>June 15, 2008
Real Estate
Homeowners Fight Back as Market Cools Off
By JILL P. CAPUZZO
JOSEPH ELLIOTT has been the tax assessor for Ocean City since 2003. In his five-year tenure, he has already overseen the reassessments of all 18,934 properties in this shore community — twice. And going a third round in the not too distant future is a distinct possibility.
In a state where the major burden of paying for government services falls to the property tax, New Jersey bears the unenviable distinction of having the highest property taxes in the country. Over the last five years, the average state property tax has increased 30 percent.
Since housing values have started to drop, some homeowners are balking that they are now paying too much — based on inflated property assessments made at the height of the real estate boom — and are now asking the assessor to come back for another look.
“Was it criminal?” asked Harold Frankel, speaking of the 2005 reassessment of Lakewood that resulted in a 60 percent increase in his property tax bill. “No. But it was unfair. I think it was stupid to do a reassessment at a time when half of the market was driven by speculation.”
From 2003 to 2007, the average assessed price of a home in New Jersey rose by 50 percent: to $256,450 in 2007, up from $173,110 in 2003, according to data from the State Department of Treasury. As property values were increasing, thousands of homeowners throughout the state received notice that their municipalities were planning to reassess or revalue all the properties in town.
Municipalities are required by state law to reassess properties every so often to bring all properties within a taxing district up to “full and fair value” — the actual price a house would sell for in the current market.
Throughout the state, county boards of taxation, under the direction of the State Division of Taxation, order up the reassessments when there is more than a 15 percent differential between the average sales price of houses versus the average amount those houses are being taxed at within a municipality. The assessment establishes the base upon which a property owner pays taxes, which are determined by a rate set by the municipality each year to cover the local, county and school budgets, then multiplied by the assessed value of the property.
In the past, property reassessments took place every 10 years on average. But with the rapid rise in real estate values in the first half of this decade, the process spun into warp speed in some hot markets. Since 2000, 272 of New Jersey’s 566 municipalities have undergone revaluations. In recent weeks, some homeowners in Ridgewood have been getting a bit of a shock upon receiving notice of the newly assessed values of their houses, which on average increased almost 70 percent. Last done in 2001, a revaluation was ordered by Bergen County when the taxed value of town properties fell below 67 percent of the fair market value. For residential properties, the average property assessment increased to $802,127 for 2008 from $473,770 in 2007 (based on the 2001 valuation). The new tax rate has not yet been set, but Michael S. Barker, tax assessor for the Village of Ridgewood, said the revaluation would help spread the tax burden more equitably.
As property values have recently begun to decline in many places throughout the state, homeowners are asking if their towns will be as quick to initiate a revaluation to reflect dropping home prices. Thomas Bell, spokesman for the State Treasury Department, said the revaluations were ordered based on a number of factors and not just the differential between house values in a town and the rate at which they were being taxed.
“They would never go by just one year of sales prices,” Mr. Bell said. “They never look at a one-year trend, if there is such a thing.”
During a full revaluation, an appraiser — either the local tax assessor or independently hired assessors — will do a thorough inspection of each property in town. The property’s value is determined by factors like size, style, age, condition, location and recent comparable sales within the immediate neighborhood. Within some towns, these “comps” can vary widely, especially if one neighborhood becomes particularly desirable. Such disparities can prompt calls to reassess by those living in less popular neighborhoods who are seeking equity.
“Advocates of reassessment are looking for fairness,” said Athan Efstathiou, president of the New Jersey Association of County Tax Boards and the tax administrator for Hunterdon County. “Sometimes one area of town gets hotter than another. Even in a soft market, it’s still all about location, location, location.”
While the tax rate is adjusted in relation to the reassessment, and some property tax bills could go down, most homeowners see an increase in their new tax bills, which continue to grow annually. According to the Treasury Department, the average property tax bill in the state has increased to $6,796 in 2007, from $5,239 in 2003 — a 30 percent jump in five years.
“They tell people it’s not costing them more because the rate went down, even though your value went up,” said Yehuda Shain, a real estate broker and certified tax assessor in Lakewood. “But it gives the town leeway to start nudging it up. People don’t realize how it creeps up over the next four or five years.”
Mr. Shain has advised many Lakewood homeowners to appeal their assessments, a process he said was well worth it if a homeowner had data about comparable area homes being sold for less than what the assessment states is the value of the person’s house.
“If a homeowner believes it’s out of whack, that’s what the appeals process is there for,” Mr. Bell said, “and relief is granted, absolutely.”
Those hardest hit by a revaluation tend to be people who have lived in the same house for a number of years, particularly elderly residents on a fixed income, many of whom complain that they are being taxed out of New Jersey. Frank Spatola, a retired postal worker, lives in Greenbriar Woodlands, an adult retirement community of 1,250 homes in Toms River.
“We’re seniors on a fixed income,” said Mr. Spatola, 84, who is also the legislative chairman of the state chapter of the National Association of Retired Federal Employees. “Our social security only increases by 2 or 3 percent, while our taxes go up 4 or 5 percent each year.”
When Toms River reassessed properties 10 years ago, Mr. Spatola said many residents in Greenbriar Woodlands picketed Town Hall and received some relief. With a new reassessment under way, Mr. Spatola predicted residents would rise up again. For now, the town has decided to delay releasing the new assessment figures.
“They’re holding it up because they knew we’d protest,” Mr. Spatola said. “In the last year, we’ve seen a 20 percent drop in the value of our houses because of the fallout in the real estate market. If they went through with the reassessment, they’d have 1,250 people appealing it.”
The Township of Montclair underwent a reassessment last year for the first time in nearly 20 years. With more than 500 homeowners seeing their assessed values jump between from 30 and 50 percent, Montclair’s reassessment resulted in numerous appeals. On a Montclair-oriented Web site, Larry Rosenshein, a Montclair resident, protested a reassessment that has him now paying about $15,000 in annual taxes on his 3-bedroom, 1 ½-bathroom house on a quarter acre. When he and his wife moved to Montclair in 1979, he said he paid about $5,500 in annual property taxes, on the house, which he bought for $250,000. His property is now assessed at $679,000.
“We pay for a county government that’s just an extra layer that we don’t need, and a school system that is not ranked particularly high,” Mr. Rosenshein said. “Our expenses keep going up, while we can’t run a deficit, and we can’t print money.”
Depending on the number of properties that need to be assessed, formal revaluations can take up to two years and can cost a municipality from $1 million to $2 million. In some communities, they have served as a political lightning rod, with local officials losing their seats soon after the new assessment figures come out.
Scott Alexander was elected mayor of Haddon Heights last fall, running on a platform that largely focused on the incompetence of the reassessment effort in his Camden County town. With its 2006-7 reassessment, three-quarters of the town’s 3,039 properties saw their assessed value go down, while one-quarter saw huge increases in their home’s assessed values, and, concurrently, property tax bills that were more than double the previous year.
“Everyone thought the whole town’s values went up and therefore the tax rates were going to go down, but that wasn’t the case,” Mr. Alexander said. “The results were all over the place.”
The disparity was in part because some neighborhoods that had grown more desirable had been undervalued, but also because the revaluation was carried out in a haphazard manner, Mr. Alexander said. The town hired an outside firm to do the inspections, and the four teams that canvassed the town varied widely in their approach, with some doing a complete walk-through while other inspectors never entered the homes. Mr. Alexander said there was also poor communication between the town’s tax assessor and the governing officials, and between the governing officials and the residents.
Mr. Alexander’s first order of business as mayor was to accept the resignation of the town tax assessor.
Now several hundred homeowners in Haddon Heights, including Mr. Alexander, are appealing their reassessments. The mayor said his house, at $525,000, has lost 20 percent of its value since the reassessment was completed last year and the real estate market has continued to soften.
In Ocean City, the assessor, Mr. Elliott, has made a science out of reassessing this Cape May County municipality’s numerous homes, which range from inland bungalows to multimillion-dollar oceanfront properties. With shore property values going through the roof earlier this decade, no sooner had Ocean City done its previous revaluation, in 2003, than the ratio of assessed value to market value was already exceeding the 15 percent differential. In 2004, the average assessed value was 83 percent of the market value; in 2005 it had slid to 69 percent, and in 2006 it was down to 59 percent.
Another round of revaluations began in early 2006, just about the time the real estate market began making a serious correction. While Ocean City experienced a 72 percent jump in real estate values from 2003 to 2005, it has seen a 9 percent drop each year, on average. By continually making adjustments over the nearly two-year revaluation process, Mr. Elliott was able to capture both the boom and the bust years, ending up with an average increase of 54 percent between the two reassessments. The average value of a home in Ocean City now stands at $679,000, Mr. Elliott said.
If real estate values continue to decline, there is always the possibility that Mr. Elliott’s team will be called into action again.
“It’s rare that revaluations would be ordered if assessments are too high, but it’s certainly a possibility,” Mr. Elliott said. “Whatever comes along, we’ll handle it.”
