By: Dona DeZube
With improved equity comes higher costs for property taxes and insurance. Here’s how to manage them smartly.
If you’re like most homeowners, rising home prices mean you can finally let out the breath you’ve been holding since the start of the economic downturn — especially if you’re hoping to sell.
Would you mind terribly if I added a little cloud to your silver lining?
Rising home prices might mean higher bills for you in the coming year because:
- Your property taxes will rise unless your tax rate falls.
- You’ll need higher limits on your homeowners insurance coverage to compensate for your higher home value.
Fortunately, you can do a few things now to reduce your tax bite, keep your insurance costs as low as possible, and continue your exhale of relief.
Property Tax Appeals
You pay your property taxes based on a formula that generally uses your home’s assessed value multiplied by the tax rate. When you home value rises, if the tax rate doesn’t fall, your taxes rise.
Take, for example, a property tax rate of $1 per $1,000 of home value:
- You owe $100 when your home is worth $100,000.
- You owe $110 when your home value rises to $110,000.
- To keep your tax bill at $100 when you home value rises to $110,000, the tax rate has to fall to about 90 cents per $1,000.
Given the sorry state of most local and state government budgets, I wouldn’t count on the tax rate going down. Instead, work to get your home value assessed as low as possible by filing a property tax appeal arguing the taxing authority has over-stated your home’s value.
Here’s how you do it: When your home’s tax assessment arrives in the mail, contact your REALTOR®, tell her you want to appeal your assessment, and ask her to pull the last three comparable home sales for you. If those sales were lower than your home’s assessed value, you use those comparable sales as evidence that your home is worth less than the tax man says it is.
Also ask your REALTOR® if she knows of any tax discounts (some jurisdictions offer discounts to owner occupants or senior citizens).
Homeowners Insurance Discounts
When your homeowners insurance renewal comes in the mail, call your insurance agent and ask if you can earn a discount for:
- Increasing your deductible.
- Installing a security system.
- Membership in an affinity group like AARP or because of where you work.
- Adding features that protect your home during natural disasters (like hurricane-proofing your roof).
Focus on the Silver Lining
If those cost-cutting measures don’t work, focus on the silver lining. An extra couple hundred a year in property taxes and insurance isn’t much compared with gaining thousands in home equity that you can use to finance your child’s education, start a business, fund your retirement, or just put in your pocket when you sell.