Do you know what PITI is? If you have a loan on your home you probably know that these are the four elements of a mortgage payment. P stands for principal; the first I stands for Interest; T stands for taxes and I stands for insurance. Together they make up the amount you pay for your home on a monthly basis. If your PITI payment is comfortable for you, you will have extra funds available to pay for all of your living expenses, be able to save some money on a monthly basis and have some left over for some fun. But many times as we consider how much of a house we can afford we key in on the price of a home and the interest rate (these go into determining the ‘P” and first ‘I’) without much considering the ‘T’ and the ‘I’.
Before I get started talking about property taxes I want to make it clear that this is not a comprehensive article on taxation. There are many elements that go into the discussion of total taxation that include income tax, various sales taxes, car registration fees, use fees, transfer taxes, etc., this article just focuses on one element and is therefore not a comprehensive picture. It doesn’t fairly compare apples to apples across states. However, I think it’s an interesting and relevant topic because it comes up often in my discussions when I am showing property.
Corelogic recently did a study ranking the median property tax rate across the country. The highest property tax percentage is in Illinois where taxes are 2.67% of the assessed valuation and lowest in Hawaii where the property tax burden is just .31%. Colorado is ranked 5th from the bottom with .66%, meaning that we have the 5th lowest property tax burden in the United States. Despite the arguments* that there are too many elements not included in this study I think in general it’s true that the cost of ownership in places like Illinois, New York, New Jersey are much higher than they are in Colorado. In Colorado the “T” portion of our payments is much lower than other states and therefore, all things being equal, we can afford more expensive homes with the same payment.
Local Property Tax Comparison
Now let’s get more granular. Within my market area buyers need to look closely at property tax rates within the different localities. Here is a quick comparison of homes currently on the market. I have tried to choose homes that are similar in price and similar in assessed value.
- Boulder – 4616 Talbot Dr. | List Price $574,000 | Assessed Value $423,900 | 2015 Taxes $2,766 | Tax/Assessed .648%
- Louisville – 453 Centennial | List Price $599,900 | Assessed Value $450,200 | 2015 Taxes $2,988 | Tax/Assessed .664%
- Lafayette – 369 Caribou Pass | List price $580,000 | Assessed Value $464,300 | 2015 Taxes $3,180 | Tax/Assessed .685%
- Longmont – 5712 Clover Basin | List Price $575,000 | Assessed Value $409,700 | 2015 Taxes $2,971 | Tax/Assessed .725%
- Superior – 3103 Castle Peak | List Price $599,900 | Assessed Value $464,100 | 2015 Taxes $3,881 | Tax/Assessed .836%
- Erie – 1276 Greening | List Price $560,000 | Assessed Value $399,950 | 2015 Taxes $3,483 | Tax/Assessed .871%
- Broomfield – 4630 Nelson | List Price $569,000 | Assessed Value $466,710 | 2015 Taxes $4,490 | Tax/Assessed .962%
The order listed is ranks the local communities for property tax burden as a percentage of the assessed value of the property. Boulder has the lowest tax rates and Superior, Erie and Broomfield have the highest. If a buyer were to be comparing homes in Boulder and Broomfield, the taxes make a difference. The differential in the monthly payment is around $100 per month, definitely worth looking at.
*Some of the arguments that invalidate this report are: a) Different states base taxes on different amounts. Assessed value vs. actual value. b) Some states give a homestead exemption. c) Some states assessed value doesn’t change until a sale and then it goes to the purchase price. d) The report doesn’t take into account special assessments or the prevalence thereof within states.