One of the most overlooked aspects of buying a home is the property tax. Admit it, as a home buyer you prefer to think of your wants and what the home looks like rather than what you may be paying in fees in the future. Property Taxes are taken once a year, every January. Definition from Investopedia:
Property tax is a real estate ad-valorem tax, calculated by a local government, which is paid by the owner of the property. The tax is usually based on the value of the owned property, including land. The local governing body will use the assessed tax to fund water and sewer improvements, provide law enforcement and fire service and other items deemed necessary.
This does play a hand into what kind of house you can afford, remember this tax is paid once a year. So it is something you will have to take into account when you are trying to get a loan and when you decide what house you want to purchase. The more expensive the home and nicer the area the higher the property tax. So it is important to know how it is decided. This article will go over this, in I hope, the simplest way possible!
The whole point of this tax is for the federal and state government to gain more revenue for the things they want to be fixed, purchased, or restored. This is an excellent source of income for the government so they will want as much as they can reasonably take. Investopedia explains that the services “normally funded by property taxes include education, emergency services, transportation, libraries and parks, as well as different recreational activities.” (To name a few).
So now this next part is complicated and boring (at least to me, the person trying to make it simple and fun!) but the tax is decided on by the mill levy and assessed property value. Mill levy basically equals all the community services that are able to levy the home to help them with their infrastructure, this is generally the county and school districts (the above Investopedia link will be a great help with this). Then the calculated levy is then multiplied by the assessed property value.
There are many ways to discover the assessed property value of your home. An assessor will determine the value by taking into account the factors that go into your home such as what it was sold for and the current market conditions. Then they use a variety of methods coupled with the mill levy to decide what the property tax will be. There are three main ways, I have discovered, that the assessors use for this process.
Sales Evaluation: Comparing your home to others sold in the area.
Cost Method: What your home would cost to replace. And if it is older, they would factor in depreciation.
Income Method: What your home would rent for.
Now, this may seem silly since your realtor and the MLS should be able to tell you what the property tax will be for the home you are interested in and the neighborhood you are looking into. But, this will help you be a responsible homeowner because you know where your money is going and you are okay with it. If you don’t want to pay for the playgrounds and schools then you can narrow down your search of areas. Also, if you do want to pay then you will appreciate where your money is going. All comes down to research and the right Realtor! (By the way, we can help with that…512-483-6000)