Hi Don,

With the greatest respect, NJ is a bit different - we are really famous for our property taxes. Mine went up every year for 8 years - from 9000 to 12500. Be glad you are in VA.

That's a big reason that I just bought in PA.

Answers:

1) No.
2) No rule of thumb.

Explanations:

1) Property taxes are based on the tax assessment. What usually happens is that, let's say, 5 years ago a house is purchased for $500,000. The next year (4 years ago), the assessment generally adjusted to reflect the purchase price. (Most tax assessments are, at least in theory, based on the fair market value of the house. And there's no better yardstick for "fair market value" than what the house actually sold for.) The next year, property values in the general area--based on sales of other properties, go up 5%. That general rate of appreciation is applied to your house, so your assessment goes up by 5%.

Note: That does NOT mean your taxes go up 5%. There are two things that make up your taxes: (1) Your assessment, and (2) Your tax rate. We already discussed the first element--your assessment. But your local government sets the tax rate. And they can adjust it from year to year, based on budget needs. So, let's say the tax rate is $1 per $100 of assessed value. In our case above, you'd pay $5,000 in taxes. However, suppose the next year the tax rate is adjusted so it's 90 cents per $100 of assessed value. Your assessment could stay flat at $500,000, but your taxes paid would fall to $4,500.

Returning to our primary example. Let's say after 4 years, based on sales of other nearby homes, your home is assessed for $520,000. It's possible that the assessment has gotten a bit "out of whack." Maybe the comps used by the assessor don't really reflect what's been going on in your neighborhood. Now, we get to today. The house is assessed for $520,000. You buy it for $450,000. Next year, your assessment should drop to $450,000. On the other hand (less likely in today's market, but quite common a few years ago) if you pay $600,000 for the house, next year your assessed value will jump to $600,000.

So, step one: If you pay less than the assessed value, the assessment should go down. If you pay more than the assessed value, the assessment should go up.

Step two: What about the taxes? Remember that there's a tax rate involved. When property values were skyrocketing, most jurisdictions slowly trimmed back the tax rate--like from $1.00 to 97 cents to 95 cents...like that. With property values collapsing, many jurisdictions are now raising the tax rates. Where I live, for example, home prices have declined by 20%. The tax rate has gone up by 10%. So, I'll be paying less...but the tax rate itself has gone up.

2) Rule of thumb: Doesn't exist. Reason: Even in a buyer's market, if a house is properly priced--priced near fair market value, it'll sell for very close to what it's priced at. And, believe it or not, there are houses getting multiple bids with escalation clauses, even in today's market. Now, it's true that in today's market, prices have declined. I can show you a house that, in 2006, sold for $500,000. In today's market, an identical house next door is worth $375,000. But if it's truly worth $375,000 and it's priced at $375,000, it'll sell for $375,000. The buyer's market is responsible for the value dropping from $500,000 to $375,000. But if it's priced right, it'll sell for $375,000.

And here's an anomaly: You sometimes see figures quoted saying that properties sell for, say, 94% of the listing price...or 92% or 96%. Whatever. In today's market, I'd bet the number is actually higher. Reason: The houses that are selling have to be aggressively priced. An overpriced house in a stable market may get offers somewhat below list and sell for the lower price. In today's market, overpriced houses don't sell. Period. So the houses that are selling are mostly well-priced to begin with.

So, if you're interested in buying a house, get your Realtor to do a CMA on the property. You obviously want to make sure it's not an overpriced house that's just going to sit there. But don't assume that houses, in today's market, are overpriced by 10%. They're not.

Hope that helps.

I would offer that 1) is probably true in general, if the seller had been in the house for a long time and if the market has been rising. Mostly this last part is no longer the case though, so maybe not. In our area current year's taxes are based on home values approximately 18 months ago - so this is really hard to say absolutely yes or no.

On your second question I would argue there's no "right" answer either, unfortunately. In your part of the country, or recently in Las Vegas, California, Florida, etc., your rule of thumb might be a good one - for now, assuming the market is still declining fairly rapidly.

Here in Denver we still have pockets like that, but there are broad areas and price ranges within areas that are now going at list price or even a bit above. An offer 10% below asking price in these cases would probably be ignored. So I guess my answer for you is "maybe", but even if yes for you, now, that isn't a permanent and in all situations answer.

I would have to say 1) is Yes and 2) is talk to a realtor.

Property taxes (at elast in CA) are based on the sales price at the time the transaction closes. Think about it, the assessed value and the property value should be the same on the date of close. Would the assessor value a property more or less than market value at the time of sale? No. If there are exceptions your local professional could say.

The process works this way. The property's tax bill is sent to the new owner in the current tax year based on the old owners assessed value. The property is eventually reassessed and the seller is sent a supplemental bill (or lately credit) sometime within a 12 month period. By the 2nd property tax year the bill should reflect the reassessed amount.

Question 2) There are no rules of thumb. If your market is loose then 10% may be too little. If it is tight like the one I work 10% is too much. If you are working with a reputable realtor, they should show you the recent sales activity. Once you determine the home is properly positioned in the market (In other words it's not overpriced). Look at the recent closed sales and compare the list price and closed price. That will determine how much to properly offer.

PS. Only look at closed sales 90 days old. The market is changing too fast to look further back and many listing agents (Including the top selling agents) look 6 months back. There are reasons listing agents do this, and will sell this to prospective buyers. Fuggeddaboudit, they don't represent you!

1. Very few communities base real estate taxes on selling price. It is based on the assessed value when the home was town assessed. If you believe that your taxes are too high, appeal tham thru the town. You have from April thru September to do it n most towns. You must be careful and diligent in going to a tax appeal. The first consideration is that most towns will not look at an appeal if your assessment of the property is within 15% of their assessment. There is a formula for going about it and I be happy to share it with you.
2.) Yes the climate is a buyer's market, but interestingly enough homes are still selling within 5% of asking price. In other words, the homes that are priced to sell are selling. If you find a home that is overpriced, make an offer and see where it takes you. If and when it sells, it will sell at market value.
Good Luck. Jeff

That's not a rule of thumb. People can ask whatever they like and often ask too much to start. I'd start with the recent SOLD comps for comparable homes to know what the market will bear - and offer 10% under that - well that depends on it's condition, etc as well. If it's a bloody mess or needs serious updating then I'd offer less still. If it's pristine with many upgrades, then an offer at or near full market value can be the way to go - remember that $10,000 is only $55/month.