Too often when people look to purchase a property they focus on the purchase price, and (if it is not an all cash deal) on the interest rate of their loan. However, often times a prospective purchaser will overlook the property's real estate taxes. This is a mistake especially in New Jersey, where the real property taxes are amoung the highest in the country. This is significnat as in many instances the real property taxes for a property amount to more than one half (1/2) of, or in some instances higher, than the purchaser's monthly loan amount. Moreover unlike a fixed rate loan, real property taxes will change over time, and more often than not the change results in an increase as opposed to a decrease in taxes. In the event the property taxes increase, depending upon the amount of such increase, a purchaser's "monthly nut" (mortgage, taxes, home insurance) that was deemed affordable prior to closing, may not longer be after closing. This can result in a whole host of other issues, but we will save this discussion for another post.
In light of the above, a purchaser needs to be aware of the ways that a property's taxes can increase. A property's taxes increase generally when there is an increase in the assessment value of the subject property or an increase in the overall tax rate. With regard to the latter, a prospective purchaser when inquiring about a poperty should inquire with the municipality if the tax rate is subject to change and if so, how (e.g., an increase or decrease in the tax rate and by how much).
With regard to a potential reassessment of the property should inquire (i) when the property was last assessed, (ii) whether the municipality is going to do an entire re-evaluation of the municipality, and (iii) whether any improvements were preformed after the last reassessment. (The prospective purchaser also needs to think about whether he/she is planning on making any improvements to the property after the closing, as – depending on the improvements made – can also increase the property's assessed value. In the event the property taxes are increased due to an increase in the property's assessment value, the purchaser can file a tax appeal, but that is an issue for another post.
If you are thinking of buying a home and want more information regarding real property tax issues you should speak to a realtor or a real estate attorney.
Andy Roth, New Jersey Real Estate Lawyer
*The information in this blog posting is for general information purposes only. Nothing in this blog or associated pages, documents, comments, answers, emails, or other communications should be taken as legal advice for any individual case or situation. The information in this blog is not intended to create, and receipt or viewing of this information does not constitute, an attorney-client relationship.