Property Tax Appeal Math: Are You Over-Assessed? A Tax Math Explainer

This post is meant to help a taxpayer get a jump-start on determining: is my property over-assessed? This post is not intended to cover all nuance that may arise for a particular taxpayer. Nuance abounds, which is why I’ve provided links to the state rules and public data.

If you are a homeowner than you likely recently received your assessment postcard. On the back of the postcard are “Appeal Instructions” and taxpayers are asked “if you agree with the assessed value shown, you do not need to do anything.”

But…if you disagree with the assessed value, you can appeal, leading to an important question: how is a taxpayer supposed to make sense of the assessed value?

And the answer is: it’s a fairly simple process outlined here in state guidance.  The process requires some public data and the market value of your home.

Here’s are the basic steps you need to do to see if you are over-assessed (and thus over-taxed):

1Determine your home’s market value.
2-Compute your home’s “assessment-sales ratio.”  
This is your assessed value divided by your market value and it is expressed as a decimal or percentage.
3-Determine the average assessment-sales ratio for your municipality; this is called the equalization ratio.  Every municipality in NJ has a ratio; all 565 ratios are published each year by the Division of Taxation.
4-Compare your home’s assessment-sales ratio to your town’s equalization ratio
using NJ’s “Chapter 123 Laws” (it’s a fairly simple process explained below).

Let’s walk through these four steps below.

1-Determine your home’s market value.

A local licensed realtor can help you estimate your market value (in my view they are the best resource given they understand the market) but you can also try to estimate market value on your own using recent, comparable sales.

2-Compute your home’s “assessment-sales ratio.”

The assessed value of your home is on your tax postcard but it’s also available online here (except if you’re in Ocean County…if so, then you need to go online here).  Divide your home’s assessed value by the market value (which you figured out in step #1 above) to come up with your assessment-sales ratio.

As an example:

  • If your home is assessed for $100,000 and its market value is $100,000, then your ratio is 100,000/100,000 = 1.0 or 100%
  • If your home is assessed for $100,000 and its market value is $150,000, then your ratio is 100,000/150,000 = 0.67 or 67%.

3-Determine your town’s average assessment-sales ratio, aka the “equalization ratio.”

The “equalization ratio” is the assessed value of the tax base divided by the market value of the tax base. This is public data usually published each October.

You can view equalization ratios, along with the assessed and market (aka true) values of the tax base, here. I’ve got a screen shot of the public data here, along with the numbers to look out for:

4-Compare your home’s assessment-sales ratio to your town’s equalization ratio per the “Chapter 123 Laws.”

This final step is explained by the state here but I’ve got a picture below as a quick reference. The math is pretty simple once you get anchored around the process. The basic gist of it is this:

If your assessment-sales ratio (from Step #2 above) is 15%+ higher than the equalization ratio of your town, then you’re over-assessed. 

Let’s zero in on the 15% for a moment: the state has created a plus- or minus- 15% range around the equalization ratio. This range is called the “common level range.” If your property’s ratio is above or below the common level range, then your property is deemed over- or under-assessed, respectively.

The good news is, all of this is also public data which you can find here. Here is a screen shot of Hudson County data for reference:

Specifically, at the link you’ll find, for each county in NJ:

  • the equalization ratio
  • the equalization ratio minus 15% (the “lower limit” of the common level range)
  • the equalization ratio plus 15% (the “upper limit” of the common level range)

Let’s use Jersey City as an example.

  • The equalization ratio is 85.88.
  • the lower limit is 85.88 – 15 = 73.00. If your ratio is lower than 73.00 (below the lower limit), you’re deemed under-assessed.
  • the upper limit is 85.88 + 15 = 98.76. If your ratio is higher than 98.76 (above the upper limit), you’re deemed over-assessed.

I’ve got a picture below in case it helps illustrate the concept.

Some final notes.

This is the tax math. The process of appeals can best be understood by going to your local county board of taxation website. You can also hire an attorney who will typically charge a contingency fee only if they are successful in lowering your assessment. I believe it’s in every taxpayer’s interest to understand the tax math at the center of this process, hence this post.

Also, this post fits into the overall topic of revaluation which I’ve written about here. Check out that page for more details relating to assessments, equalization ratios, and more.

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