Understanding Residential Property Taxes & Why They Vary So Much

We all know that property taxes vary from state to state but they also can vary greatly right here in Jefferson County.  You have neighbors who may be paying half — or double — what you are paying each year in property taxes.

Over the years I have sold homes to families relocating from other states, and in each case they have been delighted with how low Colorado’s property taxes are compared to where they were moving from. A couple relocating from New Jersey said they had been paying $12,000 per year in property tax on a home valued under $500,000.

I’ve been told that in California residential property taxes can’t increase as long as you own your home, which can result in dramatically different property taxes on the same street based on the year of purchase.

We can be thankful that real estate property taxes here are equitable, based on actual valuation as determined by the county assessor’s computer system. Variation in property taxes is related to which taxing authorities serve each address.

Perhaps you’ll be surprised to learn that property taxes are consistently lower in incorporated cities.  That’s because the cities paid for the streets, sewers, water lines and other infrastructure and builders only have to pay to connect new homes to the sewer and water lines — what are known as “tap” fees. 

When a developer acquires pasture land in an unincorporated area and wants to put homes on it, he must build the streets, curbs, sewer lines, detention ponds, etc. and may choose to build that cost into the price of those new homes.  More common, however, is for the developer to petition the county (or city, if within an incorporated area) to create a “metropolitan district” to pay for that infrastructure through the issuance of bonds.  A mill levy (property tax) is created to repay those bonds over, typically, the next 30 years.  Thus, when you buy that new home, you are paying for the construction of the home at closing, but you’ll also be paying — through your property taxes — for the cost of building the infrastructure over the next 30 years. 

What does that payment, in taxes, amount to?  Let's say you buy a home worth $500,000 -- and the assessor's doesn't increase its value for 30 years.  The typical district mill levy is 50 mills.  The owner(s) of your house will pay about $60,000 to the district over the next 30 years.  (At least those property taxes are deductible!)

See the box at right which describes how property taxes are calculated.

Let’s say you buy a $500,000 home in Candelas, that huge multi-builder development next to Rocky Flats.  The Vauxmont Metropolitan District, which built the infrastructure there, has a 70-mill tax levy to pay off its bonds, bringing the total mill levy to roughly 170 mills.  If the county assessor assigns a value of $500,000 to your home, your property tax on that home will be about $6,800.  A home with the same $500,000 value in older sections of Arvada likely has a mill levy of 101 mills, meaning the property taxes on equivalent homes in Candelas is about 70% higher than on homes which are not in a metropolitan tax district.

Golden’s mill levy is 89.05. If you bought a home in Golden’s newest subdivision, Canyon View, your $500,000 home has an annual tax bill of about $3,550 per year.  That’s because the developer, not a metropolitan district, paid for the infrastructure.  The price of your home included what the builder paid for the infrastructure.

In Westwoods Mesa, KB Home paid for the infrastructure, so it has only Arvada’s 101-mill property tax levy.  As a result, a home valued by the assessor at $500,000 will incur only $4,000 per year in property taxes.   

You might reasonably ask why you don’t pay less for homes in Candelas since the builder doesn’t have to factor infrastructure costs into the pricing of the home.  You won’t like the answer. The answer is that buyers don’t realize the difference, and homes are priced alike whether there were infrastructure costs or not.  And that is why more and more builders are creating these tax districts when they build a new subdivision on open land.

There are currently 50 metropolitan districts in Jeffco with mill levies of 30 mills or more and almost as many with mill levies between 10 and 29 mills. Here's the entire list of these districts and their mill levies: 

Here's the Jeffco Assessor's web page from which I extracted the above list.  You may find it more readable there.  Here's the link: http://jeffco.us/Assessor/Documents/Assessment-Process-Documents/Abstract-of-Assessments-Documents/2014-Abstract-of-Assessment/

 

I’m told that metropolitan districts may not pay in advance for the infrastructure but only reimburse the builder later on.  So the builder does pay upfront for the infrastructure, but he gets a lump sum reimbursement from the metropolitan district while in the process of selling the new homes themselves.  The district can charge an administrative fee.  For example, 6.25 of Leyden Rock's 46.25 mills go toward administrative costs for the district (salaries? postage?) and only 40 mills go toward repayment of the bonds with interest. 

Published in more abbreviated form on Dec. 17, 2016, in the YourHub section of the Denver Post and in four Jefferson County weekly newspapers

 

The Seller’s Market Lives on — But Only for Homes That Are Priced Right

The chart at right shows how long a sampling of Jeffco homes listed during the first six months of 2015 spent on the market before going under contract.  The clock is still running for 24 of those listings which are still active.

This chart demonstrates why there is such a difference between the median days on market and average days on market.  These listings have an average days on market of 39, but a median days on market of 12.  “Median” means that half the listings sold in 12 days or less and half took longer than 12 days to sell.  The average is so much higher than the median because of all those homes that were on the market for 60, 90, 180 days or longer. 

Why does it happen that most homes sell quickly but others take so long to sell?  The simple answer is overpricing.  If a home is priced well — no matter what the price range — it can sell quickly and even attract multiple offers.  But if it is overpriced, it can sit on the market for a long, long time.

Of those 22 homes shown as on the market 180 to 365 days, only two are sold listings and four are currently under contract.  The other 16 are all still for sale. The listing (or sold) prices of those 22 listings is 91.1% of their original listing price and will probably slide further before the remaining 16 listings sell.

By contrast, those 240 listings which sold in 0 to 7 days sold for an average 101.1% of asking price.  That percentage would be even higher if it weren’t for people selling their homes too quickly.  That’s right — too quickly!

I’m referring to the homes that show zero days on market, of which there were nearly 400 in Jefferson County this year.  Many of those sellers would, by my calculation, have received an average of one to two percent more — many of them much more — for their homes if they had waited at least two or three days before accepting a contract.  Analyzing sales from January through June 2015, I found that homes which sold with zero days on market sold for an average of roughly full price, but the homes which sold in 2 to 5 days sold for an average of 101% to 102% of asking price.

Some listing agents who got their sellers to accept the first offer without waiting for others may have done so because it was their buyer and they didn’t want another agent’s buyer to get the house. That way the listing agent kept the entire commission instead of splitting it with a buyer’s agent.  My research showed that of 197 such listings which sold in zero days, 95 of them — or just under 50% — were sold by the listing agents, doubling their commission. By comparison, of the 198 listings which sold in five days, only seven — or 3.5% — were sold by the listing agent. 

If you sold your home to a buyer which your listing agent brought you without waiting for additional offers, you may have left money on the table — and in your listing agent’s pockets.

I was inspired to write on this topic because this past week I sold a $335,000 listing for more than $350,000, with five competing offers. The highest offer came in on day 5 and was the result of sharing the current best offer with each prospective buyer. Fortunately, my seller understood and accepted my strategy of pricing the home at market value instead of at a premium, as so many sellers want to do.  We could have priced the home at $350,000 and maybe have attracted a buyer after a week or so, but by pricing the home at $335,000 we drew enough buyers to be selective.  The seller got the closing date he wanted and also got the buyer with the strongest financing. 

This last chart shows a five-year history of median days on market (solid blue) and the ratio of sold price to original listing price (green line). It shows clearly the inverse relationship between time on market and the ratio of sold price to listing price.  There’s no substitute for pricing a home correctly.

Published Dec. 10, 2015, in the YourHub section of the Denver Post and in four Jefferson County weekly newspapers