Here at Weichert, Realtors – Engle & Hambright, our team of friendly and helpful Realtors get asked lots of questions about home ownership.  One of the topics we get asked about regularly are property taxes and property tax assessments.   How do they work, what are they based on, why is a home priced at $x when the assessed value is $y, etc.  

Here are the Basics, it’s kind of a long, boring one.  In Part Two we’ll talk about how to Appeal Lancaster County Property Tax Assessment. In Part Three, we’ll answer the question “Should I Appeal a Lancaster County Property Tax Assessment?”  Let’s start with the Basics:

What are property taxes?  A property tax (or millage tax) is a levy on property that the owner is required to pay. The tax is levied by the governing authority of the jurisdiction in which the property is located.  This is the primary source of revenue for most local governments and school districts.  Below we will talk about how your taxes are calculated.

Why do property taxes affect my home purchase?   On a typical mortgage, part of your mortgage payment each month goes to the payment of property taxes.  Let’s say your lender determines you can afford a total housing payment of $1,200 per month.   That payment is called a PITI payment.  PITI stands for Principal, Interest, Taxes and Insurance.  Let’s assume that homeowners insurance costs $60 per month and a home has total annual property taxes of $2400 per year.  If your total payment could go as high as $1,200 per month, after deducting $200 per month for Taxes and $60 for Insurance, you’re left with $940 to go towards Principal and Interest (P&I).  Assuming 4% interest rate, that means you could buy a $196,000 home.  If taxes on a home are $3600 per year ($300 per month), then you only have $840 left for P & I.  That means at that same 4% interest, your purchase ability goes down to about $175,000.  You’re still paying $1,200 a month, but those higher taxes mean you have a $21,000 reduction in your buying power, which can mean a big difference in getting the home features you want.  Now, these numbers are just examples that do not take into account down payments, loan programs, etc, they’re just to illustrate what happens to your budget.  To find out the price of the home that fits your budget in your preferred area and what loan program is best, call us at 717-291-1041 and we’ll help you figure that out.

Why are tax amounts different all over the County?  Your total annual property taxes are paid to 3 entities. The County, your local Municipality and your School District.  Lancaster County has 60 different Municipalities and 17 different School Districts within it’s boundaries.  Let’s call all of these entities taxing authorities to make it easy.  While the tax amount you owe to Lancaster County itself is the same no matter where you live in the County, the Municipal and School taxes can vary wildly though depending on what Municipality and School District the home is located in.  Tax amounts due are based on two factors, the property’s Assessed Value, which we discuss below, and the Millage Rate for the taxing authority.  Lancaster County’s Tax Assessment Office provides all of the Property Assessment Values, however each Municipality and School District determines their own Millage Rate.

What is a Millage Rate?   It’s a number used to express the the revenue a taxing authority needs from each property.  One “mill” represents one dollar of tax on every thousand dollars of taxable property value.  The taxing authority decides how much revenue it needs to provide services. Then they determine how much of that needs to come from property taxes.  Once they know how many dollars they need, they take that number and calculate it along with the assessed value of all the taxable property within their boundaries to reduce their budget to a single number that becomes the Millage Rate.  Millage Rates are updated annually by each taxing authority based on the needs of their budgets.  If they need to generate more money, they raise the Millage Rate, which raises taxes.  If they need less money, they can lower the Millage rate and reduce taxes.  In theory, this process apportions their budget needs across all properties according to their value.  A home valued at $100,000 will owe a smaller tax amount than a home valued at $300,000, as the Millage Rate is multiplied by that property’s Assessed Value to determine that specific property’s tax amount.

How are Lancaster County Pa Property Assessment Values calculated?  According to the Lancaster County Property Assessment webpage, these values are determined by “mass appraisal for property tax purposes guided by the concepts of market value and uniformity. Generally, the real estate market is the measure of an accurate assessment, according to the concept of market value. Uniformity requires that like properties be assessed similarly throughout the county.” What this all means is that Lancaster County periodically updates its Property Assessment Values based on their determination of the Market Value of the Property.  They determine their opinion of Market Value based on what other properties similar to the one in question are valued at, typically demonstrated by something called the Sales Comparison Approach, which takes into account the price those similar properties sold at. 

How does Assessed Value relate to Market Value?  That depends on when the property was assessed.   Lancaster County last completed a countywide reassessment that became effective January 1, 2005.  Assessed values on any home constructed before that time are based on property market values as of January 1, 2005.  So in reality, as of the writing of this post almost 11 years later, the assessed value has very little to do at all with Market Value, or what a property is “worth”.  The Assessed Value is just a number the County Assigned to the property for the purposes of calculating taxes, the next assessments are due in 2017 and will be effective in your 2018 tax bills.  If you want to know the Market Value of your property to decide if you want to sell, call us at 717-291-1041 and we will be happy to provide a free Market Analysis to help you determine that!

When are my Lancaster County, Municipal and School Taxes Due?  Lancaster County and Municipal taxes are all based on the calendar year, January 1st to December 31st.  The bills are issued in January and due officially in May.   School District taxes are based on the fiscal year of July 1 to June 30th.  Bills are issued in July and due in October.  Both types of bills offer discounts for early payment.

Call us anytime at 717-291-1041 and one of our Friendly and Helpful Realtors will be happy to answer any other home buying or selling questions you have!