By Neil Schulman
At the January Oceanport Borough Council meeting, Mayor Jay Coffey announced that the borough had completed a revaluation, and the average property assessment had gone up 24.5 percent.
This does not — repeat, not — mean the average resident’s taxes are going up by nearly 25 percent.
Unfortunately, it doesn’t necessarily mean your taxes will be staying the same. But they might.
Since I feel like I have to write about this a lot, for different towns, I decided to be a little more casual than I often am, with things I’ve covered in other articles.
What are revaluations?
Property taxes are based on how much your property is worth. And of course, that can change over time. Revaluations or reassessments (there’s a technical difference you don’t need to care about) are so that you’re taxed on the real value of our home.
Why are there revaluations?
The real answer is because the state orders them. I’ve never heard a local politician happy about a reval, because it always results in some people complaining their taxes are going up, and it’s out of the control of the locals.
The answer the state gives is that this is a matter of fairness as markets change. Here’s an extreme example: let’s say that a millionaire in 1920 built a 20-room mansion for $500,000. Due to inflation, there are three-bedroom houses on the market today that sell for more than that. Would you like your modest home to be paying more taxes than a building fit for a king?
Wait, why do people complain their taxes are going up if they’re not? And how can you not know if there’s a tax increase because of your reassessment? This is really confusing!
There are two things going on. One is the budget, and one is the tax rate.
The budget is what a town needs to spend. The town has some control over the budget.
The tax rate is how the town figures out how much to charge each individual property.
The town has no control over the tax rate.
Let’s say that a town has a budget of $10 million, and a total assessed property value of $1 billion (this is not Oceanport, or any real local town, to be clear. I’m picking numbers that make the math easy).
That means for every dollar of property value, the town needs to collect a penny to meet its budget needs. If your house is assessed at $500,000, you pay (500,000 x.01=) $5,000 in taxes.
Now, let’s say a reval takes place throughout the town after a huge real estate boom doubles property values. The new assessment reveals that the total land is now worth $2 billion, and your house is worth $1 million.
If the budget stays the same, the new tax rate is half a cent per dollar of assessed value.
But the amount you pay in taxes is the same — $5,000 a year.
But you said they could go up?
It will stay the same if your house goes up at the same rate as the rest of the municipality. That’s the case for about a third of the homes.
But let’s say that you live in a neighborhood where houses gave become more desirable. The assessment there could rise from $500,000 to $1.2 million as the tax rate changes from 1¢ to 0.5¢. In which case, your taxes will go up to $6,000.
And if the area you lived had become slightly less desirable since the last reassessment, the taxes you paid would go down – even though your home might be assessed much more than it was.
How come you never hear of taxes going down?
Because you only hear from people who are unhappy. I don’t know anyone who would go to a council meeting and angrily demand to know why they are paying less in taxes this year.
In reality, about two-thirds of all people in a reassessment will pay the same or less in taxes afterward. You won’t hear them complain, unless they get confused about the change in tax rates.
Also, the above assumes the budget stays the same. Which it probably won’t. Costs keep going up, so budgets do as well. But that is totally separate from what a revaluation does.
How often do we need to put up with this?
Different places in Monmouth County currently use two systems, both of which have problems.
The older method requires a revaluation about once a decade. The theory here is that people complain a lot during each reval, so why have more than needed? This is bad because people get horrible sticker shock at their new bills after 10 years of inflation and housing market fluctuations.
The newer method reassesses about a fifth of the town each year. The theory here is everyone is always paying their fair share. This is bad because people regularly need to deal with this complex procedure, make time for assessors to visit their homes, etc. And if you don’t like your assessment, you’ll be appealing it a lot more.
Who’s is responsible for the actual revaluations?
Municipalities don’t do this in-house. They hire real estate appraisers who specialize in this, through a competitive bid process. There’s only a handful in New Jersey who do town-wide revaluations though.
It’s another reason I’ve never heard a politician praise the idea of reassessments. Not only are people getting angry at them for a taxation formula they can’t control, but it’s based on data from a private company. The mayors and councils wind up stuck in the middle.
Also, residents don’t like having people knocking and asking to inspect their house if they think it’s for raising their taxes. So that’s more grief for the mayors.
But you have options if you don’t like your assessment, right?
There are appeal options. How hard it is, I can’t say. I’ve heard some people say it was as easy as calling the assesment company and saying “there’s no way this is right,” and I’ve heard of cases where there were lawyers and unpleasant trials with the town.