SOUTHFIELD, Mich. (WXYZ) — Every year the state assesses the value of your home to determine its worth and therefore its taxable value. While the value of a homeowner's property may not have risen, homeowners' taxable value has gone up automatically with inflation.
The Michigan Department of Treasury set the current multiplier to 7.9%. According to 7 Action News media partners at Outlier Media, inflation going into the taxable value of properties has been a state practice since 1995, after Michigan voters approved Proposal A. The proposal imposes a maximum annual increase in taxable value of 5% even if the rate of inflation is higher than that.
“I personally see it as a plus with some negatives obviously because it’s more money,” said one Berkeley resident who preferred not to be named. “We’re retired and obviously we’d rather keep the money in our pocket. So, I can see how for so many it’s difficult.”
The Berkeley woman says as a retiree, higher property taxes will mean a stricter budget.
“I think you just learn to cut back on things. We used to go out to eat a lot. We don’t do that anymore. We watch how we buy groceries. You just have to be more conscientious, and it does get tricky at times,” she said.
Mortgage brokers say property tax increases are normal however this year's increase is a nearly 30-year high.
“It is something that will always happen. It will happen again in the future,” said Mark Kossel with Midtown Mortgage in Detroit.
Kossel is the owner of Midtown Mortgage which he launched in 2019. Kossel described the company like a boutique lender that works hand in hand with their buyers.
“This will be an issue when taxes hit come July and buyers will be hit with an escrow shortage if they have an escrow account,” said Kossel. “Take a look at your escrow account because there’s a very good chance that once your taxes are due your escrow will be completely depleted.”
Kossel says there will be options to pay back what is owed or set up monthly payments. He also says many lenders have already started coming up with unique programs like buy-down options which allows for a lower interest rate for the first couple of years.
Jay Taylor is the owner of JTA Realtors. He says he started the company in 2016 when the market was fairly stable. He says when COVID hit in 2020, the market saw a number of drastic changes driving the value of properties up which is also impacting taxable value.
“The last three years have just been an inventory shortage. So even when all other factors indicate there should be a crash in prices, there should be a drop in prices because there hasn’t been enough properties for sale to meet the demand of the buyers, we have seen prices rise when they shouldn’t or at least stayed steady,” said Taylor.
Taylor says the addition of heightened property tax could also stand to make selling property more challenging going forward.
“I think (5% is) underselling what it actually will be,” said Jay Taylor with JTA Realtors. “I think some people will see their state equalized value, the SEV, which is where your taxable value rebounds to. It might be double or triple or even quadruple what the current owner is paying.”
“What kind of situation do you foresee that putting homeowners in,” 7 Action news Reporter Whitney Burney asked.
“Speculative sellers will have to lower expectations,” said Taylor. “There’s a person trying to sell a Palmer Woods mansion right now. They bought it for $400,000. They’re trying to sell it for $1.6 million. It’s is actually worth that. If you were to buy this home in any other metro area, it would sell for well more than $16 million. It’s a fair price. But the person who buys it, would have a $90,000 tax bill per year, the value of maybe a median home price in Detroit. So no one is going to buy it.”
Taylor says homeowners can prepare for the heightened property tax rates by doing the following:
- Budget for more than your expected annual tax bill
- Consult your city officials with over taxation concerns
- Consult your lender/real estate agent about available programs and options
- Speculative sellers should be prepared to sell for less
“There’s no new normal. Everything is weird and we just, one human at a time have to figure what their needs are and meet them. I feel like it’ll be a while before we find normal,” said Taylor.