If home prices drop, should property taxes drop?

Real Estate Broker/Owner with Broad & Bailey Realty LLC

In the current edition of Realtor  magazine, there is an article written by John E. Grippa. He says as home prices drop, so should property taxes.

After reading the article, all I kept thinking was that there seems to be something wrong with this concept. I don't mean that John E. Grippa is wrong; I mean there has to be something wrong with the way taxing jurisdictions create their budgets.

I was always under the impression that a taxing jurisdiction had a certain budget, a somewhat known and fixed obligation to its area. For example, they would add up all the costs of the services provided (schools, police, town, emergency, roads, water/sewer, etc) then they would tax according to those needs.

It seems to be just the opposite. It seems like most taxing jurisdictions throughout the US assess residential property based on market value. This means that they create their budget based on how much taxes they can collect. So if property values go up, they collect more. John E. Grippa said that as property values go down, we can appeal those taxes and have them reduced.

But if our taxes are reduced, are the services also reduced? Will garbage collection stop? Will the roads not be plowed in the winter? Will some other service stop or be reduced?

So my question is if taxes are reduced, will services be reduced? I can't imagine that the somewhat fixed services will be reduced. But in thinking this, what happened to the extra income when taxes were higher?

Going back to the time when home prices were increasing and taxes were increasing. Why were our taxes increased to begin with if the services provided were already being paid for? What did these tax jurisdictions do with all that extra money?

Besides the possibility of these tax jurisdictions having more money than they need, this becomes our burden in many ways. First, as property values increase, so do our taxes with no effort or control from us. But as property values decrease, we have to spend time and money to appeal those taxes. Secondly, higher taxes make homes less appealing and affordable to potential buyers which force us to appeal.

This doesn't seem fair to me; what are your thoughts?

Comments (8)

Peter Nikic
Broad & Bailey Realty LLC - Valhalla, NY

BTW, I emailed John Garippa and asked him to explain why fair market value is used, here's his reply:

"thanks for your note.  All value begins with market value.  What occurs next is the percentage of that market value that will be needed to address a budget. Its possible, that a jurisdcition might only need a ratio of 10% of that market value to meet their budget needs. However, under the Constitution, everyone must be treated in an equal and uniform basis...that is fair market value.


John Garippa"

Oct 24, 2008 05:14 AM
Sonja Babic
Sonja Babic/PRIME Realty NC, LLC - New Bern, NC
New Bern NC, PRIME Realty NC, LLC

Excellent point Peter! I was tired of same thing from presidential candidates,  it seams that there is no direct connection between expenses and budget when it comes to taxes.  

Nov 05, 2008 11:14 AM
Peter Nikic
Broad & Bailey Realty LLC - Valhalla, NY

Sonja, it just doesn't seem right. I just don't think there's anything we could do.


Nov 06, 2008 12:06 AM
Angela Lucaj
Amerigo Realty - Canton, MI

In our area I have heard that the city is cutting back on the use of salt on roads - less on the shoulders.  That's one example, I am sure of many we are unaware of.

I would assume that cities consolidate and make lay-offs when things get tight.  Schools shut down. In Michigan, considering the number of vacant homes, many elementary schools have closed and consolidated - and not just in inner city Detroit, but in the suburbs as well.  Not only are there fewer teacher hires and many layoffs, but teacher benefits will also be cut in the near future.  The effects are widespread.

It's an interesting problem.

Nov 24, 2008 06:44 AM
Peter Nikic
Broad & Bailey Realty LLC - Valhalla, NY

Angela - yes, interesting, thanks.

Nov 25, 2008 10:18 AM
Mark MacKenzie
Phoenix, AZ

Hi Peter,

I think that has to do with the fact that if government's have excess money they will indeed find a way to spend it.

The problem we are seeing though is that now local governments are running out of money and are going to the federal government (who doesn't have any either) for more of it.

I think part of the problem, in addition to declines in sales tax revenue, is the fact that property tax revenue is off budget due to foreclosures (homeowners not paying their taxes) as well as fewer new homes being built.

The ripple effects if this hoisng depression continue to permeate throughout every sector of the economy.

Dec 08, 2008 02:54 AM
Jon Wnoroski
America's 1st Choice RH Realty Co., Inc. - Green, OH
Summit County Realtor

In Ohio we have a six year reappraisal.  That took place this year and some property values as well as the appraised value decreased while some areas saw increases.  Real Estate taxes are based on market value and it seems only right that if home values decrease so should property taxes.  This has caused some distress among sellers and generally translates into needed price reductions.

Dec 08, 2008 03:00 AM
Peter Nikic
Broad & Bailey Realty LLC - Valhalla, NY

Mark, good points, it's frustrating.

Jon, that sounds better. In my area, they raise the taxes, and it's up to us to lower them. I think if my taxes are raised because property values went up, then my taxes should be reduced when property values go down. I guess it's easier for them to put the burden of reducing the taxes on the home owner.

Dec 08, 2008 05:15 AM