The way Berks County Property Taxes are assessed creates quite a paradox. If your taxes are too high the home will sell for less. This means the home is worth less so the tax assessment should be lower. If the taxes are lowered the property will be worth more so the tax assessment will be higher. Taxes definitely affect Berks County home values. I will explain…
When someone purchases a home the often acquire financing. The loan requires the borrower to pay a monthly principal and interest payment, known as P&I. The Property taxes are factored in and divided by 12 which adds to the overall payment and is the “T” part. Lastly, there is Property Insurance (Hazard) which is a yearly fee and divided into 12 monthly payments (both tax payments and insurance payments are often paid out of an escrow account the bank manages). The hazard insurance is the “I” in the payment. This amounts to a PITI (Principal, Interest, Taxes and Insurance) monthly payment. There is also a Private Mortgage Insurance payment on loans under 80% Loan to Value but that is for another article.
No matter what the price of a Berks County home is it often comes down to the PITI monthly payment on whether or not the buyer wants to afford themselves the home. If the property Taxes are high this raises the payment therefore lowering the amount of home the buyer can afford themselves.
With interest rates at approximately 4.5% the monthly cost of borrowing money for a home is $5.06 per $1,000.00 borrowed. This means that a mortgage of $100,000 leads to a P&I payment of $506.00. If the taxes on the home are $3,000.00 per year this adds $250.00 to the payment for a total of $756.00 per month. If the taxes are 3,600.00 per year this adds $300.00 per month and a total monthly payment of $806.00 ($50.00 more per month).
If there are two homes at $100,000 each and one has $250.00 per month in taxes and the other has $300.00 per month in taxes this makes the one with lower taxes almost $10,000 more valuable. That extra $50.00 would have gotten you $10,000 more home for the same payment. This also affects the buyer’s ability to pay sellers what the home may truly be worth.
The homes in neighboring counties like Lancaster & Lehigh have around 30% less tax costs. While this raises the value of their real estate it does lower their overall tax burden. Remember, you can control the amount of money you borrow and what kind of deal you can make with a lender regarding interest rates. It is not the same with property taxes. They can go as high as the governing authorities tell us they have to.
With the 4th of July holiday upon us it is a great time to reflect on our freedoms. One event that really may stick out is that thing in Boston where they threw tea overboard. I think you all know what I am talking about.
Have a cup of tea and enjoy the holiday weekend!