Every year, homeowners receive notice from the county about their home’s assessed value. When we get that little card in the mail, it’s usually filed away and we don’t pay much attention to it. Lately though, many people are experiencing sticker shock when they see how much their home has increased in value from 2021 to 2022.
On one hand, it’s great to see how much our home, typically one of our most valuable assets, has appreciated. But on the other hand, that new higher assessed value means higher property taxes, and it could also mean we’re underinsured when it comes to replacement cost coverage. From a financial planning standpoint, I encourage everyone to think of that assessed value notice as an annual reminder to do two things:
- Reach out to your insurance professional
- Consider contesting the value with the county
Reach out to your insurance professional
Why is it a good idea to meet with your insurance agent/broker? Well, for starters, I always encourage my clients to meet with their insurance professional at least once a year to review their current coverages and policies. This is especially important if your coverage needs have changed. I recently spoke with Satina Simeona with American Family Insurance, and she shared some additional insights about why an annual review is so important:
Homeowners policies typically have a built-in inflation protection that adjusts the replacement cost coverage on your home to align with the market index in your area. However, it is an index and not necessarily specific to each uniquely different home. It is important to have an annual review with your agent regarding the replacement cost coverage on your home policy, specifically the ‘dwelling coverage.’ At the start of your home policy every insurance company uses a similar calculator tool that calculates the cost to rebuild your home should there be a complete loss. This is the amount you want to insure your home for, not the loan value or market value as those include the land, taxes, fees, etc. This is not done again unless your agent or you request it. The calculator process takes about 20 minutes and consists of very detailed questions about your home. For example, how many beds and baths, flooring material, countertop material, any vaulted ceilings, type of roof, ceiling fans, and any upgrades. For the exterior you’ll need to discuss decks, driveways, fences, retaining walls, etc. Once calculated, your agent can see if it is over or under your current coverage and make adjustments if necessary. Ideally it will come in pretty close to your current coverage.
Another reason you should have annual checkups is for your agent to ask about certain things that may need to be updated on your policy. For example, have you done any upgrades or repairs, new roof, added any large amounts of personal property that may need coverage (guns, computers, jewelry), do you want earthquake coverage or maybe coverage for the backup of your sewer or septic tank? These are all optional endorsements that are not included in your policy unless you add them. There are over 50 endorsements you can add to a homeowners policy, and it is important to be educated on your options in case the unthinkable happens. For example, you may consider an endorsement for hidden water because most policies won’t cover a long-lasting leak that has been undetected and perhaps caused extended damage. This hidden water endorsement will cover rot, black mold, etc.
Each insurance company will approach the annual review process differently, and it’s a good idea to ask your agent/broker how your specific policies work. For example, some higher-end insurance providers might offer replacement cost coverage with an “unlimited” ceiling so you don’t have to worry about dramatic increases in your home’s value.
Consider contesting the value with the county
This second recommendation is more of a longshot, but don’t forget this is an option! If you believe you can provide evidence that the county is overestimating the value of your home, you should definitely contest the assessed amount.
I recently had a conversation with a client (let’s call her Jane) who owns a lakefront property. Jane received her property value notice in the mail, and it was a lot more than she expected. Jane was surprised because her home was older, modest, and it didn’t have a lot of modern updates. Surrounding Jane’s property were more modern, larger houses that easily justified a much higher price tag but hers simply didn’t. When Jane contested her home’s value with the county, she came to realize that the assessment done on her property mistakenly used the value of the neighboring homes. Jane was able to successfully reduce her property tax bill by $500!
These reminders are a simple way to make sure you stay on top of protecting your home and ensure you’re not paying too much in taxes. Financial planning is always an on-going process, and I hope these tips provide helpful food for thought. If you’d like to discuss these ideas in more detail, don’t hesitate to reach out to your Wealth Advisor. If you’re not already working with an advisor, don’t hesitate to reach out.
Disclosure: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be taken as such.