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Property Tax Appeal Math and Supporting Documentation

With home prices down significantly in New Jersey from levels during the peak of the artificially inflated real estate boom in 2006, more homeowners may be entitled to a reduction in their property taxes in this prolonged economic downturn. Homeowners who bought during the height of the real estate boom or who live in towns that conducted recent revaluations, may be paying more property taxes than their homes are worth. Figuring out if your home assessment is fair, and if you are a good candidate for a NJ property tax appeal in 2010 and beyond will require some grunt work, and you should start the process knowing most appeals fail. This sobering fact is not meant to discourage, but to give a realistic picture of what a taxpayer faces going into this process. At a time when cash-poor consumers are worrying about the economy and just holding onto their jobs, that leg work could go a long way, either resulting in a successful NJ property tax appeal, or at least in saving you time, effort, and misery if you don’t qualify.Already, the average property owner looking to do a NJ property tax appeal pays about $6,000 a year in property taxes, about twice the national average. And with New Jersey already facing projected budget shortfalls in the $1 to $2 billion dollar range and already falling revenues, the chance of property owners getting any kind of meaningful property tax reform legislation is slim.One of the few ways to reduce your property taxes is to catch any mistakes and correct any errors in your annual tax assessment. The implosion of the housing market has caused housing prices to fall over the past three years. Many New Jersey homeowners may now have an opportunity to lower their property tax bills by filing a tax appeal to challenge their tax assessment.If you think you home assessment is unfair or incorrect, you have until April 1 to file your appeal. To find out if you’re a good candidate for a NJ property tax appeal, you should first have some understanding of how property is assessed in New Jersey and how the appeal process works.Every year, in either late January or early February, tax assessors are required to mail to each property owner in New Jersey, an annual tax assessment notice. It’s typically printed on a small green card and it simply states your home’s assessed value for both the land and any improvements. The number on the card is calculated as of October 1 of the pre-tax year. So, for example, the tax assessment date for 2009 is October 1, 2008. That number, however, is virtually meaningless unless you know what your town’s average tax ratio currently is.Every year, the state Division of Taxation with the help of assessors computes these average ratios by analyzing sales of comparable properties over the prior 24 months. The list of these ratios is published every year, usually right after Christmas, on the division’s website.The Math Involved in a NJ Property Tax AppealTo determine whether your property is over or under assessed, there is some math involved.Have your calculator handy for this part. Every township also gives itself a margin of error which is equal to plus and minus 15 percent of the average ratio. This huge 30 percent sway is the first of many reasons that many appeals are denied. Are houses mis-assessed? Yes. Are they incorrectly assessed by this large a swing? Not very often.For example, the average tax ratio for Town XYZ in 2010 is 88.54 percent. On the low end, the town’s ratio is 75.26 percent and on the high end its 101.82 percent. All these ratios are important to figuring out if your home is assessed fairly. If a home in Town XYZ is assessed at $500,000, the property owner must divide his or her home’s assessment by the average ratio — 88.54 percent — to determine the fair market value of their property, in reality, what the town thinks the property is really worth. In this example, the true value comes out to $564,717.But don’t forget about that margin of error! Property owners should then repeat this same exercise, using the town’s lower ratio and the highest ratio, so they can see the ranges they are dealing with. Using the previous example, dividing their home’s assessed value of $500,000 by 75.26 percent gives you $664,364 and dividing it by 101.82 gives you around $491,063.If the comparable home sales on your block have been selling for less than $491,063 and your assessed value is $500,000, Congratulations! You are a good candidate for a tax appeal. If you win, the township is required to reduce your assessment. Conversely, if all the homes on your block are selling for more than $664,364, you might want to lay low and start praying that everyone else lays low as well. Your home is probably under-assessed. And if you fall in between those ranges, abandon the idea of an appeal. You’ll not only lose your NJ property tax appeal, you could even open the boards eyes to the prospect of jacking everybody else’s assessment up in order to increase revenues. The only plus side to this scenario is that this is how school districts are funded, so if you have kids, they will at least see some of your lost money down the road in better textbooks.Your Supporting Documentation for a Successful NJ Property Tax AppealNot to beat a dead horse here, but keep in mind that most taxpayers that file an appeal will lose their appeal. We already talked about one reason… the margin of error. The second reason is that the burden of proof is on the taxpayer, and most taxpayers fail to present the proper evidence to support their case, and municipalities don’t grant appeals out of the goodness of their heart. They have interests they are obligated to protect just like you.The best evidence a taxpayer can supply in a NJ property tax appeal is recent comparable sales of between three and five other properties of a similar type in your neighborhood. This brings us to reason number three that an NJ property tax appeal is denied: the shortage of recent sales data.Why is there a shortage of sales data, you ask, when you see nothing but for sale signs around your neighborhood? It all boils down to that notice stuck to the front door. Welcome to reason number four that a NJ property tax appeal is denied: estate sales, foreclosures, short sales, sheriff’s sales, etc. are not considered “arm’s length transactions,” in New Jersey and therefore you are not allowed to present those types of transactions as comparable sales data during your appeal. These transactions are considered transactions “under duress” and are generally not considered valid comparable sales.Even with all these hurdles, there will be situations occurring where the taxpayer, after compiling the available evidence and doing the proper due diligence, will have a better than average chance of successfully winning a NJ property tax appeal. The good news is that you can get a pretty good idea of your chances of success BEFORE you are standing in front of the assessment board. Good luck.