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I was interested in moving to Pittsburgh until I learned something disturbing about the property tax system. I was told that the county has one of those screw-the-newcomer systems where people who buy a house get hit with enormous property taxes that essentially subsidize the taxes for people who have owned their home for a long time. Kind of an unofficial California Prop 13 arrangement.
Is this true? If so, I would not consider moving there.
Not exactly. Right now our taxes are based on a "base year" assessment which was conducted in 2002. This may or may not be constitutional and it is currently being challenged. Basically, you are paying taxes based on what your house was assessed at in 2002. That being said you can still appeal your 2002 assessment. Same goes for the school district. Usually, the school districts appeal the assessment if you paid more than 20 percent above the assessed value of the house at which point you get an appraisal and you argue over what your house was worth in 2002. Frankly, the houses that are appealed by the school district are for the most part underassessed.
I was interested in moving to Pittsburgh until I learned something disturbing about the property tax system. I was told that the county has one of those screw-the-newcomer systems where people who buy a house get hit with enormous property taxes that essentially subsidize the taxes for people who have owned their home for a long time. Kind of an unofficial California Prop 13 arrangement.
Is this true? If so, I would not consider moving there.
Not true. The system isn't designed to screw the newcomer. The problem is that sometimes newcomers just don't know how to buy property here. The tax system isn't to blame. It's the real estate agents you should blame.
The only way that could remotely happen is if you pay substantially more for property than it's worth. Homebuyers moving here from more expensive cities don't realize that real estate prices are extremly cheap here. As a result, they THINK an asking price is a deal when it's really a rip off.
This happened to a friend of mine when she moved to Pittsburgh from another country. She paid almost a million dollars for a house. The previous owner had bought the house for 200k two years prior. (I estimate the house was only worth 400k to 500k.)
They only looked at what the seller was paying in taxes. They didn't take into consideration that their taxes would go up the next time assessments were done. Even Pittsburghers buying new houses in Pittsburgh have to take this into consideration. It's rather hard to argue that your house isn't worth X amount of money if you paid higher than X to purchase it.
You can avoid all of this by making sure that you only pay market price for your house. Don't guage real estate values based on what real estate is worth in your area. Go to the Allegheny County Real Estate website and look up any properties you are considering. You'll be able to see the assessment value, what price the seller purchased the property and how many years ago the property was purchased.
Keep in mind that Pittsburgh real estate isn't a boom/bust market. Real estate rises steadily here. (As a matter of fact, property values haven't really fallen much here in Pittsburgh compared to other parts of the country.) As a result, if you pay too much money for property, you won't get your money back unless you live in the property for a lifetime. This isn't the city for making 100k in a year off of property. Then again, few places in the country are like that right now anyway. At least in Pittsburgh, you're not likely to lose money on real estate if you don't pay higher than the property is worth.
Not true. The system isn't designed to screw the newcomer. The problem is that sometimes newcomers just don't know how to buy property here. The tax system isn't to blame. It's the real estate agents you should blame.
The only way that could remotely happen is if you pay substantially more for property than it's worth. ...
No, that's not the problem, don't blame the newcomers. The real problem is that many of the assessed values in the County system are not accurate. Well off areas are under assessed, while poor areas are over assessed. Thus, the property tax is not being applied uniformly. This is the basis of the Pierce vs. Allegheny County case that the County has lost and is currently appealing to the PA Supreme Court. If you read the briefs in that case, you'll see that Pierce et al. have provided lots of graphs and charts to show this.
Prior to the introduction of the base-year system in Allegheny County, we did in fact have kind of "an unofficial California Prop 13 arrangement" as the OP stated. The Allegheny County Executive attacked our local school districts in the media for "chasing sales" (i.e. appealing assessments when a property is sold) and in 2005 he switched the County to a 2002 base year (but leaving people who lost appeals to their school districts between 2002 and 2005 to have to try and appeal again to lower their assessments).
With the base year, things are now murky. School districts are still appealing based on sales data --- sometimes they win, sometimes they lose, sometimes it comes out in the middle. And the entire base-year system has been challenged in the Court of Common Pleas (Judge Wettick has ruled it violates the PA state constitution and has ordered a County-wide reassessment that will likely happen if the County loses its appeal to the PA Supreme Court).
Robrobrob and Hopes are both right as far as they go. I'd like to add my two cents in an attempt to harmonize their posts.
Pennsylvania does not have a comprehensive statute governing real estate assessments. Each county is allowed to develop its own system. The only rule is that the system is supposed to be fair.
66 of the 67 counties have for many years adopted a base year system in which everybody's taxes are calculated based on what the property was worth in a certain year, say 1970. This means that if your property loses value over time, you are still paying taxes on the 1970 value. Same if your property gains in value. So there are winners and losers, but it has nothing to do with when you buy. If you build a house after the base year - say you build a house in 2000 in a county with a 1970 base year - then the assessor guesses what a house like that would have cost if it had been built in 1970, and that's your assessment.
Before the mid 1990s, Allegheny County never got around to adopting a base year, but because it never conducted an appraisal, it was as if a base year system was in place. Then somebody sued and the court ordered Allegheny County to conduct an assessment. It did so in 2002 and planned to do so every three years.
After the 2002 appraisal, everybody went ballistic: people whose houses had increased in value since the last assessment were hit with a decade's worth of increases all in one year, and because these were the most vocal residents there was a blizzard of appeals. A lot of people felt that the out-of-state appraisal firm failed to note subtle differences between the maze of neighborhoods and municipalities we have here. Voters tossed out the county executive as a way of expressing their displeasure, even though he was only doing what the court had ordered him to do.
In 2005 it was time for another appraisal, and once again the complaints were loud and long. (The complainers included people who purchased homes between 2002 and 2005; they usually got tagged for the full value of what they paid, which was usually more than what their neighbors paid, which meant that they were paying more than their neighbors. Hence the rumors you heard about the newcomer's penalty). To avoid the fate of his predecessor, the new county executive refused to use the 2005 numbers and instead made the 2002 numbers a base year.
Right now the constititionality of the base year system is on appeal before the PA Supreme Court. The trial judge ruled that the system is inherently unconstitutional because: a) the constitution requires fair taxation; and b) in a base year system, people whose houses decline in value pay more than they should and people whose houses gain in value pay less, which is unfair. The PA Supreme Court held argument last year and has been sitting on the case since then, which probably means that it wants to declare the system unconsitutional but is scared of doing so in the middle of an economic crisis.
The long and the short of it is this: if you move here, you will be taxed based on what your home was worth in 2002. If the system changes, it will probably move toward a semi-annual system where state bureaucrats appraise properties regularly and by virtue of being bureaucrats insulate local politicians from blame. Either way, there will be no newcomer's penalty.
Don't under estimate the scenario I explained. It's a huge problem for people coming here from a high cost of living area. A 1,200 sf house might cost 1 million dollars there. They find a 2,500 sf house here and think it's a deal at 1 million. Meanwhile, it's only worth 400k. If they pay more than 400k, the property assessment is going to be raised based on their purchase price.
I don't think we have an unofficial California Prop 13 arrangement that causes only newcomers to pay higher taxes. What you described can increase taxes for anyone who lives here, not just newcomers.
The long and the short of it is this: if you move here, you will be taxed based on what your home was worth in 2002. If the system changes, it will probably move toward a semi-annual system where state bureaucrats appraise properties regularly and by virtue of being bureaucrats insulate local politicians from blame. Either way, there will be no newcomer's penalty.
Exactly. We'll all be equally screwed regardless of how long we've lived here!
Can't argue with 3 previous posters. I'd only add one thing regarding the school districts. If you purchase your home for 250K and it's assessed value of 150K is not adjusted by the county, they will go after you. And most times they win. If the system was run properly, everyone would be properly assessed and the millage rates could be lowered. Guess I'm dreaming.
Don't under estimate the scenario I explained. It's a huge problem for people coming here from a high cost of living area. A 1,200 sf house might cost 1 million dollars there. They find a 2,500 sf house here and think it's a deal at 1 million. Meanwhile, it's only worth 400k. If they pay more than 400k, the property assessment is going to be raised based on their purchase price.
I don't think we have an unofficial California Prop 13 arrangement that causes only newcomers to pay higher taxes. What you described can increase taxes for anyone who lives here, not just newcomers.
Sorry, I just copied the OP's "newcomer" terminology. I agree that it is not just people moving to the area that are at risk --- it is also people that live here and want to buy a home. The County periodically sends a list of properties that have changed hands to the School Districts (I believe the list includes the current assessment and the purchase price). The School Districts use that info to drive their assessment appeals.
The big difference for "newcomers" here is that they are less likely to be familiar with the the troubled history of the County assessment system than someone who has lived here for a while. And it isn't an issue your real estate agent is going to want to bring up.
There may well be people buying your $400K example house for more than that value, but in my area there are a lot of those $400K houses that are assessed at $200K because they haven't changed hands in years...
If you purchase your home for 250K and it's assessed value of 150K is not adjusted by the county, they will go after you. And most times they win. If the system was run properly, everyone would be properly assessed and the millage rates could be lowered. Guess I'm dreaming.
1. You're not dreaming. Maryland has a triannual appraisal system in which state bureaucrats appraise your house, there is a well-oiled mechanism to resolve appeals, and the new appraisals get phased in over time so you don't get whacked if your home jumps in value. Odd are pretty good that if the PA Supreme Court finds the base year system unconstitutional, we'll have a similar system here.
2. If you pay $250K in 2009 for a home that was assessed in 2002 at $150K, you are right: the school district will go after you. But they shouldn't win. You can defend yourself by arguing that: a) the issue is what the house was worth in 2002 (the base year), and a 2009 purchase price doesn't shed much light on what the house was worth 7 years before; and b) the school district does not have assessment expertise and is in no position to say that it knows better than the county assessors.
I'm a lawyer, which helped me to spot these issues and raise them when the city went after me, and I won. I told non-lawyer friends how to make the same arguments, and they won too. But if you don't know these issues, it's easy to get rolled by the school district, which is essentially trying to get more money without raising real estate taxes.
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