Your goal as a homeowner is to enjoy your home and minimize costs as much as possible. If you can convince the property assessor that you live in a dump, then all the better! Unfortunately, in a rising property price environment, minimizing cost becomes much more difficult due to rising property taxes.
When things are going swell, it's easy to get lazy about reducing expenses. But I encourage you to continuously manage your burn rate while figuring out how to maximize income. In the event of the next downturn, you'll be that much more prepared to weather the hurricane.
The Property Assessor Slaps My Face
A long time ago, I spoke to someone who used to work in the property assessor's office. She said,
“Homeowners are lazy. We love them for it. When the market is going down, we keep our property value assessments the same because homeowners seldom ever appeal. Even if they do appeal, we have ways to nullify their appeal with so many loopholes, they will have no idea what hit them! And when property prices are rising, of course we'll raise taxes to the max!“
Hearing this insight really pissed me off. It helped solidify my belief the government is like a Black Hole, where not even light can win. Something had to change. So I wrote a post providing guidance on how to lower your property taxes for anybody who cared to try.
From 2007 – 2010, I made it my mission to contest my property taxes by meticulously tracking the comparables that sold around my neighborhood. With my appeal form containing details of cherry-picked comps that sold for less, the assessor's office had no choice but to make some adjustments during the downturn. FTW!
LOWERING PROPERTY TAXES AGAIN IN 2015 – 2016
The purchase and rental market is strong in many major cities around the country. So it was with great surprise that at the end of 2014, I noticed my neighbor across the street sell for a surprisingly low $626/sqft compared to the median selling price of ~$1,000 – $1,200/sqft.
I was pumped!
The sale across the street is a two bedroom, three bathroom single family home. It's not that attractive, but attraction is in the eye of the beholder. My house is a three bedroom, two bathroom single family home with a bonus room and full bath downstairs. According to my latest property tax bill, my house is being valued at $869 per sqft.
Isn't $869/sqft lower than the current selling price average of $1,000 – $1,200/sqft you ask? It is, but thanks to Proposition 13, because I bought my house 10 years ago, the city cannot increase the value of my property by more than an inflation index a year (1%-3%). Prop 13 is part of the reason why folks who many years ago bought mansions for $100,000, are paying much lower property taxes than houses bought today, but worth only a fraction.
Whatever the political arguments are for or against Proposition 13, the law is the law. As far as I was concerned, the city over valued my property by $243/sqft ($869 – $626 comp), an overcharge of roughly $5,000 a year thanks to this latest direct comp sale.
So Hard And Confusing To Reduce Property Taxes
Armed with indisputable evidence that I was overpaying, I attempted to appeal. Here's what happened:
The city makes it very difficult for a normal functioning person to figure out how to appeal online. They purposefully make the sfasr.org website hard to navigate, while putting in a long trail of intra-links before a property owner can finally get through. Everything gets buried.
If the SF Assessors website was a startup looking to make a sale, they'd get NO SALES.
Once you go to this URL address: https://sfasr.org/property-information/homeowners/contest-your-assessed-value, you'll find this snapshot.
Holy shit! Notice how you've got to now FIND the damn appeals form by clicking another link at www.sfbos.org. Once you get here, GOOD LUCK! They make it so confusing that most people just give up, just like the SF assessor's office hopes. The more people who give up, the less work they've got to do. The less they have to do, the more property tax revenue the city gets to keep.
Once you're able to find the appeal form, you've got to wait for a specified window in order to appeal after you do all your research. For example, the window to file an appeal for 2H2014 property value assessment is July 1 – September 15 (right now). If you don't appeal within this window, you've got to wait another six months to appeal, by which time they can easily tell you that your data is stale!
More Hoops To Jump Through By The Property Assessor
Then the assessor's office confuses you even further by saying there is an Informal Review Project, which is free, but an application form must be filled out with details of comparable sales. The Informal Review Project is DIFFERENT from the Changed Assessment with the Assessment Appeals Board. Going this route requires a non-refundable $60 fee. Here's where I currently am.
I followed up with a Principal Appraiser regarding my free Informal Review Project appeal, and this is what she said.
Your property was included in the Informal Review Project and the value was reviewed for 2015, but no reduction was deemed warranted when compared to other similar homes in the area.
The house at Neighbor's Address would actually not be considered a good comparable sale for your property because it originally was a one story home of 1,300 sqft. The basement was converted to living space to add additional square footage, and the property lacks a garage. This is considered inferior to your home, which is two stories on top of a built-in garage.
Between now and September 15, 2015, you have the right to file an appeal with the Assessment Appeals Board, although I do not think you have a case for a reduction.
Just Can't Win Against The Property Assessor
In other words, after going through the maze to successfully file an appeal in 2015, I'm being denied because the principal appraiser believes a single family home that sold directly across from my existing home is not a good comparable? What kinda of voodoo logic is this?!
The Principal Assessor uses the argument a home that was ONCE 1,300 sqft decades ago, and is NOW 2,600 square feet is not a good comp to my 2,100+ sqft home? Huh? Who cares what the house once was. What matters is what it is now. A butterfly is no longer compared to a caterpillar once it is a butterfly.
Anybody who has ever refinanced a home gets to see the detailed appraisal report. In the appraisal report, there are areas for adjustments. For example, because the home across the street from me doesn't have a garage, perhaps the appraisers subtracts $50,000 from the value of the property. Because the house is 500 square feet larger than mine, perhaps the assessor adds back $200,000 in value etc.
In other words, adjustments are made all the time when assessing the value of a property because no house is exactly alike.
Voo Doo Logic By The Assessors Office
With the assessor's reasoning, basically NO property across the street or on my block can ever be a comparable comp because no house is like mine. There are only two single family homes on my street. The rest are two unit condos.
Because it takes time and will cost me $60 to take the next step in the appeal process, I don't think I can continue. In my mind, I think a house directly across the street from me that is within 500 square feet in size is obviously a fair comparable to use. If they don't agree during my free appeal stage, they probably will disagree even further when it's time for me to fight the power in person!
Forget it. The city wins again.
The government will take advantage of you because it writes the laws. Don't pay your taxes? Then pay a fine or go to jail.
People who don't pay property taxes don't realize that voting on more government projects paid for by homeowners simply raises rents for everybody. There is no free lunch.
I'm afraid there's not enough homeowners willing to fight their property taxes because times are good. I guess we'll have to wait until another downturn for homeowners to start caring enough about their expenses again.
Invest In Real Estate Wisely
If you don't have the downpayment to buy a property, don't want to deal with the hassle of managing real estate, or don't want to tie up your liquidity in physical real estate, take a look at Fundrise, one of the largest real estate crowdsourcing companies today.
Real estate is a key component of a diversified portfolio. Real estate crowdsourcing allows you to be more flexible in your real estate investments by investing beyond just where you live for the best returns possible. For example, cap rates are around 3% in San Francisco and New York City, but over 10% in the Midwest if you're looking for strictly investing income returns.
Sign up and take a look at all the residential and commercial investment opportunities around the country Fundrise has to offer. It's free to look. I've personally invested $810,000 in real estate crowdfunding to diversify and earn income 100% passively.
Shop Around For A Mortgage
Check the latest mortgage rates online through Credible. Credible has one of the largest networks of lenders that compete for your business. You can get free, no-obligation quotes in minutes. The more lenders compete for your business, the lower your rate. Mortgage rates continue to be near all-time lows. Take advantage.