How to Determine the Relative Cost of Similarly Priced Properties.
When you start your home search, understand your purchase power. Although “location, location, location” is a common phrase in real estate, location also impacts the relative value of similarly priced properties in different towns.
Real estate taxes vary drastically by town in the state of Rhode Island. Unlike Connecticut which utilizes 70% of a home’s value, Rhode Island takes 100% of your home’s assessed taxable value when calculating property taxes. These property taxes are calculated using the assessed taxable value of the home and a mill rate. A mill rate (tax rate), in other words, is the amount of tax payable per dollar of the assessed value of a property.
For example, 1 mill is equal to $1 in property tax per $1,000 of a property’s assessed value. Therefore, when looking to calculate the property taxes take the assessed property value, multiply it by the taxable mill rate, then divide that sum by 1,000.
To create a real-world example, let’s look at a property in Newport that costs $1 million. We will then multiply that number by the mill rate of $9.61 to get $9.61 million then divide by 1,000 to get property taxes of $9,610 per year.
Here is what the math looks like written out:
$1,000,000 (assessed taxable value) * $9.61 (mill rate) = $9.61 million/1,000 = $9,610 in property taxes
On the other hand, we take a property in Providence priced at the same $1 million multiplied by a mill rate of $17.80 (high) to get $17.8 million then divide by 1,000 to get property taxes of $17,800.
Here is what the math looks like written out: $1,000,000 (assessed taxable value) * $17.80 (mill rate) = $17.8 million/1,000 = $17,800 in property taxes You may be spending $8,190 more per year in taxes for the home in Providence just due to the location! But is a high tax rate necessarily a bad thing?
This discrepancy in property tax may highlight differences in resources between these locations. Higher property taxes are typically associated with access to public resources, such as fire stations, police, emergency services, sewage, water, and public parks. Maybe the high tax rate will be worthwhile if you have curbside trash collection, a city recycling program, public sewer, city water, and a well-funded school system. For example, Barrington has a significantly higher tax rate ($19.65), but they also have one of the higher-rated school systems. In addition, cities with lower property taxes may have higher local taxes for other items, such as personal property.
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In understanding the impact of taxes, you must recall that total tax owed is calculated by BOTH the mill rate and the assessed value of the property.
In Rhode Island, cities and towns are mandated to do a full property revaluation every nine years. Even though the mill rate decreased in the state of Rhode Island, 11 municipalities also had a revaluation or statistical update for property that went into effect, which may affect the taxes an individual paid. If tax rates go down, but the value of property goes up, homeowners may still be paying the same amount.
Do not let this overwhelm you! Your real estate agent, of course, can help you break down and process this information in order to make a fully educated decision on a home.
Posted by Nolan Trask on
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