Maureen Francis & Dmitry Koublitsky

Beware: Property taxes are never as advertised

November 1, 2002

BY JUDY ROSE
FREE PRESS COLUMNIST

Why do real estate listings still quote a number for property tax? It's virtually always wrong -- always too low.

Many buyers don't understand this and get a nasty surprise when the monthly payment on their new house jumps by $50 or $100 to cover the higher tax.

Right now I'm looking at the listing for a cute 1,600-square-foot Cape Cod sold earlier this year in Novi for $242,000. The listing sheet says taxes are $2,604, which they were when the house was put up for sale. But the new owners should know they will pay around $4,600.

Here's a pretty brick ranch in Taylor, which sold this year for $140,000. Taxes are listed at $1,573. But after the sale they'll rise to $3,000.

Not all property tax hikes are this big. They could be as small as a few hundred dollars. But a first-time house buyer should:

No. 1, be aware that the taxes will change.

No. 2, be able to compute them.

Experienced home owners already know the drill. But for home buyers new to figuring this cost, here's Home Property Tax 101:

The basics

Property taxes have two parts. The first is the millage rate -- different in every city or township. It includes a school tax, a city or township tax, plus extra assessments, for example, to buy new police cars or to build a library.

The millage rate is a number from about 20 to 65, with four decimal points, e.g. $31.4872. It's the same for every home owner in one city or township.

The second part is the assessed value of your house; expensive houses pay more. The assessed value is about half the house's market value. A $200,000 house would have assessed value around $100,000.

Traditionally, you'd figure your house's tax bill by taking the assessed value -- $100,000 on a $200,000 house -- dividing by 1,000, which would give you 100, then multiplying by the millage rate -- in this example $31.4872. Your taxes would be $3,148.72. (Not clear? See the example shown on this page.)

But what if your house value shot up so quickly that your taxes jumped, say from $3,100 to $4,500? That was happening in Michigan, and it was feared that spiraling taxes would force fixed-income seniors out of their homes.

So in 1994 Michigan passed Proposal A, which capped the annual tax hike that could be levied on any home owner, even if their house value shot up.

The cap is whichever number is lower of two figures -- the rate of inflation or 5 percent. Lately inflation has run around 3 percent, so that's been the cap on our annual property tax hikes.

Proposal A

Since Proposal A, every Michigan house has two values -- the traditional assessed value, pegged around half the market value, plus a number called the taxable value.

As always, the assessed value goes up with the market value of the house. In the late 1990s, this was often 6, 8 or 10 percent a year. But meanwhile, as long as the house didn't change hands, the taxable value -- and the taxes -- crept up at around 3 percent a year.

The reckoning comes when the house is sold. At that time the taxable value jumps up near the level of the assessed value. Then it's capped again, to climb slowly as long as the house isn't sold.

When you buy a house, you can estimate that your new taxable value will be roughly half of the price you pay. If not, it's most often a bit less. But assessing houses is not an exact science, as you probably know from hearing about home owners who fight an assessment they consider too high.

More services, higher rate

Before you house shop, here's a rule of thumb on predicting a city or township's millage rate. The most typical millage rates are between about $32 and $38. But the range can be extreme.

In general, the newer, partly unbuilt townships -- which offer fewer services -- have a lower tax rate. Some examples are the townships of Van Buren ($29.70), Plymouth ($26.43), Independence ($29.73), Pittsfield ($33.17), Macomb ($25.37) and Brighton ($22.27).

Older cities that provide many more services usually have higher millage rates. Examples are Lincoln Park ($52.59), Detroit ($64.57), Southfield ($55.18), Oak Park ($45.01) and Ferndale ($49).

Here's a good example of the difference. The village of Lake Orion -- a conventional, 100-year-old city with sidewalks, curbs and streetlights -- has a homestead millage rate of $41.80. Sparsely built-up Orion Township, which surrounds it, has a homestead millage of $28.80.

Similarly, Ann Arbor's city millage is $45.17. Ann Arbor Township's millage is $30.94.

Finally, millage also varies with school district. An extreme example is Madison Heights, where the homestead millage is $50.63 for people who live in the Lamphere School District, $40.88 for those in the Royal Oak District and $38.82 for people in the Madison District.

A more typical range might be Clinton Township, where the millage ranges from $28.97 in the Fraser School District to $37.87 in the Chippewa Valley District.

To learn the millage rate of any community you're considering, call the assessor's or treasurer's office (not the Free Press). Tell them the school district and ask for "total annual homestead millage." There's also a higher non-homestead millage rate that doesn't concern home owners. This is paid by businesses or investors, who don't reside on their property.