Rental Property Investor · Member since 2018 · 15 posts · 2 votes
Hi All,
How does a tax assessment work when you close on a property? I called the union city, NJ tax assessor and he basically said that they assess any home that gets purchased. My realtor is saying that’s not the case. I’m worried the current tax rate will sky rocket when I close on this multi family. It’s not new construction and not much work has been done but the cost is more than what they paid 3 years ago. Any help would be appreciated.
Thanks
When was the last UC reval? Honestly, I'd run your numbers on the assumption that the taxes will be base on your FMV. Anything else is wishful thinking. Many buyers got burned here in JC because they thought their cheap taxes would never go up, and then they tripled in the reval. That said, I've not heard of UC doing a "rolling reval" on sales. I'd double check that. Easy to do using state records available here Http://tax1.co.monmouth.nj.us/cgi-bin/prc6.cgi?menu=index&ms_user=monm&passwd=data&district=1301&mode=11. Just search for recent sales and look at the tax history.
I have purchased property in Union City in the past and the property did not get reassessed just because I purchased it. In general, property taxes are not usually related to the sale price. They are the result of the value assessed by the city X some multiplier. My taxes went up every year, but the increase was around 100-$200/year if I remember correctly...
Recent substantial improvements that were permitted and on record with the city could cause taxes to go up more than the usual.
Small possibility if UC actually kept up on their tax adjustments... they don't.
It will likely only go up if there is a city wide reval, but you can figure out easily by using your purchase price, the equalization ratio and rate for worst case scenario increase.
When was the last UC reval? Honestly, I'd run your numbers on the assumption that the taxes will be base on your FMV. Anything else is wishful thinking. Many buyers got burned here in JC because they thought their cheap taxes would never go up, and then they tripled in the reval. That said, I've not heard of UC doing a "rolling reval" on sales. I'd double check that. Easy to do using state records available here Http://tax1.co.monmouth.nj.us/cgi-bin/prc6.cgi?menu=index&ms_user=monm&passwd=data&district=1301&mode=11. Just search for recent sales and look at the tax history.
@Johann Jells thanks for your help. I’m so new to this and still having a hard time figuring out the potential tax implications. Not sure what equalization rate means and all that. The taxes are 11,800 on the property now and that was based on the last assessment. Any advice on finding out a formula on this?
Thanks
Ugh, I though after the JC reval I was done explaining this ugliness! Here goes. Since assessments don't change between revals on most properties, they need a way to increase the taxes proportional to appreciation/inflation. So they make up a number, called the 'ratio' or equalization rate. This is a factor that when multiplied by the assessment comes out to something like FMV. So in 2017 UC tax rate looked like this: 6.904% was the actual tax rate, but 2.834% was the effective tax rate. https://www.state.nj.us/treasury/taxation/pdf/lpt/...
Now, in a perfect world, a reval would simply reset your assessment to FMV and the rate to the effective rate, and your taxes don't change. But the problem is some properties in the city appreciated faster than others, and so that EQ rate was actually undervaluing them, and thus undertaxing them, and the reverse for slower appreciating properties. And the further that ratio gets from 1:1 the nastier it'll be for the undertaxed when they reval. By NJ law, when the ratio says the city's overall assessment is less than 85% of FMV, there's supposed to be a reval. But there's been no enforcement, so many cities, apparently including UC from those numbers, have been kicking the can down the road. It was a mess in JC, with the Downtown area seeing dramatic tax increases on the brownstones that have skyrocketed in value.
So, to sum up, according to this doc https://www.state.nj.us/treasury/taxation/pdf/lptv... UC's EQ rate is 36.69, that is to say the assessments are 36.69% of FMV. If your property is worth more than it's assessment x (1/36.69 x 100 or 2.72) then you'll likely be looking at a tax hike.
@Johann Jells this is so helpful! Thank you so so much! What a nightmare. And fair market value is determined by the price I pay or the actual assessment.
FMV is what an appraiser would price it at in an arm's length transaction. So getting a great deal like an auction or shortsale does not mean that's your FMV. However if your purchase is at arm's length, then that is a compelling piece of evidence at an appeal. When I got a great deal in 2012 on a shortsale, my mailbox filled with lawyers offering to appeal my taxes for me, since by the sale price it was overtaxed.
Union City uses a equalization ratio of 36.69% and a general tax ratio of 6.9. So if your assessment is $100,000, that is 36.69% of what the city considers your fair market value. So whatever an appraisal says, or what you can prove based on comps would be your FMV, like others said, not a foreclosure, short sale, deed in lieu, neighbors or family or trust transfer, etc. What the actual market would dictate. So back to the example, $100,000 is what your assessment is for land + improvements. $100,000 is 36.69% of $272,554, so that's what the city says your property is worth. If you think you can prove it's worth a lot less, you are ripe for an appeal. The value is measured as of last October 1. There's a little more to it, but that's the basic gist.
To find out what your future taxes will be after a sale or if you have an appraisal or an idea of the value, you take that number... so let's say you think you will win an appeal and prove your property is only worth $220,000, then you take the equalization ratio for that number, so 36.69% of 220,000, which is 36,690.00. That would be your new assessment if you win an appeal. Take that number and multiply it by the general tax rate for Union City, which is the 6.9% number, and you get $2531.61. That should be your new taxes for next year.
Hope that makes some sense! Happy to answer any questions.