This is a guest post from Jersey City resident and mortgage industry professional Susan Kulakowski. Susan reached out to me after reading my last post, “Property Revaluation 501: Mapping & Color Coding Jersey City Home Sales by Assessment-Sales Ratio.” She analyzed the map’s underlying data and provided a ward-specific lens into the upcoming property revaluation. She offered to share her analysis with CivicParent readers and I gladly accepted. Her analysis can aid taxpayers in understanding fundamental questions like: What’s the likelihood of my taxes going up or down, depending on which Ward I live in? Which ward will see the most tax increase? The most tax relief? Many thanks to Susan for sharing her perspective, expertise, and time.
An Analysis of 2015 Jersey City Property Sales – by Ward
By Susan Kulakowski
I found the 2015 sales data posted here fascinating for two reasons: first the volume of community discussion about the property revaluation for tax purposes opinion in the absence of actual data and second the fact that CivicJC/CivicParent provided a limited set of real data. (By profession, I’m a “mortgage-related data analyst” and both reasons tempted me to do some numeric analysis, given actual data.)
My analysis suggests that a tax rate of 1.73% of the current property value is reasonable, given the 2015 property sales data available for analysis.
That said, here are the caveats.
- My data sample is limited. Sales data from 2015 sales (from which I excluded sales records with missing data, leaving me 1,483 total sales to analyze) may or may not reflect the actual sales experience of Jersey City.
- I don’t know if this sample accurately reflects the composition of JC overall or any ward within JC.
- I’m assuming that all properties are in “average” condition.
- I’m assuming that the most recent sales value reflects the actual value of the property.
Given that properties may be rehabbed, renovated, or improved after purchase (and I see this happening daily in Ward E), the sales price may considerably understate the property value after renovation.
- I did not analyze this data in great detail. For example, I did not distinguish between single-family residences and multi-family residences nor did I segregate properties granted tax exemptions from the majority of properties without. (This type of detailed analysis with this 2015 sale data may follow.)
- If I could access a statistical model (commonly called Automated Valuation Models, or AVMs, within the mortgage industry) that provided a “current value estimate” for every property in Jersey City along with the current 2015 taxes paid on every property, I would run this analysis again. Larger samples can provide better estimates. AVMs can provide good estimates of property value. AVMs coupled with recent sales can provide very good estimates of property value. However, the “value of improvements” will not be reflected in either the sale price or the AVM value and accurate estimates of property value will always lag the permitting process/completion of improvements.
Caveats in mind, this is what the data told me.
Overall Change within Ward
There were 1,483 usable property sales in the data provided. These properties collectively paid (pre-sale and tax adjustment) just more than $10 million in property taxes on properties worth $585 million. Current taxes paid of $10 million divided by Sale Prices of $585 million results in an estimated tax rate of 1.73%, providing an estimate for a “fair” tax rate.
Table 1. 2015 Property Sales by Ward:
Are the taxes paid in proportion to the property value (as determined by 2015 sales price)? A completely fair distribution of taxes would show a ratio of taxes to sale prices at 100% for each Ward.
Table 2. Tax-to-Sale Price Ratio by Ward:
The table above and chart below (two different presentations of the same data) show that Ward C and Ward F overall are paying taxes in relatively close proportion to the sale prices of properties within each Ward. Ward C is paying 110% of its share of taxes, based on the sale prices of homes within that Ward, while Ward F is paying 106%. Based on these two ratios, I’d conclude that overall homeowners in these two Wards will see the smallest changes in their tax bills.
Wards A and B carry a larger share of the tax burden than sales prices would suggest at 149% and 137% respectively. On average, homeowners in these Wards should see their property taxes decrease.
The property sales in Ward E, on the other hand, represented 39% of 2015 total sales price but Ward E homeowners paid just 27% of JC’s total property taxes. The tax-to-price ratio of 68% suggests that Ward E properties are the most under-assessed and -taxed properties within Jersey City.
Chart 1. Tax to Sale Price Ratio by Ward:
Increase or Decrease within Ward by Property
The analysis above looks at the overall change within each Ward, not the change any particular homeowner can expect. To determine how many homeowners could expect an increase or decrease in their property tax bills, I compared my estimated taxes, using 1.73% of the sale price, to the 2015 taxes paid.
The table below shows the breakdown between likely “Tax Decrease” and “Tax Increase” for JC overall and within each Ward. Overall, about 58% of homeowners should see their tax bills decrease while 42% should expect tax increases. However, the Wards differ significantly from each other. Within Ward A, for example, nearly all taxpayers should see their tax bills decrease. However a small proportion of Ward A homeowners—3%—can expect their tax bills to increase. In stark contrast, the overwhelming majority of Ward E homeowners—87%—can expect their tax bills to increase while 13% should expect a decrease in their tax bills.
The figures presented inside the column bases in the chart represent the “Likely Increase” proportion of homeowners within each Ward and for JC overall.
Table 3. Likely Decrease or Increase in Taxes by Ward:
Chart 2. Likely Decrease or Increase in Taxes by Ward:
Size of the Increase or Decrease within Ward and by Property within Ward
Given that Wards differ from each other, properties within Wards differ, and property tax bills will change with the revaluation, I found it useful to look at 1) the overall change in tax burden by Ward, 2) the average increase in tax burden for those properties apparently under-assessed and 3) the average decrease in tax burden for those properties apparently over-assessed.
The table below presents the overall change in tax burden by Ward by comparing Current 2015 Taxes and redistributing those taxes by Sale Price (using 1.73% of the sale price as an estimate of fair taxes). Overall the amount of property taxes paid remains unchanged—only the distribution of the tax burden changes.
Table 4. Overall Change in Tax Burden by Ward:
Finally, these two tables provide insight into how much property taxes are likely to decrease or increase within each Ward. Again, the overall property tax burden for Jersey City remains unchanged at slightly more than $10.1 million.
Table 5. Change in Tax Burden for Over- and Under-assessed Properties:
Given this analysis of 2015 property sales and current tax assessments on those properties, the burden of property taxes is unevenly distributed. Jersey City desperately needs to maintain current and accurate property value assessments within the City and fair tax assessments on those properties.
About the Author
From 1993 through 2014, Susan Kulakowski analyzed mortgage, property and credit data. She built models that estimated the credit risk of mortgage-backed securities; analyzed models designed by market participants, including automated valuation models (AVMs) that provide estimates of home values; and conducted research in other consumer asset classes such as auto loans. Susan is currently working as an independent consultant to the mortgage industry. As a Ward E homeowner, she is quite concerned about the property revaluation and estimates that her own real estate taxes will increase 31%. Learn more about Susan on LinkedIn here: www.linkedin.com/in/skulakowski.