U.S. property tax system is overcharging owners of cheaper homes, study finds

After examining property tax valuations of 26 million homes in the United States, Christopher Berry draws up a severe assessment.

“People who own cheap properties get screwed,” says Berry, a professor at the Harris School of Public Policy at the University of Chicago.

Liberated bay a study Tuesday that concludes that lower priced homes are valued at a higher value ratio than higher priced homes.

He compared selling prices to appraisals for millions of transactions from 2007 to 2017, believing that buyers had more precise control over values ​​than appraisers. Berry found that, on average, a property assessed in the bottom 10 percent of a particular tax jurisdiction pays an effective tax rate that is more than double that paid by a property in the top 10 percent. rich.

In other words, according to Berry, less well-off homeowners effectively subsidize the tax bills of more affluent homeowners, a reality that exacerbates the inequalities between racial and economic divisions. For example, properties located in neighborhoods with 90 percent or more African American experiences are rated more than 1.5 times their county average.

Berry sees the racial gap as an example of systemic flaws in property assessments, rather than a sign of overt racism.

“I have absolutely no evidence to suggest this is intentional,” he says. “I’m not suggesting that a reviewer is racially motivated.”

Why property assessments vary

Berry says tax assessors rely on limited data and flawed analysis, a reality that results in inaccurate assessments. A big obstacle, he says, is that the important characteristics of houses are often invisible to tax assessors.

He gives the example of two similar houses on the same street. To the appraiser, they look identical – even though one owner has meticulously maintained the property and installed a brand new kitchen, while the other house has a leaky roof and Formica countertops.

“To the appraiser, these look like the same house,” says Berry. “The guy with the leaky roof is overrated, and the guy with the chef’s kitchen is undervalued.”

Even if the owner of the immaculate property has obtained permits for all the work, the appraiser still might not consider the improvements.

“There is surprisingly little cooperation between the licensing jurisdiction and the assessor,” says Berry.

Half a trillion dollars in local tax revenue at stake

Americans pay about $ 500 billion a year in property taxes, which is the biggest source of revenue for local governments.

Property tax systems are a hodge-podge nationwide. Some states, including California and Florida, cap the amount of annual increases in assessed values, policies that ultimately benefit owners of higher-value homes, Berry says. Other communities treat condominiums and single-family homes differently in the appraisal process.

The skills and sophistication of local tax assessors can also vary widely, says Berry.

Homeowners can appeal appraisals they feel are unfair. But, says Berry, “For many reasons, the people who own the cheapest homes are the least likely to appeal.”

Harris has published an interactive tool at Property tax fairness to place.

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