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Old 10-29-2009, 09:32 AM
 
10 posts, read 42,319 times
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Hi All,

We have been searching for a house for quite some time now. The areas that we've been looking at include Readington/Raritan Twp/Clinton in Hunterdon County and Long Valley in Morris County. I've been under the impression for the most part that assessed value placed by a town should be or is very similar to their market value.

Case in point, when we sold our home in River Edge (Bergen County) the sale price was very close to what River Edge assessed our home value. Some of these homes in the areas that I looking at are asking $600k+, however the assessed value is only in the mid $400's. Am I looking at this completely wrong. I know when you purchase a new home (according to my RE) the taxes are based on the sale value.

Thanks for any guidance you can provide.
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Old 10-29-2009, 11:27 AM
 
1,235 posts, read 3,504,642 times
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It depends when the town last reassessed. Call the Tax Office in the towns you are looking at and ask. If the sale prices seem far off from the tax assessment, then they probably haven't reassessed for a while and they might be reassessing soon in the future.

Keep in mind, reassessment doesn't mean your tax bill will go up (or down). It depends on what happens in the rest of the town.

Example, if you're in an older house that is assessed below market value in a town that has had a ton of new construction that is assessed at its value when it was built, then your taxes might go up.

But if the whole town is the same age, even if they reassess your taxes may not change all that much. Your taxes are (value of your house/value of whole town)*Town's budget.

When you buy an existing house (unlike new construction), they don't just up your reassessment to the purchase price that you pay, they have to do the whole town together.
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Old 10-29-2009, 04:11 PM
 
1,977 posts, read 6,836,326 times
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When i bought my house in 06, the assessed value was only about 20% of the market value of the house at the time. My taxes are about 9k.

You can see the current taxes and assessed value of just about any house in NJ through here.
NJ Tax Records Search
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Old 11-27-2009, 06:47 PM
 
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i have a home that was assesed at 66k last year now it assesed at 184,816 and the market value is way below on homes in this area and I applyed for homestead exemp. which they said would have given me 100k off the assesed value and I did it in plenty of time now i got my taxes and they did not dothe homested and my quartely taxes are 2k way over what i was paying the homes in my area are not even going for the assesed value what can I do
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Old 11-28-2009, 07:42 AM
 
Location: Pennsylvania & New Jersey
1,497 posts, read 3,533,341 times
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Default Chapter 1-2-3 Ratio

Quote:
Originally Posted by sphat_mc View Post
Hi All,

We have been searching for a house for quite some time now. The areas that we've been looking at include Readington/Raritan Twp/Clinton in Hunterdon County and Long Valley in Morris County. I've been under the impression for the most part that assessed value placed by a town should be or is very similar to their market value.

Case in point, when we sold our home in River Edge (Bergen County) the sale price was very close to what River Edge assessed our home value. Some of these homes in the areas that I looking at are asking $600k+, however the assessed value is only in the mid $400's. Am I looking at this completely wrong. I know when you purchase a new home (according to my RE) the taxes are based on the sale value.

Thanks for any guidance you can provide.
Yes, you are looking at this completely wrong. Your impression is incorrect. Market value and assessed value should be similar if the municipal revaluation was recent. Otherwise, they can be radically different.

Fair Market Value can only be related to the assessment after adjusted by the Equalization Ratio (a/k/a "Chapter 1-2-3 Ratio") for the municipality that the property is located in. There is massive misunderstanding of this issue because few people have ever heard of the ratio and even fewer choose to learn how it works. Here below, I offer you the opportunity to become one of the "fewer."

Here's an old post of mine that I wrote in response to a question about tax appeals based on an OP's erroneous postulate that because the market value of a house drops, the property taxes should likewise drop. Not so. Whats going to happen when housing prices go down in regard to property taxes?

My post explains how FMV can be reconciled to assessed value. Work your way through it and the whole matter should make better sense to you.

Quote:
Originally Posted by MaverickDD View Post
Copying a post of mine from last year:

Every property in your town is allegedly assessed at market value during a town-wide reassessment. Thereafter, the annual taxes are adjusted on a town-wide basis based on a factor known as the Equalization Ratio or the "Chapter 1-2-3 Ratio."

Here's the problem: You're assessed at $500,000 and the value of your property is now only $350,000 so you feel entitled to a 30% reduction in property taxes because your house is now worth less than the assessment. But stop and think about that for a minute.

In theory, every house in town should be worth about 30% less, just as yours is. But the town still needs to raise 100% of its operating costs. So if they reassessed you for 30% less, they'd reassess the whole town for 30% less. Once reassessed, the town would raise the tax rate so it could still attain the required revenue.

Let's say the tax rate is 1.2. For a $500,000 assessment, your tax is $6000 (5000 "hundreds" at $1.20 per hundred).

Now your assessment is dropped to $350,000. You're happy!
And everyone else in your town gets a 30% assessment reduction too. They're happy!
But the town still needs to raise enough money to meet its budget, so it raises the tax rate to $1.72. You're all unhappy.

How much will you actually pay? You'll pay $6020 (3500 "hundreds" at $1.72 per hundred). No significant change.

In essence, this is what the Chapter 1-2-3 Ratio does without requiring an annual property-by-property reassessment. It subjects your tax assessment to a market comparison factor.

In the above example, the Ratio would be 143% or 1.43:1. Here's how it works:

Take the assessed value and divide it by the ratio for your town to attain your homes approximate market value. $500,000 / 1.43 = $349,650.

Ratios for every town in NJ can be found here: http://www.state.nj.us/treasury/taxation/pdf/lpt/chap123/chap123mor.pdf (broken link)

Still think you're over-assessed? Maybe you are.

There's a simple way to determine if your tax appeal stands a chance for success. Divide your assessed value by the "lower limit" ratio for your town as shown in the chart. If the result you attain is higher than your estimated market value, you may have cause for an appeal. If not, forgeddaboudit!

(When I ran the numbers on my house, I discovered that I'm probably under-assessed. Mums the word.)

For more info and to see if you have a good chance at winning an appeal, try: NJ Tax Appeal
Quote:
Originally Posted by MaverickDD View Post
...The assessed value is the amount printed on your tax bill.

[Reconciling market value to assessed value]... gets complicated quite quickly, (and at times I think the government purposely creates arithmetic complexities in order to prevent us from clearly understanding how taxes are calculated ,) but I'll explain as best as I can:

Forget the actual tax bill for a moment. The amount you're billed for property tax is the tax rate times the assessed value, but that's not what the Chapter 1-2-3 ratio is for. This ratio deals only with how your assessed value should be reconciled to the approximate market value of your property.

Let's begin with the average ratio. As you mention, for your town the lower limit from the Chapter 123 chart is 38.92, hence the average ratio that appears on the chart for your town should be about 45.79, correct? Divide your assessment by the average ratio to get the approximate market value of your home: $250,000 / 45.79% = $545,971. Hence, your home is assumed to have a market value of approximately $545,971 based on the tax assessment.

Property taxes cannot be appealed unless the "error" in assessment exceeds 15%. (Yes, a municipality may over or under assess you by up to 15% and neither you nor the town can get legal redress.)

Dividing your assessment by the lower limit ratio gives you the maximum amount your home should be worth: $250,000 / 38.92% = $642,343. Hence, if the market value of your home is more than $642,343, you are under-assessed. The town may appeal and seek to charge you more.

Dividing by the upper limit ratio gives you the minimum amount your home should be worth: $250,000 / 52.66% = $474,744. Hence, if the market value of your home is less than $474,744, you are over-assessed. You may appeal and seek to have your bill reduced.

Hope this helps. Not a lawyer... not legal advice.
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