With all the foreclosures and short sales out there you would think that people who could not previously afford homes would be scooping them up. That is happening to some extent but there is still a key obstacle to making these homes affordable and it’s the property taxes. While prices have come down considerably in some cases property taxes have not. To give you an idea of the magnitude of the problem let me give you a few examples I have stumbled on over the past few months:
- 2124 Dewey Ave. in Evanston is a 2 flat with a list price of $250,000 and annual property taxes of $14,416. That compares with other similarly priced 2 flats with property taxes in the range of $4,000.
- 6412 Gray Hawk Dr. in Matteson is a townhouse with a list price of $114,900 and annual property taxes of $6,794. This compares to other similarly priced homes with property taxes in the range of $2,000 or less.
In general, property taxes may be high because the previous owner didn’t/couldn’t apply for the homeowner’s exemption or the assessed value is just way too high given the current market. If property taxes are too high by $4,000 per year that is equivalent to an increase in the purchase price of $62,000 at a 5% interest rate, which prices many people out of the market for these homes.
Of course, someone could buy these homes and then try to get the taxes fixed – appeal the valuation or apply for the proper exemptions. Alas, we are dealing with the government here and consequently the process is convoluted and there are no guarantees. For instance, there are rules about how long you need to live in a place before you can apply for the homeowner’s exemption and it could be 1 1/2 years before you can get anything done. Similarly there are numerous different processes for appealing your valuation and some of them are only available to you during certain times of the year. I tried talking to these people and it was like something from Alice In Wonderland – the white knight was talking backwards. Something about this board and that board and the county and the township and the window and I should call this other number – and plenty of attitude for someone who works for me. Bottom line: you can go months without getting any tax relief. And then, as I said earlier, there are no guarantees. You could be stuck with high taxes the rest of the life of your home. It’s a huge risk for people.
So these homes just sit and sit.
Very insightful post Gary. I am very impressed with your blog! Regarding property taxes, is there a limit on the year over year increase in property taxes. I just purchased a condo in streeterville that has a low property tax. The previous owner had lived there 16 years and had a home owners exemption. Now that I live there are the taxes going to go up?
Thanks for the compliment. I’m not a property tax expert but here is what I can tell you. As long as you live there yourself you will be able to keep that homeowner’s exemption. Is there a limit on the year over year increase in property taxes? You’re basically at the mercy of the taxing authority on that one. There are two ways that you can get hit. They can raise the tax rate on you and every one else or they can raise your assessed value. However, they only reassess you once every 3 years. It’s Chicago’s turn this year so watch out!