Part of purchasing a home is taking on the responsibility of paying property taxes. Even those who have owned their own home for many years may not understand how the city assesses property taxes. Here is a rundown of what that final dollar amount on your property tax bill is comprised of.
First, lets start with the definition of property taxes. Wikipedia says:
“Property tax, or millage tax, is an ad valorem tax that an owner pays on the value of the property being taxed.
There are three species or types of property: Land, Improvements to Land (immovable manmade objects; i.e., buildings), and Personal (movable manmade objects)… The taxing authority requires and/or performs an appraisal of the monetary value of the property, and tax is assessed in proportion to that value. Forms of property tax used vary between countries and jurisdictions.”
So, how does an appraiser come up with the value of a piece of property? First, the appraiser (or sometimes called an assessor) will take note of the physical characteristics of the property — things like square footage of the land and improvements, number of bedrooms and bathrooms, whether or not there is a garage on the property, amenities like swimming pools and fireplaces, types of materials used in building and renovations (i.e. brick, granite, ceramic, hardwood), and so on. Then the appraiser will take into consideration any easements that exist on the property (like a shared driveway, for instance), and the location of the property. Good location = better value.
Taking all of this gathered information, the appraiser then adds in data like sales, income, and cost data to arrive at an estimate of value. It can get quite complicated. The appraiser can take any or all of three approaches to estimating the value of a property:
- The cost approach: to estimate what it would cost to replace or reproduce the improvements as of the date of the appraisal, less the physical deterioration, the functional obsolescence and the economic obsolescence. The remainder is added to the land value.
- The comparison approach: makes use of other “benchmark” properties of similar size, quality and location that have been recently sold. A comparison is made to the subject property.
- The income approach: of primary importance in ascertaining the value of income producing properties and has little weight in residential properties. This approach provides an objective estimate of what a prudent investor would pay based upon the net income the property produces.
In case you were wondering about actual rates, tax rates in Harrisonburg are relatively low compared to many areas of the nation. The Harrisonburg City real estate tax is 59 cents per $100 of assessed value, and personal property tax is $3 per $100 of assessed value.
Finally, have you ever thought about what causes property values to change? Quite obviously, the most frequent cause of change in value is due to the real estate market. But other causes for change are renovations (like adding a bedroom or putting in a fireplace) or destructions (like flood or fire), changes in use (like converting apartments to condos). And lets not forget about the local economy. If a major industry leaves the area, property values can collapse. Basically, it all comes down to the age-old concept of supply and demand. If supply is up, prices typically are down, and vice versa.
You have now completed Property Taxes 101. Any questions?