General real estate taxes are the taxes levied on real estate by various governmental agencies and municipalities (e.g., states, counties, cities, school districts, etc.) to fund the operations of the agency. They are “ad valorem” taxes, which means that they are based on the value of the property being taxed.
Real estate is valued for tax purposes by county or township assessors. The valuation process is called “assessment,” and the property’s assessed value is generally based on the sales price of comparable properties. Property owners who feel that their assessment is too high relative to other properties may appeal to a local board of appeal. If an agreement can not be reached, the case could ultimately go to court.
Tax rates are determined by each taxing body separately. They project operating expenses for the coming year and divide the monies needed by the total assessments within their jurisdiction. A property owner’s tax bill is determined by multiplying their assessed value by the tax rate.
Due dates for tax payments are set by statute. Taxes are payable in two installments annually. If you fail to pay your taxes on time, you will be assessed a penalty.
Finally, depending on how taxes are collected in your area, you may owe some of them to the seller at your closing. For example, suppose taxes in your area are paid in advance and due in November and May, and you are closing at the end of January. This means that the current homeowner paid taxes in November for four months when you will be living in the house (February to May). He may ask you to reimburse him at the closing for those taxes. That’s called “prorating,” and your REALTOR® can help you figure out exactly what you will owe.