Houston Heritage - Diego Jaramillo, Realtor®

The thrill of purchasing a home is a rollercoaster ride of emotions.  I truly believe that residential real estate is emotion driven - the joy of entering into a house that just feels right.  Our imaginations stir images of potential entertainment venues, color palette schemes, decoration reconfigurations and more.  Once the property is in contract, we realize that the contract price is significantly lower than the tax appraisal district's evaluation.  Is this a good thing? Is it correct?

Each appraisal district in Texas has different strategies and means for recording public assessment records for real property.  The assessments in the counties that are within the Greater Houston area and vicinity (Harris County, Fort Bend County, Brazoria County, etc.) are based on calculations and assessments by the individual counties.  The counties perform their general assessments and provide a maximum of a 10% cap rate on the tax assessed for the properties.  It is common however that the tax appraisal districts go above that amount and no protests are made to have the amount reduced.  Additionally, it is common for tax appraisal districts to do "Drive By" appraisals where the improvements of the home interior or lack of are not taken into consideration for the appraisal.  Due to our higher property taxes, our market has grown accustomed to property tax protests.  Remember however that we don't pay state taxes so in essence, it's a draw in comparison with other states that pay both state tax and property tax.

Buyer Due Diligence Period

A Due Diligence Period is commonly referenced as an Option Period.  It is customary to have a 7-10 day Due Diligence Period unless there is need for additional days.  The Seller is normally provided with a consideration for taking the property off the market (usually $10-25/day). As part of your due diligence period as a buyer, you are responsible for checking into the property taxes.  Once the property goes into title, the Title Company will present you with a tax certificate that states both tax rates and most importantly the tax status.  Ideally you want the property to be in good standing and all back taxes be paid by closing.  Make sure to check for tax liens on the property if any and make sure they are being paid if in litigation. 

Tax questions to ask during your Due Diligence Period:

1. What is the current tax assessment?
2. What is the current tax rate?
3. Any unpaid back taxes?
4. Any judgments or pending litigations due to taxes?
5. How will pro-rations be established (for current year of last year)?
6. Did the tax assessment go over 10% since last year?
 

Seller Tax Justifications

Sellers sometimes feel that a higher tax assessment by the appraisal district will justify their sale.  A common misconception that buyers and sellers have is that the tax appraisal district assessment is an indication of market activity.  Healthy markets usually bear a 15-20% discrepancy in their favor while stagnant markets may be have a price discrepancy of up to 10-20% less.  It is important for your agent to provide both Buyers and Sellers with a comprehensive market analysis of the neighborhoods and areas to see the difference between market value and appraisal value.  An overtaxed property can potentially scare buyers away from their intent to purchase the property.  A Seller should act diligently and protest their tax assessments as needed to be current with the neighborhood tax assessments.

Buyer & Seller Negotiations

The purpose of your Due Diligence is for the Buyer and the agent representing the Buyer to be proactive.  As part of negotiations, if you don't ask....you don't gain.  In the event that you enter into a contract with a Seller whose tax assessment is much higher, try to negotiate the protest.  Property protests with the corresponding appraisal districts can only be performed by the seller of record during that tax year.  Remember that we pay taxes in arrears; this means that we pay for last years taxes in our current year.  The Seller will credit the Buyer the pro-rated amount at closing to be applied usually towards closing costs.  The Buyer can negotiate the Seller paying for the existing year inflated taxes through either a Third Party Company or the Appraisal District.  A Third Party Company can usually provide a more efficient means of protesting since the Buyer has no recourse in the protest.  Once the Seller pays or files for the protest, the results may take several months.  The pro-ration estimates at closing are assessed and the Buyer and Seller should sign a Tax Peroration Agreement at closing.  This document will establish an agreement between Buyer and Seller regarding tax peroration amounts to be credited to either party in the event of a tax assessment credit by the Appraisal District.

Taxation with Proof of Purchase

In the event that there is no tax protest done by the Seller, the Buyer may have recourse after the sale if the price of the home is lower than the tax assessment.  A copy of your closing statement (usually referred to as The HUD Statement) is usually evidence enough for the Tax Appraisal Districts to establish a reliable source for a Buyer protest.  Every Appraisal District Office is different so please verify with your corresponding appraisal district and comply with their protest methods to protest the new assessment.  The Appraisal District will notify you of the price change (usually the sales price or somewhere near) or the result of their assessment for the tax changes.  In the event that the Buyer reaches an agreement with the Appraisal District and the tax assessment is reduced, the Buyer owes a credit to the Seller for their peroration paid at closing (if a Proration Agreement was signed at closing).

Let me show you the way...

I understand that finding your new home is just one of the tasks that face you when you're purchasing a new house. I can assist you in the home buying process which includes offer negotiations, assisting in the inspection and negotiations process after inspections. Beat other home buyers to the hottest new homes for sale in Houston with my New Listings Notifications.  You'll receive updates via email to the properties that match your search criteria in the Greater Houston area.

Sincerely,

Diego E. Jaramillo
Realtor, ABR, e-Pro
Keller Williams Houston Metropolitan
Cell: 832-282-2069 
Online at www.houstonheritage.com 

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