You are here: Home » Taxes » The Hidden Benefit of a Depressed Housing Market – Lower Property Taxes

The Hidden Benefit of a Depressed Housing Market – Lower Property Taxes

by

Housing prices crashed in many areas of the US when the housing bubble burst last year. While this hurt the bottom line for many people, there may be a hidden benefit for some: Lower home values mean lower property taxes. In locations that experienced slight decreases in home values, you may save a few hundred dollars per year. But in some places in Southern California and other areas that were hit hard by the housing bubble, home owners may save thousands of dollars on their property taxes.

Of course, I’m not saying lower housing prices are good for everyone – I know it has made life more difficult for many people. But lower housing prices benefit many people as well, including people who have paid off their mortgages, landlords, and people who plan to stay in their home for a few years.

Unfortunately, most locations review property values every few years, so the savings is not automatic – and most counties are in no hurry to decrease their income from property taxes. To have your property taxes lowered you will need to challenge your property tax assessment.

Challenge your property taxes

About a year and a half ago my wife and I had some work done to our house. We filed a permit with the county and they automatically added the cost of the addition to our home value. It turns out they also recorded our house as having an extra bedroom and additional square footage. I thought the tax assessment was a little high, so I called them and challenged our property taxes. We presented our case and won – which  meant a savings of $60 per month, or over $700 per year. Not bad!

Here is more information about how to challenge your property tax assessment – and win.

  • Know your home’s property value and compare it to tax assessment value
  • Verify the information on record (number of rooms, square footage, etc.)
  • Research neighborhood property values
  • You may need to submit an appraisal from a professional (at your expense)
  • Submit your case to the county auditor’s office or tax assessor (be organized, professional, and polite!).

Another example

Last week, Pete from Bible Money Matters wrote about how and his wife were considering refinancing their home. They were able to lock in a new mortgage rate that would save them $200 per month. Unfortunately, their house decreased in value to the point that they would no longer have 20% equity in their house. That means they would have to get Private Mortgage Insurance (PMI) which would erase over half of their monthly savings. In the end, they decided they wouldn’t refinance right now.

There is a silver lining to the story even though Pete’s house is worth less than when he bought it. He and his wife plan on staying in the area for a few years, so he has time for his house to catch up to its previous value. In the mean time, he can challenge his property taxes, and hopefully save a few hundred dollars per year.


Published or updated August 3, 2011.
Print or e-mail this article:
Print Friendly

{ 18 comments… read them below or add one }

1 Four Pillars

I thought property taxes changes would be a function of how much your house value has changed relative to the average house in the tax-paying area? Ie if your house value went down the average amount then your tax change would be the same as everyone else’s?

Reply

2 Peter

Thanks for the link Ryan. I’m still gathering information and later this week I’ll probably call to challenge our home value. Hopefully it will go as smoothly for us as it did for you!

Reply

3 Ryan

Miranda: No doubt. I was surprised how many errors there are out there. Luckily for us the process was easy and very profitable! :-)

Peter: Good luck! :)

Reply

4 Miranda

We’ve noticed a decline in our property taxes as well. You are right, though, that it is a good idea to double check. Errors like those on your home (extra bedroom, etc.) are more common than you might think. As always, with finance matters, you have to be vigilant about your interests — no one else will be.

Reply

5 Steve

This is great information. I just bought a new condo so my property value is pretty accurate right now. Plus my area isn’t taking a major hit like some of the others. I will remember this info for the future.

Reply

6 Ryan

Definitely, Steve! Just be sure not to challenge your taxes if you value went up!

Reply

7 PennySeeds.com

I find most of our taxation systems (property included) to be in need of a major performance overhaul..

Good for you on getting some savings though.

Reply

8 Jarhead

I recently read that counties will soon be raising tax rates due to the fact that they budgeted based on increasing property values. So even if it does go down don’t be surprised if it goes back up in the near future. Seems counties counted their chickens before the eggs hatched.

Reply

9 owain

I hate taxes. Haha. There are so many ways in which we can benefit from the economic hell we are in right now but only if you are on the right side of the fence. House prices needed to come down at some point as they were getting way out of control. In a few years though they are going to keep going up again. I guess the demand for housing will only grow over the next 20 years and sadly that will mean higher prices. Global population growth will be the death of us all eventually.

Reply

10 Carla

Property tax collections in some areas used primarily to fund education and other services. Lower property taxes doesn’t serve everyone well.

Reply

11 Ryan

Carla: I agree. But I also don’t like to pay more money than is necessary. For instance, when I challenged my property tax assessment, my house was listed with the county as having an extra bedroom and more square footage than it had. I don’t believe it necessary for me to continue paying additional money when I am not required to.

Beyond that, I certainly can’t fault someone else for challenging their property taxes when housing prices drop. There are many people who will save thousands of dollars because of this. I think that is a good thing, especially if it means they can pay off debt or continue to afford living in their house instead of selling it or facing foreclosure.

Reply

12 Tom

When I owned a condo and values went down, my property taxes rarely went down.
They just changed the factor by which they calculated them.
But, property taxes here in Vancouver are relatively cheap.

Reply

13 Ryan

Very true, Tom. The variable can change. But in some places a vote is required for the taxes to change, and many people may not be willing to vote for that.

Reply

14 Jim @ InvestWithLessRisk.com

You are lucky, my rental’s assessed value stayed the same from ’07 to ’08 but the county raised my taxes over 8%.

Reply

15 Curious Cat Investing Blog

Reducing the tax due to a reduction in your specific assessment is a wise move (if you house is worth less than the assessment).

Some people though think that the total tax bill inevitably increases when house values, for the whole market increase. I think we let the politicians off if we say property taxes are determined by the market. When housing prices increased by 20% if the taxes went up by 20% that was a choice of the politicians to raise taxes. The tax rate on property taxes is adjustable and where I am aware of anyway the politicians adjust it annually.

If your home appraisal falls by 10%, your taxes only fall if the tax rate is not increased by over 10%. In most cases this is true (increasing tax rates to make up for declines in home values is usually limited). However, if we fall into thinking our taxes are set by our home appraisal we fail to hold accountable those that truly decide our taxes, the politicians we elect.

Reply

16 Ryan

Very true. In our county, home values are reassessed every three years, though the real estate tax rate can change whenever it is voted upon. A lot can happen during that time, which is why I challenged my assessment.

Reply

17 Live Money Smart

Good article, and definitely something many people should look into doing.

Sadly though, because of falling tax revenue in many areas, what Curious Cat suggests might happen is very real. In many areas property tax rates will increase to keep counties and states from losing too much tax revenue. Unfortunately the politicians will refuse to make do with less.

If this happens in your area, it is just another great reason to challenge and reduce your home’s property tax assessment in preparation of higher property tax rates.

Reply

18 Kevin

I recommend that , depending on how your county does its reappraisal, everyone should review their property card once a year. Here I recommend a homeowner to do it every August. The county has done all of the new construction input into the system and errors can be made to the wrong properties. The way the government sees it, it is the homeowner/property owners responsibility to make sure (manage) what is correct on their taxing card. They want things to be correct but sometimes errors do arise. (The homeowner wasn’t there to verify changes or where their boundries are.) With GIS today, it helps them but they are appraisers, not surveyors.
I recommend that if something is wrong, call the assessors office and ask questions on how to get things corrected. They will be helpful, usually. Remember, they have bad apples there also. I know some that will not do things, even if it is wrong and need correcting. Always move up the ladder, to the Assessor if you need to. You elected them.

Reply

Leave a Comment

Previous post:

Next post:

.