Thursday, November 5, 2009

High Property Taxes Could Be Inhibiting Existing Home Sales

If you're like me, your real estate taxes are about the same as they were two years ago. Yet, the value of your home -- on which those taxes are based -- has probably gone down by as much as 50% in that same time frame.

The local and county governments won't drop the property tax rates because to do so would slash revenues by as much as 50%. This would mean that administrative, school, police, and fire operations would have to literally return to the operational levels of nearly 5 to 8 years ago; when real estate prices were formerly that low.

This fact presents a big problem for existing home sales.

When a new home is built, that home is assessed at its current market value and the tax bill matches that value. But, in the case of an older home -- one that is selling for exactly the same price as a new one -- the tax bill can currently be, in some cases, twice as high as that of the new home. That is why existing home sales are lagging behind new home sales. As long as this disparity in taxes continues, existing home sales will have a hard row to hoe. That will lead to a lot of run-down and vacant homes in many neighborhoods. Further, it only takes a few run-down or minimally maintained vacant homes to sink the value of the other homes in the area.

In order to correct this disparity, there has to be parity in property taxes for old and new homes. That means that one or both of the following things will have to occur: (1) a lowering of the costs for government operations so that the property tax bills can be reduced and (2) a re-adjustment of the tax rate and assessed values so that taxes are the same for all homes of equal value.

For the sake of future home values, we absolutely need to whittle down the massive inventory of vacant, existing homes. Property tax parity is key to making this happen.

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