I was about to put in an offer on an REO and my agent told me the property taxes would be over 4000 due for escrow before closing, the offer would have been 40000 on a large home. What determines the property taxes and can they be reduced if they seem extra inflated?
who pays the taxes is negotiated in the purchase contract. it could be that buyer pays the taxes, but i have bought 4 REOs with some really obnoxious purchase agreement and i have never seen the bank pass property taxes on to the buyer (me).
banks have hit me with the water bill. i now read the purchase agreement really closely.
if you are responsible for the taxes, the county or city may or may not be willing to negotiate. these things are ultra local and change with time. you have to be prepared to pay the $4K, but there is absolutely no reason not to seek to have the taxes reduced by whatever mechanisms and avenues the taxing entity allows.
this is what I have found so far, the property has an assessed value of 190000. I have been told by a few locals that the taxes will be based on the purchase price as the current value after closing so the tax amount should drop considerably. I am a bit hesitant because the tax assessment will put it above my budget, I guess I will have to put that in the contract and wait to see if the offer is accepted. Thank you for the warning on watching over the agreements carefully!
This is most often a local thing. I have never heard of the buyer having to pay the back taxes in a situation like this. Also, two different counties in Texas I have been able to get the county to lower the taxes based off the purchase price, but I haven't always landed exactly the purchase price. The reductions I have received have been from 120k to 89k or from 70k to 48k. These are not near as significant as 190k to 40k. Be prepared that your taxed will lower, but you might not be guaranteed to get it cut 75%. Good Luck!
The bank isn't making you pay any past due taxes. They pay up I til the day of closing, you pay thereafter. If the taxes are paid at the beginning of the year, and the bank has already paid them (doubtful) you will need to reimburse them for the balance of the year. If taxes are paid at the end of the year (in arrears) the bank will credit you for the time up until closing, since you'll be paying the full bill later. It sounds like you don't know what the annual tax bill is for this property. Is 4$k the annual taxes, or just the amount of the check you'll be deducted for at closing? You need to know your local practices as far as assessment, and whether or not your purchase price will affect them....here it does not.
In my parts, purchase price only impacts tax value if the sales price was for more than appraised value. If so, then the taxable value will adjust upwards to match sales price over time, sometimes 1 year, sometimes no more than 10% increase per year. It depends on residency and homestead exemption status and how much of an increase it is.
If you pay well below the appraised value, then the general thought is, good deal for you but we still get our higher tax rate. You can appeal it and ask for a reassessment but it takes time and rarely accomplishes anything. Their thinking is that the house has a certain value and just because you got a good deal, that's no reason for them to lose tax revenue.
Free eBook from BiggerPockets!
Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!
- Actionable advice for getting started,
- Discover the 10 Most Lucrative Real Estate Niches,
- Learn how to get started with or without money,
- Explore Real-Life Strategies for Building Wealth,
- And a LOT more.
Sign up below to download the eBook for FREE today!
We hate spam just as much as you
Join the Largest Real Estate Investing Community
Basic membership is free, forever.