County homeowners should expect a jump in property values; property taxes may go up as a result
photo by: Douglas County GIS
Douglas County homeowners should check their mailboxes soon for a piece of mail that very well could lead to a property tax increase later this year.
The Douglas County appraiser’s department is preparing to mail on Friday “change of value notices” for about 40,000 properties in Lawrence and Douglas County. The latest estimate from the appraiser is that 94% of homeowners will receive notice that the taxable value of their properties is increasing.
More striking is that a majority — 52% of homeowners — will see their tax values increase by 5% or more.
“That probably is one of the higher increase percentages we’ve seen in quite some time,” Douglas County appraiser Steve Miles said.
The increased property values won’t automatically increase the amount of property taxes homeowners will pay in December of 2020. What, if any, tax increase will come won’t be known until the summer when local governments set their budgets for 2021 and determine property tax rates.
But the rising property values make a tax increase more likely. The rising values create a situation where local governments will receive increased tax revenues even if they don’t vote to raise their property tax rates. For example, the owner of a home that has its value increase by 5% will pay 5% more in property taxes, even if the property tax rate remains unchanged.
In that scenario, the only way the homeowner avoids a property tax increase is if local governments decide to cut their property tax rates. Governments deciding to cut property tax rates significantly haven’t been common recently. It wasn’t clear the last time Douglas County or the City of Lawrence reduced its property tax rate by one mill or more, but such a reduction hasn’t happened in at least the last 10 years, according to county records.
As a reminder, property taxes are figured by using a multifaceted formula. Here’s an example of how it works: The county appraiser determines the fair market value of your home is $200,000. The tax department multiplies that $200,000 by 11.5% because you don’t pay property tax on the full value of your home. Residential owners pay on 11.5% of the fair market value. If you own a commercial property, you pay on 25% of the fair market value. The 11.5% of $200,000 equals $23,000. That’s what tax people call your assessed valuation.
The last part of the property tax equation is the actual tax rate. This summer, governments — the county, cities, school boards, townships and others — set their property tax rates based on their 2021 budgets. The tax rate is called a mill levy. Add up all the mill levies for governments that serve your home, and that is your total property tax rate. If that rate were, for example, 140 mills, you would multiply that by rate by your $23,000 in assessed valuation. You then would divide the answer by 1,000 because a mill represents $1 in tax for every $1,000 in assessed valuation.
Long story short, $3,220 in property taxes. If your property valuation goes up by 5%, next year’s tax bill goes up by $161, even though your local governments didn’t do anything to change the tax rate.
As for what caused your property values to go up, the appraiser’s office really isn’t tasked with figuring out why property values increase. This year, though, Miles said he has a pretty good inkling.
“It is supply and demand,” Miles said. “All through 2019 we kept hearing Realtors say there were not enough properties to sell. When the demand is high and the supply is low, it usually causes the prices to increase.”
The amount of increase in Douglas County, though, may catch some homeowners by surprise. Generally, the housing market was viewed as being tighter in 2018 than it was in 2019. But the number of properties that are seeing increases in value of more than 5% this year is far greater than what was seen last year.
This year about 52% of all homeowners will see an increase of more than 5%. Last year, about 33% did. That’s despite the fact that the Lawrence Board of Realtors reported that average selling prices of homes didn’t increase as fast in 2019 as they did in 2018. The median selling price of a Lawrence home was up 4.6% in 2019 compared with a 13.6% increase in 2018. Those numbers suggest the change of value notices mailed last year would have been the ones showing big increases in values. For whatever reason, it appears more will see the big increases this year.
Miles said there isn’t an easy explanation on why the numbers don’t line up better, but he noted his office does look at a broader set of data than what the Board of Realtors numbers provide.
Homeowners will have a chance to appeal the tax value the appraiser sets for their homes. Details of the appeal process are included in the letters that will be mailed Friday. Miles urges people to give some thought about what houses in their area have been selling for before they appeal their value. Area sales of comparable houses are a big part of how values are set for individual homes.
“Some of the numbers can be a shocker, I agree about that,” Miles said. “But people really need to look at the current situation with the real estate market.”
Other figures from the appraiser’s recent report include:
• Commercial real estate values are expected to increase for most owners. The report didn’t provide estimates that are as detailed for residential property. Instead, the report estimates 62% of commercial real estate owners will see an increase in their values, while 38% will hold steady or decline. Overall, Miles expects the total value of all commercial property in the county to grow by 9.6% from a year ago. A portion of that increase comes from the construction of new commercial properties, while the rest comes from a general increase in property values.
• The total tax base for Douglas County — the value of all residential, commercial, industrial, agricultural and other land types added together — currently is estimated to be 9.6% higher than a year ago. Once property owners appeal some values, Miles expects the amount to be about 8.6% higher than a year ago.
That number is key for local governments. The nearly 9% increase, if it holds, would mean that local governments — on average — would receive 9% more in property tax revenues than a year ago without having to raise the property tax rate.
To put that nearly 9% increase in perspective, the largest increase in tax base the city of Lawrence has had this decade was a little more than 5% two years ago. A 9% increase in property tax revenues would be about a $3.2 million increase over what the city budgeted to collect for its 2020 budget.