Touché
I'll give you the point that I am unfamiliar with property tax in New York and New Jersey, however the governing body for appraisers is the same for all 50 states and to become an Appraiser I have to follow the same guidelines in New York and New Jersey as I do in Texas. Also my trainer was a New Jersey transplant. He spent 9 years as an Appraiser in New York and New Jersey.
There are 3 ways to determine the value of a property. First is to determine the cost of building the property if it is destroyed. IE The Cost Approach. Second is to determine the value based on how much money it can gross in the market if you lease it, IE the Income Approach. finally and most commonly used is the value it can fetch if sold, IE the Market Approach. All three can be vastly different, Which approach will the state use?
Keep in mind that the Market approach can change dramatically in one day. Think what the value of property was on October 28, 1929 and then what is was on October 29th the day the stock market crashed.
Now fast forward to today Just 3 months ago we were all fat and happy, now we are looking at a very uncertain time. As of now the housing market is unchanged but I have wording in all my reports about Corona Virus because if I don't, when the values fall and we all know they will we have to cover ourselves.
All I know is if the state told me they were raising the value of my home because of the market approach, my first move is to challenge because more than likely the cost approach is much lower, and vise versa.
I agree with you that appraisals do a very good job of determining a home's value. The problem is that the tax assessments don't always match property values as determined through an appraisal. The most common way that happens is when properties aren't reappraised for an extended period of time, and the old assessment remains in place. That is a major problem in some portions of NJ and NY.
Consider two houses in different parts in town, both built in the 1950s with a value of $50k. For whatever reason, neighborhood A has seen a 5x increase in value since then, while neighborhood B has seen a 20x increase. Thus, house A has a value of $250k and house B has a value of $1 million -- but they both have the same assessment if they haven't been reappraised.
There are processes in place to adjust assessments. At a minimum, towns in New Jersey are required to utilize an "equalization ratio" to account for appreciation over the years. (New York has the same concept, but they call it something else.) The equalization adjustments are based on town averages -- so both house A and house B would be adjusted equally (say, by 12x from $50k to to $600k). Taxpayer A's taxes are based on an assessment that is overstated by 140%, while taxpayer B is paying based on an assessment that is 40% too low.
New Jersey towns are allowed to periodically re-peg assessments to market value. To spread out the budgetary impact, towns often reappraise homes on a rolling basis over a 5 or 10 year period, and adjust assessments accordingly.
But consider what happens when adjustments are first made. In the example I gave above, Taxpayer A's assessment would change from an artificially high $600k to an accurate $250k -- reducing his taxes by 58.33%. Meanwhile, taxpayer B's assessment would change from an artificially low $600k to an accurate $1 million -- increasing his taxes by 66.66%. Both of these changes are fair (assuming you accept the underlying concept of taxation based on property values, which is a separate issue).
Note: The equalization ratio is actually calculated in the opposite direction, with new appraisals adjusted down, back to historic values. Assuming a town with a 15x increase in value, the equalization ration would be 6.66%. A newly constructed home appraised at $1 million would be assessed at $66,666.66. The math works out the same as how I explained it above.
Another note: There used to be towns with equalization ratios below 10%, but I don't think there are any now. Chris Christie and his Lt. Gov. Kim Guadagno worked very hard to clean up the process, and most towns are now in the 95+% range. There are still a handful of towns in the ballpark of 30%, though.
