What exactly are the taxpayers of New Jersey paying for?
A good education for their children?
Proximity to “the big city”?
Upkeep of the infamous Jersey Shore?
Or maybe the Governor’s office shutting down a majority of the George Washington Bridge?
While these are all great perks of being a New Jersey property owner (maybe not the shutting down of the George Washington Bridge), but they come at a substantial price. Property taxes in New Jersey are some of the highest in the entire country.
In a study published by the Tax Policy Center on November 18, 2013 Bergen County, New Jersey was named the third most expensive county in the ENTIRE COUNTRY for property taxes with an average of $8,893.00 behind only Westchester County and Nassau County in New York.
Another 5 counties in New Jersey averaged over $8,000.00 a month in taxes while counties in Alabama and Louisiana average under $250.00 a year in taxes. Overall, New Jersey is THE most costly state averaging $6,883.00 in taxes per property. Connecticut is a distant second at $4,958.00.
The housing bubble didn’t pop in New Jersey, it exploded.
The value of homes dropped significantly in almost every town, however, what did not drop in many towns around the state, were the assessed values and taxes of many properties. This is entirely illogical, right? Well it’s not illogical to each respective town.
If you look at it from the perspective of the towns, facing the potential of losing a substantial portion of revenue would be debilitating so many towns decided to just “hover” at the assessed values and rates and not reflect the downward market trend in property values.
As a property owner you should have your property reviewed by a professional and appeal if you have a good case.
As a Real Estate Agent and/or Broker, you should reach out to your current and former clients and tell them to investigate filing a property tax appeal to lower their costs and improve the value of their property on re-sale!
As a management company or homeowner’s associations, you should reach out to your residents and help them offset their maintenance fees/association dues by having them investigate filing a property tax appeal.
Why pay more than you should? You wouldn’t overpay for a pizza or a bagel would you? So why overpay thousands of dollars in property taxes when you don’t have to?
Explanation of Why You Pay What You Pay
How are your taxes calculated? Your taxes are calculated based upon a formula made up of two components; Tax Rate and Assessed Value. Multiplying one by the other gives you your tax obligation for the year.
Tax Rate: Your town sets your tax rate each year and aside from showing up at City Hall with pitchforks and torches, or maybe being more civil and attempting to litigate the matter, or even voting in the right people come election time (crazy thought, I know), there is not much that you can do on this end without a significant amount of hardship.
Assessed Value: Now this is the magic number, or at least half of it is. The assessed value is made up of two components: Land and Improvements. While your taxes are determined based upon the entire assessed value, on appeal, you will generally only appeal the value of your improvements (the physical structures on the property) as towns will NOT change the assessed value of the land.
How To Appeal Your Taxes
Step 1: Hire a professional.
Step 2: Do not, not hire a professional.
Step 3: Hire or do not, not hire a professional WELL BEFORE April 1 (some counties like Monmouth have moved up their appeal deadlines to mid-January).
Yes, you can appeal your own taxes but your success rate is going to be SIGNIFICANTLY lower without a professional at your side that will not only assess your appeal, but prepare the proper evidence and approach the appeal with a wealth of experience behind him/her. Further, town assessors are more likely to negotiate and resolve the matter with an attorney as opposed to a poorly prepared property owner.
Now what are the components of a tax appeal? Each town has a common level range ratio which reflects the ratio of the assessed value given to your home to what the city believes is the true fair market value of the home. You need to reach out to your town (or Google) for that ratio. ex., if your home is assessed at $150,000.00 and your town’s common level range ratio is 50, then the town believes your property is worth $300,000.00. The town is allowed a 15% deviation meaning the town is not obligated to lower your assessed value if you are within 15% of the value of the home. ex.
In the example above, if your home is really worth less than $255,000.00, then you would have a great chance at a successful appeal however. If you are above that figure, then your chances are dicey without an attorney to plead your case.
In this example you would be asking to lower your assessment from $150,000.00 to $127,500.00 to reflect the market value of the property in the assessed value. BEWARE! If you’re property turns out to be valued more than the town believes it is, the town WILL raise your assessed value and you’ll incur an increase in taxes.
Now that you know how the calculation works, you need to determine what your property is worth, and support it with evidence. You can do this in one of two ways. The first and most accurate way is to have an appraisal of your property done that way you can go to your hearing with a complete analysis of the property. Now it’s not a guarantee that the town will agree with your appraisal but it is the best evidence you can produce.
The second option is to sift through recent sales between October 1 of the year before the previous year of the appeal and September 30th of the previous year (the assessed value is determined based upon that period and not the previous calendar year) and use those as evidence. ex. 10/1/2012-9/30/2013.
You will not be able to use short sales or foreclosed property sales in your analysis as those generally sell under market value so be careful as not to pick those out when doing your homework. You would have to ensure that your property is as close to a clone of the properties you are using, as possible. Each property should be similar in nature, square footage, bedrooms/bathrooms and a number of other categories, to your own home.
Commercial and Income Producing Properties are also required to provide a breakdown of income and expenses to show income turnover of the property which the town’s assessor considers in the valuation of the property.
Once you’ve approximated or obtained the value of your home then you can calculate what your assessed value should be, and appeal to have your assessed value reduced to that level.
Using the previous example, your home is really worth, $220,000.00 based on your homework, then you would ask for your assessed value to be reduced from $150,000.00 to $110,000.00 using the ratio of 50. This would be a nearly 27% reduction in your assessed value and therefore your taxes.
The New Jersey Freeze Act is a benefit bestowed on property owners. Once you achieve your desired result with your appeal, this act protects you from any additional re-assessments to your property for 2 additional years following the year of your appeal.
So if the city tries to re-assess your property back up to a higher value the year following your successful appeal, tell them to get lost! Further, if your town does not reassess for the next decade, your assessed value stays at what you appealed it to until that reassessment way down the road.
Here’s my frank advice. Getting an assessment from a professional like an attorney on whether or not you have a chance at appealing your taxes is more often than not free of charge. Further, appeals are usually contingent matters meaning that if an attorney does not win the case, you are not responsible for anything outside of the filing fee to the county.
Filing fees range from $5-$25 in most cases. Some firms will charge you just the filing fee while others may charge a few extra dollars for processing the appeal. At the end of the day if the attorney determines you have a good case, paying $5, $25, $50 or even $100 is not entirely terrible when you could potentially save thousands of dollars a year for the next three years and beyond.
On the back end, firms will charge anywhere from 50% of the first year savings to 100% of the first year savings (due to the NJ Freeze Act you receive the benefit of the appeal in year 2 and 3 in this case).
Good luck with your appeal and today, tomorrow or next week, reach out to an attorney and get an assessment of your chances at an appeal. You can buy a lot of pizza and bagels with a few thousand dollars in your pockets instead of the town’s pocket.**Nothing on this website should be confused with financial or legal advice. If you need this, or any other type of advice, please seek the help of a competent professional. In addition, because real estate laws change all the time and differ from state to state, and even city to city in the same state, everything in these pages should be considered general marketing advice and ideas. Please see link to full Disclaimer at the bottom of this page.