Assessment Challenges in a Repressed Real Estate Market

Municipal Law Alert, July 2009

Board of Review season has once again arrived. During times of significant change in the real estate market, the number of citizen challenges to the assessed values of properties increase. Regardless of how one describes the current real estate market – “declining” “depressed” or “recessed” – what citizens understand is that real estate is not selling as quickly and that real estate is selling for lower prices than a few years ago. For many, this understanding equates to an expectation that both the assessed value of their property and their tax bill should decrease. For municipal officials, the challenge is to educate citizens that decreasing real estate values alone do not equal lower taxes.

A municipality’s total tax bill is determined by its budget – the cost to run the municipality. The assessment process determines the proportion of the total tax bill attributed to each individual property. If the cost to run a municipality stays the same, but the value of all real estate declines, each individual property owner’s tax bill will remain the same. This concept is most easily explained by an illustration:

In 2008, the Village of Badger Land’s levy was $10,000. Badger Land’s total assessed property values were $1,000,000 (consisting of 10 identical properties). The mill rate was $10.00 per thousand.

In 2008, Mr. Smith’s house and property was assessed at $100,000. Applying the mill rate of $10.00 per thousand to Mr. Smith’s $100,000 property resulted in a tax bill to Mr. Smith of $1,000.

In 2009, Mr. Smith realizes that his property is now only worth $50,000, a 50% decrease from the previous year. He concludes that his tax bill should also decrease by 50% and only be $500.

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