Property tax bubble
Is there a Property tax bubble? Are some big cities like Atlanta on the verge of complete financial collapse?
Many cities and counties around the nation assess property taxes on real estate based on the “fair market value” of the property. Many tax assessors in these cities will tell you that the fair market value is based on the price a buyer will pay for the property under normal market conditions. So the question here’s: what are normal market conditions? If you look at the real estate market in the city of Atlanta, you will notice that most of the homes for sale out there now are foreclosures. It is not unusual to find a property selling for $100,000, however with a current tax value of $250,000, with anual taxes of $4000-5000. The question is: How can the tax assessor continue to justify such high taxes on a property that is not selling for their “tax values”? Is this really fair? There’s no doubt that the city needs money, but the city needs to be fair to home owners.
Many home buyers are being turned off by the very high property taxes on these properties. Take for example a property selling for $100,000 with a property tax of $4000. This is a monthly tax payment of $330. The principal and interest payment on this property will be about $600 per month on a 6% loan. So a home buyer is expected to 30% or more of the monthly payment towards taxes.
Take this real senario: The home at 101 Haygood Ave, Atlanta, GA 30315 is currently for sale at $22,000. The tax value for this property was $122,000 in 2007 and will not be much different for 2008. So how does the city justify the relatively high taxes on these properties? The taxes on this property are about $2000. So if you take out a 30 year loan to finance the property, you will be paying more in taxes on the property than on the principal and interest. Most buyers shy away from such deals once they know what the taxes are.
In assessing the taxes on these properties, the tax assessor does not take into consideration the fact that most of the homes for sale in the neighborhood are all foreclosures and distress sales. So the tax assessor cannot continue to ignore these sales. The assessor will simply not have any “regular” sales in these Atlanta neighborhoods within the next 2-3 years. They will be forced to go with the actual sale figures, irrespective of the type of sale.
The real estate appraisal who will be appraising your property for your mortgage does not take into consideration the fact that many of your comparable properties are foreclosures. What will ultimately happen is that all property sale prices will adjust down to the sales prices of the foreclosures, so the tax assessors will be forced to lower taxes on these properties and the city will have a huge revenue short fall. The property tax bubble in many big cities like Atlanta will burst.