The following two scenarios with buyers prompted me to attend a seminar on Michigan Property Tax Appeal to find some answers about tax assessing and how to appeal property taxes on residential homes.  Last year I had a home owner (not selling their home) approach me for market comparatives as they wanted to appeal their taxes.  So this affects home owners as well as buyers. Even in a declining market, home owners may see an increase in property taxes in any given year.  In Michigan, taxable value increases by the rate of inflation or 5% – whichever is lower.  Seller’s who have a gap between taxable value and State Equalized Value or SEV are those that may see an increase in property taxes even if the value of their home is declining.

I have two buyers who have different concerns about taxes as they proceed to buy a home in a decreasing market.  The first couple is considering a home with a State Equalized Value (SEV) of $288,000 so technically the state of Michigan says the home is valued at $576,000 (2 x SEV).  It is a foreclosure with a purchase price of $259,000.  So a full price purchase is less than half the SEV of $576,000.  The home is definitely over valued and the question my buyers asked:  will the city assessor adjust to the actual purchase price?  They would buy the home but can’t afford the current taxes.

The second couple is a first time buyer who found a home with a taxable value of $110,800 & SEV of $166,300 (the above mentioned gap).  The list price is $179,000.  The taxable value (x2) would indicate the home is currently being taxed at $221,600 which would be fair as the home is currently priced low and may sell closer to $200,000.  However, cities typically uncap the taxes and adjust to SEV for a typical purchase.   Meaning, the new owners might be forced to pay taxes on a home that the state values at $332,600 while they purchased it for less than $200,000?  They can afford the current taxes but can’t buy it they reset to the higher amount.

Buyers (particularly first time buyers) should ask their agent a lot of questions about what taxes will be when purchasing a new home as one of the above scenarios will most likely apply.  Typically, property taxes are adjusted when a buyer files the “transfer of ownership” form with the city within 2 weeks after closing – this “uncaps” the home and sets it to the current SEV recorded in public records.  In a normal market where home prices are stable or increasing, SEV would be an accurate figure on which to base taxes.  However, even in a normal market, if a seller has owned a home for a long time, there can be a significant gap in taxable and SEV and it will always be uncapped and reset to SEV.  In a declining market this still happens.

While I have seen many cities adjusting taxes downward each year from 2007, this adjustment is an across the board decrease based on many factors and is not reflective of the true market value of homes in the existing economic conditions.  If you think about it, cities would go broke if they adjusted to current prices.  Whether you are a buyer or home owner, the only recourse is to appeal property taxes with the city.

The following items are the best documents to bring for an appeal:  comparable sales, appraisal and a mortgage appraisal (tends to be higher).  Any Realtor can provide good comparable sales and cannot charge for the service unless they are a licensed appraiser.  Appraisers use the same data that Realtors do directly from the Multiple Listing Service (MLS).  The window of opportunity comes once a year in March and varies from city to city and there are no guarantees so you could end up paying twice the amount of taxes on a home as outlined in scenario one.

If you buy a home where the taxes are lower (scenario tow) and are about to be uncapped, you can expect it to be reset to SEV and pay much higher taxes than the current owner.  However, if you file “transfer of ownership” document after May 1, the city will use the current taxable value for summer taxes and it will uncap for the following tax bill.  They will still increase taxes for the rate of inflation on the current taxable value but you will have the opportunity to appeal before the SEV is uncapped for summer taxes.  Again, there is no guarantee that your appeal will be successful and there is the definite possibility that you will be paying higher taxes.

Most people do not appeal their taxes and there is also a good chance that (through the appeal) they will adjust but the predictable outcome is that the difference will be split.  It may not be worth the time and effort – particularly for homeowners being adjusted for the rate of inflation when the time and cost of an appeal is considered.  I found this basic calculation:  every $10,000 reduction in taxable value equates to $440/year in less taxes.

The members of the Board of Review are volunteers from your neighborhood who review the assessment roll on behalf of city residents. The size, composition, and manner of appointment of the Board of Review are prescribed by the City Charter.  You don’t want to come with an attitude–your time is too short. You have about 5-10 minutes to state your case.  You will want to have your documents organized so that you are brief and precise in your presentation.  There are levels of certification/qualification of appraisers so you want to choose wisely when getting an appraisal.  A Certified Residential Real Estate Appraiser is the best bet compared to a State Licensed Real Estate Appraiser.  Keep in mind that the cost of an appraisal may equal the amount you save in yearly taxes.

If you are a home owner or buyer, feel free to contact me with any questions regarding property taxes and the appeal process.  If I don’t have the answer, I will research it and to find out the information.

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