A property tax bill comes from a tax rate (meaured in mills) multiplied by an assesment, which is related to property value. The rates are more within your control than the value; most millages are voted on. You may hear real estate people talk about the "City" (Spring) bill and the "County" (Fall) bill, and if you get the numbers for these, it will seem like your city and county are getting rich. In most cases, though, one of the bills is for the city tax and half the school taxes, and the other for the county tax and the other half of the school taxes. Usually, all of it is paid to the city; cities have been charged with the job of collecting funds for school districts, in one of the State's oldest unfunded mandates. In most areas, the school tax is still the majority of each tax bill.

So where does the assessment come from? It's 50% of the "true cash value" of your property. At least, that was the theory in 1893, when the Property Tax Act was passed. Since then, the derivation of this number has been complicated by politics, but the basis of the assesment is still property value. The job of the Assessor's office in your City is to keep these numbers up to date. If you live in a rural area, this is done by the County.

The Assessor can't get a value for all those homes the same way a bank appraiser does. The appraiser relies on recent sales of similar properties. There just aren't enough sales in any given year to update every value by this method. Besides, the assessor is trying to do it for about $3 per year per house, as opposed to the bank's appraiser, who probably got $250 for one house. Another method is needed.

Mass appraisal, as it's called, depends on another approach to value, called the Modified Cost Approach. It consists of 3 steps:

• Step One: Group the properties into "classes" that will exhibit similar market behavior. This is up to the assessor's judgement. The classes may be "Recent brick colonials overlooking the Lake" and "Old frame ranches overlooking the landfill", or simply "Lowland Heights Subdivision". A city may have a dozen classes, or a hundred. However the classes are created, there must be a logic to the grouping that is demonstrated in real market performance.
• Step Two: Calculate a value for each parcel (land and building) based on the cost to reproduce it, using the same method for all the parcels in a class. Most assessors use a manual supplied by the State, which gives costs for each square foot of frame ranch, each fireplace, each square foot of enclosed, porch, etc. There are hundreds of items, and correction factors for age, condition, etc. (Yes, this is the ultimate killer app for spreadsheet freaks.) The result is a "base cost" for each parcel that represents a value relative to the other parcels in the class. Working up the base cost is laborious, but need only be done once for each parcel. The base can then be modified as necessary, for additions, adjustments, etc.
• Step Three: This is the part that confuses people. For each recently sold property in a class, divide the actual sale price by the base cost computed in step 2. This is a mathematical way of determining how the numbers produced by step 2 relate to the actual market. The resulting number is called the "Economic Condition Factor" or ECF. Once we have an ECF that is supported by a number of real-world sales, we can use that factor to correct the base costs for all the rest of the parcels in that class. So if parcel A sold for 125% of base cost, and Parcel B sold for 127% of base cost, then it's logical to assume that Parcels C through Z would sell for about 126% of base cost. In other words, our ECF for that class is 1.26. Once we develop a reliable ECF for each class of property, we have supportable predictors of market performance (value) for every parcel, even those that haven't sold in decades. We simply (!) multiply the computed base cost for each parcel by the ECF for that class, and arrive at an appraised value.

Now we get back to the tax bill (or the change-of-assessment notice). There will be a several different values shown. The first one, the "Appraised value", is the result of steps 1-3. The "Assessed Value (AV)" should be half of that, by law. The "State Equalized Value (SEV)" should be the same as the AV, if your Assessing Dept. is on the ball. If the County or State tax authorities think that your Assessor is off base, they can plug in an "Equalization Factor" that will make the SEV different from the AV. (Very rare.) Until a few years ago, the SEV was multiplied by the millage rate, and the result was the tax due. Then the politics got into it.

The method above assured that when property values went up, taxes went up. (That's why it was called an "ad valorem" tax.) Some people felt that this was unfair, so in the early '1990's, a step was added to the process to protect people who stay in their homes from rapidly rising taxes. (After all, the rising value only benefits people who sell, not people who stay.) When proposal "A" got passed a in 1994, a new field called the "Taxable Value" was created for that tax bill. Here's how it works: When you buy your home, the TV is set equal to the SEV. The TV, however, can't go up as fast as the market. It's restrained by law, and can go up only 5% per year, or at the rate of the CPI inflation, whichever is less. Your tax bill is the result of multiplying the TV by the millage. So the longer you live in your home, the greater difference between the value that you are paying taxes on and the actual market value. The SEV goes up with the market, so you can see this difference each year, but the SEV isn't used any more to compute taxes. This new law has lowered the taxes for a lot of folks. It also provides nasty surprises for home buyers, who may end up paying thousands of dollars more taxes per year than the previous owners had paid. Of course, this process only applies to your primary residence. Commerical, industrial, vacant or recreational properties are still taxed on the SEV, as they have always been.

So, now that you know where the tax numbers come from, what can you do about them? There is one step in the process where the assessor's method is open to error. Because few assessors have the manpower to keep up with frequent changes in thousands of parcels, some assumptions have to be made about the homes. Even if the market shows the assumptions to be accurate on a broad scale, they can be way off for an individual house. If you find that the assessor's opinion of your home's condition is wrong, you can save some money.

Begin at home. Measure the outside of your home, and make a sketch with each dimension shown. Be sure to get sizes for added items such as garage, porch, deck, etc. and note which areas are over basement, crawlspace or slab. Now, head for the Assessor's office. Ask to see the record for your property, which may be in a computer, or on a "field sheet". This is the data the assessor uses in step 2. Make sure the record accurately reflects what is actually on the property. If you find a problem, make note if it and ask the staff how to go about making a correction. In many cases, if it's an error of fact, a simple letter to the assessor is all that's necessary. If it's more a matter of opinion ("He says my house is in average condition, but I think it's way below average because it's so close to the slaughterhouse."), then you may have to appeal the assessment. It's time to see the Board of Review!

On the Tuesday following the second Monday in March, every taxing jurisdiction in Michigan holds a Board of Review. This is a body of citizens who meet to hear assessment appeals. You can make an appointment through the assessor's office. Bring sketches, measurements, photos, and any other supporting materials. The Board of Review has the authority to change the assessment with or without the approval of the assessor. They can deny your petition if they feel it has no merit. There are a few things to keep in mind about the Board of Review:

1. They can only change assessments. They have no authority over tax rates; that authority belongs to the voters or their elected representatives.
2. The Assessor or his/her assistant may sit on the Board, but most of the Board members are volunteers, or working for a nominal fee. They are not tax experts, nor are they City employees. They are taxpayers, just like you.
3. Yours is one of dozens of appeals they will hear today. They may be meeting for several days. How many times will they be willing to grit their teeth and put up with an "in your face" attitude from a petitioner? If you're looking for somewhere to vent your frustrations about the operation of the City, look elsewhere.

So, maybe we saved you a few bucks here. Maybe not. In any case, a visit to the assessor's office can be an introduction to a valuable source of data. If you are a home buyer, seller, developer, builder, or investor, the assessor's files can be an invaluable source of information on buildings, lots, right-of-way records, etc. Some of this info is available on line, but most of it is still in paper records. If your future involves real estate in any way, get to know the people in Assessing!