RE Value Blog

Assessments, Ratios & Equalized Values
September 20th, 2015 2:39 PM


Explaining a Commonly Asked Question - Assessments, Taxes & Ratios

The Effective Tax Rate is based on a Ratio, which is generated on a yearly basis by the individual Counties in the State of New Jersey. The Ratios are relevant to when the town was last assessed. If the town was just assessed, the Ratio is 100%. Typically, when values are increasing, the Ratio will continue to lower, resulting in the Equalized Value of a property increasing. For example;


If a home is assessed at $100,000 in 2013, with its equalization rate at 100%, its Equalized Value is of course $100,000.

If within the following year, the County has determined that values have gone up 5% in that town, the value of the home is $ 105,000.

Of course, all towns do not increase or decline equally. As a simple example, lets say the following towns were assessed in the same year. To keep it simple, here is an example, with all the towns then becoming 100%

Town     Avg Value       Ratio    Equalized Value  Tax Rate      Effective
                                                                                        Tax Rate

  A        $ 100,000       100%        $100,000             3.00             3.00

  B        $ 100,000       100%        $100,000             2.40             2.40

  C        $ 100,000       100%        $100,000             4.00             4.00

The following year, Market A has increased by 5%, market B by 10% with market C declining by 10%. The Ratios are then affected due to their usage of keeping the County somewhat in balance. (key word - somewhat) The results would be as follows;

The equalized value is determined by the Assessed Value divided by the Ratio. eg. 100,000 / .95 = $105,263. The Tax Rate undergoes the same adjustment per se. 3.00 / .95 = 3.16. If the budget increases by 2% then the rate is multiplied by 1.02. 3.0 x 1.02 = 3.06. To calculate the Effective Tax Rate the Adjusted Rate is divided by the Ratio. 3.06 / .95 = 2.91.

As you can see, if the values in the town decline, the Effective Tax Rate increases while towns that go up in value have an effective rate that decreases. Ergo Millburn low and Newark high.

Of course budgets have a huge influence. Especially Education. Livingston, Montclair, South Orange, Verona, West Orange --> 60% or more for schools.

It is also important to note that towns that towns don't cut budgets. If they initially see a problem spending all of the taxpayers money, they will work very hard at it until they figure out how. It would be great if they worked in the other direction, but, if budgets are lowered, it is not easy to get them increased in the future.

Bottom Line - property taxes are not about ratios, effective tax rates, nor even assessed values. It is about how much the towns are spending. It would be far more effective if citizens paid more attention and attended more town council meetings. Do you think that town budgets will begin to decrease any time soon ? 

Posted in:General
Posted by Joseph J Randazzo, SCRREA on September 20th, 2015 2:39 PMPost a Comment

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