First-Home Q&A · 5 of 13
The property tax arithmetic that buyers miss when they look only at the offer price.
Why comparing sale prices misleads
Many buyers compare the sale price and the principal-and-interest payment and stop there. What actually leaves your account each month is PITI — principal, interest, taxes and insurance. When two towns have different tax rates, the same sale price produces different monthly payments. How escrow collects that share is in episode 11.
The formula
Massachusetts property tax works like this:
Annual tax = assessed value × rate per $1,000 ÷ 1,000
On an assessed value of $600,000 in a town at $12 per $1,000, the annual tax is $7,200, or about $600 a month added to the payment through escrow.
At $18 per $1,000 it is $10,800 a year, $900 a month — a $300 difference. Over thirty years that is not small.
Note that the assessed value is not the sale price. The town sets the assessment, and it can rise after a purchase when the property is revalued.
What to check in a good school town
Towns with strong schools often carry higher rates, because schools are a large share of the budget. A house that looked cheaper on price can end up with the higher monthly payment once the rate is applied.
Before offering, check the rate and the assessment on the town assessor’s website and have your loan officer quote the monthly payment with escrow included. Rates change every year, so use the current one.
In short
Compare the monthly payment with tax included, not the sale price. Put the PITI of two or three candidate towns side by side and the school premium shows up as a real monthly number. I will run it with you.
Questions
Common questions
How is Massachusetts property tax calculated?
Annual tax = assessed value × the town's rate per $1,000 ÷ 1,000. On an assessed value of $600,000 at $12 per $1,000 that is $7,200 a year, about $600 a month added to the payment through escrow. At $18 per $1,000 it is $10,800 a year, $900 a month — a $300 difference.
Do good school towns really have higher tax rates?
Often, because schools are a large share of the budget. But rates and assessed values move independently town by town, so do not generalize: before offering, check the rate and the assessment on the town assessor's website and have your loan officer quote the monthly payment with escrow included.
Written by Diana Yeji Kim — REALTOR® at eXp Realty, serving Greater Boston in English, Korean, and Japanese.
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