Why your real estate taxes may be higher than they should be

January 2019

If assessments were accurately calculated, about 40% of homeowners on Cape Cod and the islands would be paying less property tax. I have every reason to believe that is also true for all Massachusetts cities and towns.

State law requires that assessments reflect the current market value of a house. But the only way to be sure you have an accurate market value is to sell the house to a willing buyer in what they call “an arm’s length transaction.”

Most houses are not sold from year to year, so there is no good way to get an accurate assessment. Probably the best way to come close is to average the estimates of three appraisers after they do an on-site inspection and study sales of similar houses.

This method is fairly accurate, but it’s prohibitively expensive. So, most towns contract with companies that use software to do the bulk of the assessment work. The major tool they use is a computer algorithm that usually relies heavily on sales of similar houses in the same neighborhood. I saw this system used for the first time in Newton in the 70s and, based on what happened there, I was skeptical.

After we moved to the Cape 20 years ago and I had some extra time, I got lists of house sales from the Cape Cod Times and compared their sales price to their assessments. I did about 50 houses in 2006, 59 in 2010, 100 in 2012 and 48 in 2016. Recently I’ve done an additional 200 that were sold last fall (2018).

What I have found in all of those samples is disheartening. The latest group of 200 houses illustrates the problem. First, the assessments are, on average, too low. The cumulative total sales price of all the houses I checked was about 14% higher than the total of all the assessments on those houses.

The low assessments wouldn’t matter if all houses were equally low, but they aren’t. A fair number of homes in my samples over the years are assessed for more than their sales price (over-assessed); and a much larger number are assessed for less than 85% of their sales price (under-assessed).

If property taxes for the most recent group of homes were based on the sales price (full market value) instead of the assessed value, most (84%) would have changes in their tax bills:

• Because they are way over-assessed, 11% of homes in the sample would have their tax bills reduced by more than $1,000.

• Another quarter (28%) would see their property taxes reduced between $100 and $1,000.

• About 16% are assessed so accurately, their property taxes would change by less than $100, up or down.

• 36%, more than a third, are somewhat under-assessed and would see an increase of $100 to $1,000 in their tax bill.

• 10% would have an increase of more than $1,000.

Below is the full list of houses, with figures:

RE S by C PDF 2000 Cropped


Four houses in Bourne illustrate the situation. Two have relatively accurate assessments. One, on Hilltop Drive, sold for $273,000 and is assessed for $266,800. The other, on Cotuit Rd, sold for $237,000 and is assessed at $233,700. Even so, if taxes in Bourne were based on sales price instead of assessment, I estimate that changes in the tax rate would reduce taxes on both houses by more than $300. Basically they would stop paying for under-assessed houses.

There is an under-assessed house over on Williams Ave. It sold for $255,000 and is assessed at only $198,000. Taxes would be about $200 higher on this house if based on its sales price. And on Tara Terrace a house that sold for $252,000 is assessed for $294,000, a large over-assessment. The taxes here would drop by more than $500 if based on sales price.

This happens with expensive homes as well. In Chatham a house on Mousehole Lane, which sold for $1.6 million is assessed at just over $1 million, while a house on Cross Street that sold for $1.5 million, is assessed for $1.3 million. Taxes based on sales price would jump almost $1,800 for Mousehole Lane, while they wouldn’t change for the Cross Street house.

Isn’t there a better way to assess your home for taxes?

Assessments should reflect the current market value of a house. But the only way to be sure you have an accurate market value is to sell the house to a willing buyer in what they call “an arm’s length” transaction.

What most cities and towns do instead is to use a software program to estimate property values based largely on comparables. As our research shows, this system tends to under-assess large numbers of homes, shifting their tax burden to other homeowners in town.

This is unfair. But can we realistically do better? I think we can.

Because houses do not sell every year, it’s impossible to have completely up-to-date valuations. But I believe there is a way we could be much more accurate, and it should cost less. It would also be more objective, transparent and predictable.

Simply, we could reset the assessment every time a house is sold (they do this in California). That would provide an accurate number for the full market value required by law. Then, every year, we could increase (or decrease) the market value assessment of all homes not sold that year by the average change in value of all houses sold in Barnstable County in the previous year. If a house is remodeled (or built from scratch) an individual appraisal would be done by town assessors.

I applied this system to ten houses sold twice in the last ten years in the town of Barnstable, with prices ranging from $300,000 to $1.5 million.  The results are only indicative — much more research needs to be done – but when these houses sold the second time, the total sales price was $5.8 million, while the total assessments were only $4.2 million, 28% less.   Had they been assessed using the system I’m proposing, total assessments would have been $5.6 million – very close to the sales price and true market value.

Using this system would be cheaper and more transparent. And if further research bears out my tiny sample, more accurate.   It seems like a no-brainer to me, but when I talk to people about it, they are worried that any change will increase their taxes.

In fact, I estimate that about 45% of homeowners would pay higher taxes, but more than half will pay the same or less, even though their assessment went up. Ten percent will save more than $1,000 a year.

But even if you’re one of those asked to pay more, remember that the new assessment based on market value won’t happen until you sell. It is the next owner who has to pay. In fact, as under-assessed houses are sold in your town the tax rate will be lowered.

There is no good reason not to do this if further research shows that the system of valuation I’m proposing is in fact more accurate.

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