A lot of homeowners have been seeing, for the first time, a reduction in the assessed values of their properties as county assessors take into account the housing market's extraordinary downturn. Is it still worth it to appeal the property tax assessment?
New research by two University of Illinois professors suggests that if there's ever a good time to do it, it's during a sluggish market.
Using data on Chicago property assessment appeals from 2000 and 2003, Rachel Weber, an associate professor at University of Illinois at Chicago, and David McMillen, a professor at University of Illinois at Urbana-Champaign, sought to identify who was most often filing appeals and who was getting the "right" answers back. The study followed the path of property tax appeals made within the city on single-family homes and buildings of up to six units.
Their findings yielded more than a few surprises but really boil down to this: The homeowners most likely to file appeals weren't the ones who won them.
In 2000, 9 percent of Chicago property owners filed appeals and almost 33 percent of those applicants were successful. Three years later, 14 percent of property owners appealed their assessments and 31 percent of them won.
The study found that most appeals were sought in census tracts with high median home values and larger or newer homes, the homeowners were more likely to be white and educated, and they decided to file an appeal because their neighbors were doing the same. And possibly one of the reasons they sought an appeal was because their incomes were proportionately lower than the run-up in neighborhood property values and assessments.
"Property taxes can be very visible and painful," Weber said. "It's a lump sum that comes twice a year. Other kinds of taxes are more hidden so you don't feel the pain. People appeal their taxes because getting that letter in the mail takes their breath away."
The study also found that homeowners in African-American and Hispanic areas were less likely to appeal. Homeowners who bought the property in active markets and within the past three years weren't particularly motivated to appeal, either.
But it wasn't the homeowners doing the most appeals that won them.
The best success rates were of appeals by owners of smaller, older properties in areas where there hadn't been a dramatic run-up in property appreciation, possibly because it's harder to place a value on the replacement costs of older construction. The study's authors found that applications from Chicago neighborhoods like Jefferson Park and Rogers Park, part of the city's Bungalow belt, fared well in the appeals process.
Also, the study found that having a lawyer pursue an appeal for a property owner didn't make much difference in the outcome. That surprised Weber, who said the finding could be interpreted several ways.
According to Weber, one way to look at it is that attorneys "go fishing and take on a lot of people's cases that just don't have [credible] cases. They're taking on people's cases who don't have a case, people that just feel beleaguered."
The other possibility is that attorneys actually are taking on the harder cases that may be turned down more frequently, particularly during the first two stops in the appeals process — the assessor's office and the board of review. The study didn't follow appeals made to the state Property Tax Appeal Board; few homeowners pursue an appeal that far.
The study also found that in a sluggish market where there haven't been many sales in a neighborhood, assessors may increase the sample size by including sales that aren't really comparable, previous research found. The more questionable the sample, the more prone the assessment may be to error.
"Thin markets — areas with few sales — will compromise assessors' ability to set market values, while more active markets provide assessors with more information," the report said. "As such, we expect that error terms would be greater in thin markets and property owners in such locations would have a greater incentive to appeal their bills."