Cook County, Ill., who must appeal by certain dates in April or May (depending on the township); appeals can be filed online.

In San Diego, about 850 homeowners have filed for property-tax relief since the notice went out in January, and it's expected that a total of 2,000 will file by the May 15 deadline, according to the assessor's office. While that's a relatively small number (there's more than one million properties in the county), it's a sign of a softening market: Last year, fewer than 100 people requested relief. Smith, who's been San Diego's assessor since 1983, says he decided to issue a notice rather than wait for homeowners to complain. "Bottom line, we anticipated there would be issues, so we went out at the first of the year and said: There is a remedy," he says.