A revamped system of assessing property taxes in Philadelphia has some experts worried that the recovery in the local real estate industry will come to a screeching halt.

The mayor recently introduced what was called the Actual Value Initiative reform. The reform is intended to base property taxes on the actual market value of the home. It could also present a significant hurdle for both buyers and sellers.

One real estate agent pointed out that $1,000 of additional property taxes – paid every year – would reduce the amount a prospective homebuyer could pay for a home by roughly $18,500. This is based on the interest rates.

According to local real estate professionals, the timing of these changes is not great. Finally, the market has gained significant momentum and professionals in the field do not want to see that slow down.

The method of calculating property taxes is not just affecting those that want to buy a home. Men and women looking to rent a home in certain areas will also run into potentially higher rental rates. Landlords who have felt an uptick in their property taxes have no other choice but make that money back by charging tenants more for rent.

One local tenant pointed out that he offers a small rental for just $445 a month. However, to make up for the higher property taxes, he is adding $25 to that monthly total. He said, while that might not seem like a significant sum, it could be a deal-breaker for many prospective tenants. The higher tax rates could especially hit tenants who do not make much in way of income.

There are numerous hurdles when buying, selling or renting residential real estate – taxes are just one. Mistakes can be costly, which is why knowledge and preparation are key.

Source: Philly.com, “Philadelphia real estate agents nervously await the effect of new property assessments,” Harold Brubaker, Feb. 20, 2013