The revaluation of property values is done every five years per state law. The “reval” being done effective for the Oct. 1, 2022 Grand List will affect tax bills issued for next fiscal year—July 2023. Revaluation complicates what in other years is straight forward. In normal years, if the mill rate increases, say 1 percent, so does the typical property tax bill for homeowners.
However, in a reval year, while the average real estate tax bill may go up by that 1 percent, nearly everyone will see changes that are higher or lower than that number, with the sum of all the changes aggregating towards that 1 percent. Some tax bills will go up more, some less, and some may even go down a bit, but when all added together, they will add back up to that 1 percent example.
In theory, reval is a zero-sum exercise, which does not in and of itself raise or lower taxes overall. It simply is the mechanism by which values are balanced and redistributed based on market conditions. It is the legally required periodic adjustment of property values to reflect the change in real estate market valuations among properties in a town over a five-year interval. In general, values tend to go up over time, but some increase at a greater percentage rate than others. Often, what we find is that homes in older neighborhoods tend to show a greater percentage increase in value than newer and more expensive homes. This translates into a greater increase in assessed value and, then, in property tax once the rate is set.
As an example, let’s take three homes that were assessed in the last reval at $500,000, $300,000, and $200,000. For ease of calculation, let’s set a mill rate of 10 per thousand dollars of assessed value produces $10,000 in property tax—$5,000 on the first house, $3,000 on the second, and $2,000 on the third. If the revaluation process reflects an overall market change of 25 percent, the three homes above, assessed for a total of $1,000,000, would increase to $1,250,000. The mill rate to produce the same amount of tax would be 8, so the calculation would be 8 (x1250 = $10,000), which is a reduction of 20 percent. In this example, if each property changed by 25 percent in value, at the lower rate their owners would each still pay the same amount as before the revaluation—$5,000, $3,000, and $2,000— for a total of the same $10,000 in property tax.
What complicates matters is that some properties may increase more as a percentage in some areas than in others depending on the neighborhood, style, upkeep and desirability. If in the above example the less expensive homes assessments go up 30 percent to $390,000 and $260,000 respectively, while the more expensive $500,000 home went up 20 percent to $600,000, they would still reflect the aggregate 25 percent increase in assessed value from $1,000,000 to $1,250,000. With a mill rate of 8 applied to the higher total values, the total tax would still be $10,000, but the spread of impact would be different. The more expensive home would be paying a tax bill of $4,800, while the other two would see a shift to $3,120 and $2,080 respectively.
The above examples reflect what often happens to real estate values over time. They may nearly all go up, but the percentage varies depending on many factors.
Reprinted from the June 2022 Granby Drummer