World War III is currently underway in my house. On one side is my husband, convinced we should challenge our home’s property appraisal in hopes of a lower tax rate. I’m staunchly pitted against him, standing my ground that now is not the time to challenge our property taxes.
Who’s right? Well, if you asked him, I’m sure he’d tell you that he is. But with home values dropping like a Braylon Edwards reception, it takes a strong understanding of your property’s value, the value of the properties around you and your goals for the property to make the right decision.
Here are some reasons why you should challenge your property appraisal:
- You know that your neighbors have lower property valuations than you. For example, if you live in a suburban neighborhood where most homes have three bedrooms, two baths, 1700 square feet on a quarter-acre lot, just about all the homes should have the same tax value. But if your neighbors’ homes have all been appraised for $180,000 and your home is valued at $195,000, ask yourself why: do you have a larger lot? Have you put on an addition, or made serious upgrades to the structure, like a remodeled kitchen or bathroom? If not, your home may be overvalued; challenging your property appraisal could save you hundreds – or, depending on where you live, thousands – of dollars a year in property taxes.
- You plan on staying in your home long-term.
Item #2 above is key here: if you plan on moving – or making any changes to your loan’s structure – in the near future, there are some things you need to know:
- When you refinance your mortgage. Banks want to see that you have at least 20 percent equity in the home. If you do, great! If not, you’ll likely be looking at the three worst letters in the home loan alphabet: PMI. Short for private mortgage insurance, loan underwriters usually require PMI when you don’t have that crucial 20 percent equity – the same holds true for a new loan as well as a refinance. If you think your home’s value has decreased, avoid a property appraisal at all costs, or you may have to take out PMI – even if you didn’t on your original loan.
- When you’re selling your home. One of the key financial figures new buyers look at to gauge a home’s value is its tax value. While challenging your property appraisal may save any potential buyer in escrow, it may force you to reduce your asking price by thousands of dollars. (A side note here: most loan underwriters will require the buyer to pay for a property appraisal, to ascertain that the loan amount is less than the home is worth – so if you believe your home’s tax value is artificially high, you may want your asking price to reflect this.)
- If your neighbors’ home values are all substantially higher than yours. Many government property appraisals are done by comparing nearby properties of similar size; the appraiser rarely steps foot in your home. (This is not always the case, and depends on your specific jurisdiction. Property assessments done by banks for mortgage purposes almost always include an interior as well as exterior tour of the home.) If you own the smallest home in a neighborhood, this may result in a property appraisal that is artificially high, reflecting the higher tax values of the homes around you.
In my family’s case, we plan to move in the next six months. While I do believe our home’s value is a few thousand dollars on the high side – and could be brought down with a new property appraisal by the county – I also think doing so could ultimately hurt our bottom line by forcing us to drop our asking price below the new tax value.
But try convincing my husband of that…
…and the war goes on.