An ethics and legal question.
Most Popular Reply
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
15yThe lender financing the loan might take issue with an agreement with the seller outside of closing.
I just wouldn't mess with it personally.Hopefully the appraisal comes in low anyway so you get it for a cheaper price!
26 Replies
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes15y
I am not understanding what you are asking.
Tax assesments have nothing to do with market value.
Are you in the city limits or just the county??You can have an assessment go down but the mill rate for the city or county budget go up thereby increasing your property tax bill.
If the assessment is 95,000 the taxes shouldn't be that big.Why not project out the worst case scenario for your projected hold time and base your offer price off of that.
If you want to dispute taxes there are organizations that do this but since your property is so small you might want to take it on yourself.
http://www.aptcnet.com/articles.html
- 15yLinda R.Real Estate Investor · Southeast, IA · Member since 2011 · 46 posts · 14 votesOP
I understand assessed value does not equal market value. That is one of my mantras actually! My question is if I can legally pay some money to the seller outside of closing so the reported sale price that goes to the court house is less. When they see I paid 94000 for the property, I'm concerned they will raise the assessment which in turn will raise my taxes. The levy rate per $1000 is 37.89 so the annual taxes for this property is over $2600.
- Investor · Rancho Cucamonga, CA · Member since 2008 · 1k+ posts · 684 votes15y
I wouldn't operate that way. It is probably illegal and definitely unethical.
How much are you planning to pay outside of closing? $10,000 would only save you $378.90 a year. Really not worth it for the risk.
Maybe you can get the zoning converted to residential, or some kind of tax break?
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes15y
RESPA (real estate settlement procedures and disclosures act) applies to residential and not commercial real estate.
So disclosures that come into compliance with RESPA won't matter with commercial.Now you said a tri-plex which is really a residential 1-4 multifamily unit.
Anything over 5 units is commercial.You said you have a commercial space with this property.
So whether it is classified as commercial or residential will come into play.
Are you buying this property with a loan from a lender or paying cash??
If you purchase and did your modeling correctly you factor in the higher potential assessment and then cash flows will not be affected.
- 15yLinda R.Real Estate Investor · Southeast, IA · Member since 2011 · 46 posts · 14 votesOP
In my county anything with 3 units or more is considered commercial. Plus, its within one block of the square so that automatically zones it as commercial regardless if its a sfh or truly commercial. I just got it bought for 93200 so it's mine now assuming it appraises! And I'm paying 1/3 cash and financing the rest.
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes15y
The lender financing the loan might take issue with an agreement with the seller outside of closing.
I just wouldn't mess with it personally.Hopefully the appraisal comes in low anyway so you get it for a cheaper price!
- 15yLinda R.Real Estate Investor · Southeast, IA · Member since 2011 · 46 posts · 14 votesOP
I should clarify as I was replyig from an iPhone, it doesn't matter if you live in town or in the country as far as property taxes go, it is all paid to the county. Thanks for the feedback, I already knew the answer, I was just hoping for a loophole.
- Massachusetts, MA · Member since 2009 · 144 posts · 31 votes15y
In our area, the assessors like to go into the property during the smoke cert inspection and give it their own price, they don't care what you pay for it. $18.2 mill rate
Paid $89k assessed at 128k
Paid 27k assessed at 126k,
Paid 30, assessed 123k. - Real Estate Investor · Milwaukee, WI · Member since 2011 · 103 posts · 22 votes15y
Originally posted by John Holme:
In our area, the assessors like to go into the property during the smoke cert inspection and give it their own price, they don't care what you pay for it. $18.2 mill ratePaid $89k assessed at 128k
Paid 27k assessed at 126k,
Paid 30, assessed 123k.
This is exactly why I laugh when people say an assessment is an estimate of worth. I bought a property that was assessed at $270,000 for $135,000, and I'm hoping to call up and ask them to reassess. They probably won't budge, I might get assessed down to $250,000 or something though. - 15yLinda R.Real Estate Investor · Southeast, IA · Member since 2011 · 46 posts · 14 votesOP
Max,
I am friends with the lady who checks the houses and she has lowered every single place I have bought. None of them have been this nice though. So we will see but I bet you can get yours lowered, do you have an appraisal at that price? - Real Estate Investor · Amarillo, TX · Member since 2008 · 547 posts · 214 votes15y
Originally posted by Linda R.:
Max,
I am friends with the lady who checks the houses and she has lowered every single place I have bought.This just gets worse and worse. I'd be careful what I post on a public form, referencing knowing the lady somewhat implying that to be why she lowered your taxes isnt something id publicly say, ever. I'm sure you'll go back and say thats not why she lowered them, but if that was the case, you wouldnt need to reference knowing her. I believe that would be illegal, and possibly risking her job. theres almost no way your lender would be ok with this situation, you'd probablly scare the seller into thinking your trying to pull some scam, which in sense you are, and risk him backing out. Why would a seller be willing to aid in this scam? he has no need to, Again, were talking about maybe $400 a year, $35 a month, to risk jail time? no thanks.!
- 15yLinda R.Real Estate Investor · Southeast, IA · Member since 2011 · 46 posts · 14 votesOP
Scott,
Relax! I wasn't implyng she lowered my assessments because we were friends and actually we became friends through our respective positions. She lowered my assessments because they were too high for the crap holes that I have bought and fixed up! The places Max referenced in his post should easily be lowered based on his purchase price as that has been my experience up until this purchase. The market value of a house is what someone is willing to pay for it. This is my first NICE place that I do not need to do a major gut and rehab. I am not willing to risk jail time and I posted that I didn't believe it could/should be done but I was asking anyway, just in case someone knew something I didn't. I never said I was going to do it, I wanted to know if it could be done.I find it interesting that you thought I would come back and say that wasn't why she lowered my assessment, you sound hostile. Scam? You think I am running a scam? Reread my posts.
I am well known in my town by all of the re agents, the building and zoning people, city administrator, city police, the electrical inspector, many of the lawyers and the folks at the courthouse. My reputation is that I buy properties that others think are awful and I make them nice, very nice actually, I do that by following the rules that are laid out there and they know that as well and that I am a person of my word and that I can be trusted to keep my word. By implying that I am running a scam or using friendships to evade taxes would normally be very offensive, however, you are words on a screen. I know who I am, I am out walking the walk, every day. What have you done lately, besides your flip that has taken a year to complete? Today is day 60 on a house that we completely gutted down to the studs that was full of blow in insulation and plaster and lathe It now has all of the plumbing, hvac and electric roughed in, closed cell insulation on the ceilings and walls and will be completely sheet rocked by the end of the week, the upstairs is and half of the living room are ready to be taped as soon as the rest of the house is done. Oh, it also has all of the replacement windows already installed and the doors. We will be finished by day 90. And I can and do, a lot of the work. So, I will ask again, what have you done lately and also, who do you think you are, to question my integrity? I believe you need to brush up on your reading comprehension skills. And one last thing, why are you hiding behind an avatar? Where is your picture?
Linda
- 15yLinda R.Real Estate Investor · Southeast, IA · Member since 2011 · 46 posts · 14 votesOP
I've decided to make it easier for anyone reading this thread to understand that I am simply asking a question to see if they are any loopholes. I acknowledge more than once that there probably are not any but I certainly don't see the harm in asking a question. The majority of us come here to learn and to learn it is important to ask questions.
Linda
I am sure the answer is no but I have to ask.
I guess I already know the answer and the seller would have to be willing to sign a DOV which would not be accurate and that is certainly a legal issue but I am hoping for a loophole.
My question is if I can legally pay some money to the seller outside of closing so the reported sale price that goes to the court house is less.
Thanks for the feedback, I already knew the answer, I was just hoping for a loophole.
I am friends with the lady who checks the houses and she has lowered every single place I have bought. None of them have been this nice though.
I should've added to this post that they were all purchased for less than what they were assessed at and that, plus the condition they were in, is what contributed to my assessment being lowered. - Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes15y
Keep in mind that federal law and regs trumps any county or city ordinance every time. How your City/County zones a property or taxes it does not define the property, it will be viewed as the property is utilized. You can have a SFD next door to a steel mill in a heavy industrial zone, if someone lives there or the intended purpose of the dwelling is for residential purposes, it's a residence. 1-4 family dwellings is the federal (HUD) definition of a single family residence....Period!
A loophole to lie about what the sale price is?.....Really! (?)
What you should do is break out any personal property, stoves, refg. micros, anything not attached to the property and list the value of that seperately so that the RE value is less and you'll have a basis to depreciate personal property for taxes at a faster rate. This probably won't be much in a SFD, but is significant in larger commercial deals.
- 15yLinda R.Real Estate Investor · Southeast, IA · Member since 2011 · 46 posts · 14 votesOP
Financeexaminer, with the exception of your sarcastic remark, I appreciate the advice to break out any personal property! :-) Unfortunately, there is not enough to make a significant difference in the sale price. I do depriciate appliances, etc, separately.
I understand federal law trumps city, county or state law but what does that have to do with zoning and property taxes? On second thought, you are giving me something to think about though, if the feds say 5 or more units is commercial and anything less is residential, that may give me some ammo to go the appeals board. It won't work on this property but I do own another triplex that is zoned commercial and two sfd's that are also zoned commercial based on their location. At the same time, that also makes it easier if I wanted to rent out the sfd's as commercial properties since they are already zoned that way.
The thing that gave me pause on this whole deal is how much taxes were and the potential for the county to raise my assessment based on the purchase price. The county board of supervisors raised the levy last year and my personal property taxes went up over $600, they was no real explanation as to why they did it, we are not operating at a deficit in my county. That to me is criminal!
Linda
PS There are all sorts of corporate loopholes that people use to shelter themselves from taxes, one that comes to mind, I will admit I do not understand it completely at this point in time, is S corps. Anyway....
- Full-Time Investor · Charlotte, NC · Member since 2009 · 2k+ posts · 1k+ votes15y
why don't you buy the house for the purhcase price less 20k...then offer to buy their car or whatever for 20k over value...is that ethical or legal?? i have no idea to be honest, but i'd ask an attorney...i'm sure a prosecutor could poke holes through this all day in court, but nobody was offering up real anwers...they were just being tough on you...not saying i'd do it, but i'd at least look into it...
- Investor · Omaha, NE · Member since 2011 · 475 posts · 211 votes15y
I have an apartment in Council Bluffs and found out there is a loophole in the Iowa law that allows you to declare the mulifamily property as either a condo or co-op. I'd suggest going co-op as the building codes are less strict than condo. I did this with my apartment and had it recognized as residential by the county and dropped the property tax in half. The reduced tax paid for the leagal expense in less than a year and dramatically increased the profit. Branstad has introduced a bill that will drop commercial property taxes over 5-6 yrs but only by 40%. Going co-op drops it by 55%.
- Investor · Southlake, TX · Member since 2009 · 950 posts · 338 votes15y
In Texas, you are not required to disclose purchase price. However, what usually happens is that upon a sale, the appraisal district will artificially inflate value so that you will show closing statement to get the value reduced. Another issue is that the appraisal district is required to uniformly value similar properties within the same area. For commercial property, this value is usually based on capping NOI.
I'm not sure how Iowa handles values.
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes15y
Geeez! Think about your question. Can you pay a seller outside of closing and show a lower sale price? You posted that you have experience, that you have done rehabs and sold properties (obviosuly you had to buy them too). Did you ever hear any of those aquaintances you mentioned(attorneys) say that you don't need to show the true sale price in a closing? Don't you think that would kinda be a big deal? Think of all the other advantages to such a closing, title coverage would be cheaper, banks could make 110% loans, transfer taxes (if any) would be less, the seller would have less income taxes to pay and the buyer would have less to basis when the property was sold...the list goes on.
Have you ever heard of the term FRAUD?
There are different categories, tax fraud, lender fraud, settlement fraud.....seems your thought of a loophole could touch on all of these. Pretty elementary for someone with the experience claimed. So yes, my one sentence above was simply to get you thinking.
But noooo, you feel compelled to point out a slight bit of sarcasim, which then leads me to spelling it out for you. So, IMO, if someone is experienced and asks a question like that it's pretty plain how they try to conduct their business, look for "loopholes" so we can lie. OTH, it's not a bad question for a newbie, and to that I would suggest if you are going to be in real estate, become familiar with the surrounding issues (legal contract issues, lending issues, taxation, insurance and RE commissions) that are based on any real estate settlement statement (A HUD-1, for residential is the required form and is a federal document, commercial can be on other settlement statements). Ever hear of the Real Estate Settlement Proceedures Act? Just one of those little federal laws that gets in the way of RE investors doing what ever they feel like!
At least you saved your reputation with the attorneys you know by asking that question here instead of asking them.
Yes, my comment was to get you to think. Yes, showing what the use of the property is rather than what it could be used for will determine the value of any property in any state at a point in time. If Iowa uses market value of RE as a basis for taxation, you might use that evaluation. I have never heard of any taxing authority taxing a property as a retail shop if it was a SFD, unless the SFD (building) was in fact used as a retail space. There are commercial buildings, like an old neighborhood grocery store that could currently be used for housing, but that would still be a commercial building until the property was reassessed for its current use.
And, if you do not state in your purchase contracts the value of personal property you must be using the fair market value of personal property (PP). If you were to be audited, can you show the FMV of the PP? Did you get a used appliance store to give you a value? Or, did you pull it out of thin air? Had the values been stated in the contract you would have a stated basis that could be defended. So, regardless of how insignificant PP might appear to be in your RE acquisitions, I suggest you list it to form your tax basis. Good Luck!
- 15yLinda R.Real Estate Investor · Southeast, IA · Member since 2011 · 46 posts · 14 votesOP
Nope, I have never heard of fraud. Come on, really? I asked a question and when I asked a question, I stated that I was pretty confident it couldn't be done but I thought BP would be a good place to ask. I never thought I would be attacked like I have been. Dennis offered some great advice that I am going to folow up on and see if it would work in my case. This is the most expensive property that I have purchased to date and it was a leap for me. I think that it is pretty bold for you to insinuate that I do not run my business on the up and up based on one question. I do not find it necessary to defend myself to you so I will not. I can sleep with myself at night and I know who I am and that what I am doing is legal. I am a person of many questions, asking a legal and/or ethical question does not make me a fraud or unethical person.
I really hope new people are not afraid to ask questions after reading the burning at the stake that I endured as a result of my question.
Your response is not necessary.
- 15yLinda R.Real Estate Investor · Southeast, IA · Member since 2011 · 46 posts · 14 votesOP
Bryan, Tod and Dennis!
I composed a message earlier but must not have hit post as it is not here. Anyway, I wanted to thank you gentlemen for yout input on this topic. Dennis, I especially appreciate the advice you shared, do you know where to find that information specifically? Feel free to private message me if you like. You never know what will set off the wolves!Linda
- Real Estate Investor · Amarillo, TX · Member since 2008 · 547 posts · 214 votes15y
Originally posted by Linda R.:
Scott,
Relax! I wasn't implyng she lowered my assessments because we were friends and actually we became friends through our respective positions. She lowered my assessments because they were too high for the crap holes that I have bought and fixed up! The places Max referenced in his post should easily be lowered based on his purchase price as that has been my experience up until this purchase. The market value of a house is what someone is willing to pay for it. This is my first NICE place that I do not need to do a major gut and rehab. I am not willing to risk jail time and I posted that I didn't believe it could/should be done but I was asking anyway, just in case someone knew something I didn't. I never said I was going to do it, I wanted to know if it could be done.I find it interesting that you thought I would come back and say that wasn't why she lowered my assessment, you sound hostile. Scam? You think I am running a scam? Reread my posts.
I am well known in my town by all of the re agents, the building and zoning people, city administrator, city police, the electrical inspector, many of the lawyers and the folks at the courthouse. My reputation is that I buy properties that others think are awful and I make them nice, very nice actually, I do that by following the rules that are laid out there and they know that as well and that I am a person of my word and that I can be trusted to keep my word. By implying that I am running a scam or using friendships to evade taxes would normally be very offensive, however, you are words on a screen. I know who I am, I am out walking the walk, every day. What have you done lately, besides your flip that has taken a year to complete? Today is day 60 on a house that we completely gutted down to the studs that was full of blow in insulation and plaster and lathe It now has all of the plumbing, hvac and electric roughed in, closed cell insulation on the ceilings and walls and will be completely sheet rocked by the end of the week, the upstairs is and half of the living room are ready to be taped as soon as the rest of the house is done. Oh, it also has all of the replacement windows already installed and the doors. We will be finished by day 90. And I can and do, a lot of the work. So, I will ask again, what have you done lately and also, who do you think you are, to question my integrity? I believe you need to brush up on your reading comprehension skills. And one last thing, why are you hiding behind an avatar? Where is your picture?
Linda
First, this is a forum and you came here asking opnion and you got it, just because you didnt like it doesnt mean i was attacking you, i could care less what you do, where you live, your reputation, or if you end up in jail, doesnt affect me one bit.
Correct, market value is what someone is willing to pay, so if your willing to pay 95k for it we will say thats the market value, why do you feel you should not pay taxes on the 95k value, John mentioned properties he purchased for WAY LESS than the assessed value, of course I feel it should be lowered. your worried about years down the road yours being raised to WHAT YOU PAID, MARKET VALUE, which is what the property should be taxed based off.
Its a form of fraud as bill points out to attempt to pay lower property taxes that you mention, not saying your doing it, just what you asked, so in a sense that is a scam.
I mention scam when I said thats probablly how the seller would look at it when you approach them to pay them money outside of the orignal deal, didnt say you did or were going to commit a scam, i said thats how id look at it being the seller if someone proposed that to me, its a form of tax fraud if im not mistaking, which is a scam, period.
Again, I wasnt attacking you, i was simply trying to aid with how others might look at this.
You sit there and say stuff like "your just words on a screen" say how well your reputation is, then sit there and attempt to bash me seconds later.
And I changed my avitar due to Josh's post on Facebook, had nothing to do with your comment regarding it, so dont flatter yourself and think I did it for you.
Goodluck with whatever you do, hopefully I'll read about you one day.
Newbies ask new questions everyday, most take the feedback and learn from it or question it, not cry about the feedback they recieved and then attempt to make themselves look good and bash the people trying to help them in the first place.
For once Bill I can honestly say I agree with you.. doesnt happen much ;) and had to vote for your post! - 15yLinda R.Real Estate Investor · Southeast, IA · Member since 2011 · 46 posts · 14 votesOP
Scott,
You are right, I did ask an opinion and I certainly can handle the responses. More than one said it wasn't a good idea. It was the manner in which a couple of responses were written that rubbed me the wrong way. I do not appreciate strangers suggesting I am trying to run a scam or am commiting fraud. That borders on libel, and I take that seriously. In order for people to respect one's answers on a forum, the answer to a controversial or any question for that matter, should be worded appropriately so that the advice given is actually considered instead of the person being angered by unnecessary comments. Am I a newbie, heck yes I am. I have been doing this for just over a year and am about to purchase my 12th property, I am by no means an expert but I do have a wealth of information to share. I try to learn something new everyday and from everyone, sometimes it is what to do and sometimes it is what not to do. I believe I will be thinking twice before starting any new threads here for awhile... - Investor · Omaha, NE · Member since 2011 · 475 posts · 211 votes15y
Linda:
I'm new to the board and don't know how to private post. I can refer you to a lwayer in Des Moines who can do the co-op conversion for you for multifamily. You have to remember the county will recognize the residential vs. commercial status on the 1st of January of each year so you'll have to get the legal work done before the end of the year and then request the new designation from the county in the first few days of 2012. Unfortunatley Iowa pays the property taxes 18 months in arrears so you won't recognize the profit gain until the 2012 taxes are due. - Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes15y
With questions on here investors try or want to look at subjective ways that save money that puts them into questionable or grey areas of deal structuring.
I see investors make choices everyday that I would not make period.
At the end of the day it's best to get legal representation review what you are trying to do and give an opinion and a way to go about it.If you choose to accept the opinion you weigh the risk versus the reward down the road when it might be challenged.
Let us know how it turns out.
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