By Tara Nicholle-Nelson
Q: I just wanted to inquire about property taxes relative to the selling price of the home. I have found a property that I am interested in. The price of the home is within my range, but the taxes are really high for this home in comparison to similar homes in the area. What are the chances of getting the taxes reduced? Who would I need to contact and how extensive of a process is it? –Joe
A: I've long believed that the reporting of current property tax rates on the multiple listing service descriptions of homes for sale probably hold the most potential for causing buyers to be confused and freaked out of any single entry in a home listing. (Of course, I formed that belief before Photoshop!)
Anyhow, you are a smart buyer to ask this question. Let me explain why this issue shouldn't cause you too much worry, why these tax rates are still reported and what the process of resetting your property taxes post-closing will look like.
Property taxes are set on an ad valorem basis or "according to value." That means that most jurisdictions set a basic tax rate, like 1 percent, and assess the specific tax amount for a particular property based on the value of that property at any given time. Of course, when a home sells, the fair market value of that home is, in the vast majority of cases, the sales price.
Used to be, for this reason, the stated current property taxes on a home's real estate listing were always misleadingly lower than what they would be once the home was transferred to the new buyer. Because prices were going up, it was almost always the case that the new buyer's sale price would be higher than the seller's assessed value.
My hypothesis is that "your" home's seller paid more for the house than you will; ask your agent to research the home's current assessed value. If it is greater than the price you'll pay for the home, your property taxes will go down after you buy it.
On today's market, though, prices have been moving downward. So, it's common with homes that were last sold and assessed around the peak of the market (circa 2005-2006) for the current taxes of the home's seller to be based on an assessed value derived from the price they paid for the home, which will almost undoubtedly be higher than the price the home's new buyer will pay.
Virtually every tax assessor automatically reassesses the taxable value of a home and the resulting tax rate as a result of the home's sale. However, some assessors reassess homes based on their sales prices once or twice a year, on a set date(s). Ask your real estate broker or call your local county or parish tax assessor to get more information about how the reassessment of your new home will work, logistically, but usually the buyer does not have to do anything to initiate the reassessment and tax reduction. (Most assessors also have informative websites from which you might also be able to gather this information.)
Most often, the escrow closing company or attorney will handle the matter of prorating taxes and notifying the taxing authority of the property's transfer and the new purchase price that will trigger the reduction in taxes.
Because there can be a time delay between the first tax bill you receive and the reassessment of your home's taxes downwards based on your purchase price, don't be surprised if you initially receive a tax bill based on the current owner's taxes, then later receive a supplemental tax statement adjusting the taxes downward.
Talk with your county tax assessor to get a clear understanding of the timelines on which you will receive your initial and any supplemental tax bills, when they must be paid and how any reductions in taxes will be credited or adjusted to any overages you pay.
Tara-Nicholle Nelson is an author and the Consumer Ambassador and Educator for real estate listings search site Trulia.com.
Monday, February 28, 2011
Tuesday, February 15, 2011
Five steps to first-time-buyer happiness
By Dian Hymer
The first step in the home-buying process is to find out what you can afford to pay for a house, condo or co-op. This will depend on the amount of cash you have available for a down payment, your credit, income, assets, and overall financial situation.
Mortgage qualification is easier for buyers who work as employees whose income can be easily verified. Self-employed individuals or buyers with income from investments may find the qualification process more difficult.
A wrinkle in the financing end of the home-buying process is that it's not as easy to get a preapproval letter from your mortgage broker or loan agent as it used to be. As of Jan. 1, 2010, the Department of Housing and Urban Development (HUD) began requiring lenders and mortgages brokers to issue a binding Good Faith Estimate (GFE) within three days of receiving a loan application.
Before then, buyers shopped around for a mortgage. When they saw a house they wanted to buy, they asked their loan agent or broker to provide a preapproval letter to accompany their purchase offer. The loan person would run a credit check and verify the buyers' income and assets without, in many cases, taking a formal loan application. On the basis of this information, a preapproval letter was written.
Without a formal loan application, many lenders today will issue only a prequalification letter, which does not carry the weight of a preapproval letter. Find out from the loan representatives you talk with what kind of letter they can provide and what you have to do to get a preapproval letter.
HOUSE HUNTING TIP: You are in a much stronger position negotiating with a seller if you have a preapproval letter stating that you are qualified for the mortgage you will need to close the sale. It could be essential if you are in a multiple-offer competition. A prequalification letter may suffice in an area where there is a surplus of inventory of unsold homes.
Your goal is to buy in the best neighborhood you can afford without overextending yourself financially. Don't buy a home that you will outgrow in the next couple of years. The economic recovery is going to take years. You don't want to be caught having to sell at a price lower than what you paid. Even if prices don't decline further, you won't break even if you sell for the price you paid after taking the costs of sale into account.
Buy a home that has good resale potential. Many homes that aren't selling in today's market have incurable defects, such as a steep or shared driveway, a lot of stairs leading to the front door, or a location on a busy street, next to a freeway or too close to a commercial zone. An incurable defect is one you can't change. A curable defect includes such things as deferred maintenance or an outdated décor. These can be improved.
When home prices are escalating, buyers are more willing to compromise. They'll buy a home with an incurable defect, just to have the opportunity to buy in their desired neighborhood. Sellers don't always have control over when they sell.
THE CLOSING: It makes sense to buy a house that has broad-based appeal and will sell well in any market.
Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author.
The first step in the home-buying process is to find out what you can afford to pay for a house, condo or co-op. This will depend on the amount of cash you have available for a down payment, your credit, income, assets, and overall financial situation.
Mortgage qualification is easier for buyers who work as employees whose income can be easily verified. Self-employed individuals or buyers with income from investments may find the qualification process more difficult.
A wrinkle in the financing end of the home-buying process is that it's not as easy to get a preapproval letter from your mortgage broker or loan agent as it used to be. As of Jan. 1, 2010, the Department of Housing and Urban Development (HUD) began requiring lenders and mortgages brokers to issue a binding Good Faith Estimate (GFE) within three days of receiving a loan application.
Before then, buyers shopped around for a mortgage. When they saw a house they wanted to buy, they asked their loan agent or broker to provide a preapproval letter to accompany their purchase offer. The loan person would run a credit check and verify the buyers' income and assets without, in many cases, taking a formal loan application. On the basis of this information, a preapproval letter was written.
Without a formal loan application, many lenders today will issue only a prequalification letter, which does not carry the weight of a preapproval letter. Find out from the loan representatives you talk with what kind of letter they can provide and what you have to do to get a preapproval letter.
HOUSE HUNTING TIP: You are in a much stronger position negotiating with a seller if you have a preapproval letter stating that you are qualified for the mortgage you will need to close the sale. It could be essential if you are in a multiple-offer competition. A prequalification letter may suffice in an area where there is a surplus of inventory of unsold homes.
Your goal is to buy in the best neighborhood you can afford without overextending yourself financially. Don't buy a home that you will outgrow in the next couple of years. The economic recovery is going to take years. You don't want to be caught having to sell at a price lower than what you paid. Even if prices don't decline further, you won't break even if you sell for the price you paid after taking the costs of sale into account.
Buy a home that has good resale potential. Many homes that aren't selling in today's market have incurable defects, such as a steep or shared driveway, a lot of stairs leading to the front door, or a location on a busy street, next to a freeway or too close to a commercial zone. An incurable defect is one you can't change. A curable defect includes such things as deferred maintenance or an outdated décor. These can be improved.
When home prices are escalating, buyers are more willing to compromise. They'll buy a home with an incurable defect, just to have the opportunity to buy in their desired neighborhood. Sellers don't always have control over when they sell.
THE CLOSING: It makes sense to buy a house that has broad-based appeal and will sell well in any market.
Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author.
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