My clients often hear me talk about the fact that they cannot control what they don’t understand. Of course when I say that I am usually talking about the importance of understanding their business and having data and metrics that help them understand various aspects of their business. At this time of year, another topic comes up that affects every homeowner’s most important business, and that is the business of their own life, and all of its various financial domains. Yes, life itself is a small business, is it not?
The topic of course is the issue of housing values, especially in this time period in history where values are increasing year on year on year. Over the last several weeks in British Columbia, homeowners have received their respective property value assessments for 2015. I hear so many people complaining about the fact that their home value has increased so much, and therefore their property taxes are going to increase accordingly. In fact, while having a lunchtime run on the treadmill two weeks ago, I saw a portion of the noon news hour dedicated to the sob stories of homeowners whining and complaining about how they can no longer afford their property taxes because their assessed home values have increased by such great margins.
This is an example of people being absolutely clueless about what they own, and demonstrates how little understanding people have about things that affect their primary small business, which is their life. A property value increase has almost nothing to do with how much you will pay in property taxes this year. Also, the potential upsides and benefits to property values increasing far outweigh the downsides – unless the homeowner is a poor money manager.
I’ll explain it this way. Let’s say your home is valued at $1,500,000 this year, but last year was valued at $1,300,000 – a 15% increase. Does this mean your property taxes will increase by 15%? Nonsense! Also, imagine that the value of this property and all of the other properties in the municipality drop next year, by an amount equal to moving the decimal point over 3 spaces, reducing the value from $1,500,000 in this example, to $1,500…would that mean a corresponding reduction in taxes would be forthcoming? Also, nonsense!
Reality is the city or municipality is going to charge for taxes, the money it decides it needs to make its budget for the year. They will divvy that amount up amongst homeowners in the area. The amount you pay will be linked to your property value, but only as relative to the value of everyone else’s. If everyone’s property value goes up by 10%, you will all pay the same tax as you would if everyone’s value decreased by 99%.
Now, of course there are exceptions to this – notably if there are significant noticeable improvements that increase the value, either done by the homeowner himself to dwellings, or done by the city or municipality in terms of infrastructure and services, but that is another matter. If the municipality you live in decides it needs $28M to make budget next year, they will get that out of the homeowners in the municipality regardless of how much your assessed value increased or decreased.
Hopefully I’ve helped clarify this issue, but the point is that there are a significant number of homeowners out there that just don’t understand. And back to my opening line, we cannot control what we don’t understand. Do you understand your small business – that being the business of living? If you don’t understand property values and their relationship with taxation, what other aspects of life and living in terms of your financial picture do you not understand?
Cameron’s Call to Action
- Take stock of your most important small business. Are there things or areas of the business where you lack understanding? The housing market, taxes, investments?
- Choose one area where you could benefit from some new and expanded learning in the business of life.
- Make it a priority to increase your knowledge and understanding in at least one area that could lead to greater control for you in the business of life. This could be through reading, consulting an expert, taking a class or through online research.