Property Tax Question - First Time Homebuyer (Highland Park, Highland: real estate, 2015)

[dangr]

Hi,

In the midst of negotiating for a house in Highland Park. New to the area and the real estate world in general. I had a few questions about property taxes:

1) When are they due?

2) For a purchase contract, there is disagreement over how much the prorated amount should be. Do you know what is the standard in this region? I read nationally, it's 105-115%. The tax bill between 2013 and 2012 was around 8.5%. Would 108.5% be fair?




Thank you

[knitgirl]

Taxes will be paid in 2015 for taxes accrued in 2014, therefore the seller will pay all of 2014's tax bills and up to the day you close on your home this year. In Lake (and all IL counties except for Cook) taxes are paid in June and September, generally the 1st business day of the month. In Cook they are also paid twice a year, but the due dates vary. The amounts in Cook County can also vary, generally one installment will be larger than the other. In the other counties you pay have with each installment.

The prorated part is the taxes owed by the seller that haven't been billed yet. It's NOT based on the tax rate, so the tax rate of 8.5% (are you sure that's correct? That's REALLY high!) does not come into it. You want the highest proration the seller will pay, I've seen a lot of contracts at 110%, but also some at 100%.

[dangr]

Sorry, I meant an 8.5% increase from the previous year. Not the rate. Thank you for your help.

[chet everett]

knitgirl laid that out pretty well. Property taxes can be confusing. the OP should be asking their BUYER'S AGENT to include an adequate amount be paid into the tax escrow account (which is different than the earnest money escrow account) ...

If the OP is not having taxes paid out by their lender's servicer (which is unusual...) they would need to budget for the tax bills.

I too cannot fathom how the property tax would work out to be 8.5% of selling price in Highland Park, that cannot be correct!

Most experienced real estate agents / title companies / mortgage brokers will have a little brochure explaining how property taxes are prorated for the portion of the year that the seller owned the home. Lots of inexperienced buyers sort of lose track of the tax escrow and it is wise to ask the lender's serviced to verify the set aside well before taxes are due, if you don't do this the servicer can (and too often does) send a nasty sounding letter demanding that you make up the shortfall all at once. Once you've got a few years of ownership under your belt and can budget on your own I recommend that home owners request the tax escrow be terminated by the servicer and you handle this on your own...


How to End Mortgage Escrow

[Lookout Kid]

The 8.5% was the year-over-year increase, not the percentage of home value. Since a buyer doesn't know what next year's tax bill will be, there is an increase figured in to the purchase contract for the next year, since property taxes are paid in arrears.

OP: I think we had the 110% written in to our initial offer, and the sellers tried to negotiate us down to 105%. We agreed since we were in a competitive bidding situation. It turns out that it wasn't quite enough, so our escrow payment had to increase to make up for the shortfall. Not a huge deal, but something to consider...

[dangr]

Thank you all for your comments.

I initially asked that 110% be written into the offer, but our buyers' agent stated that 105% is the marketplace norm. Knowing that the taxes increased 8.5%, I'm worried the 5% won't cover their portion of the bill. Ultimately, it's not the biggest of deals.

Thanks again.

[Lookout Kid]

Originally Posted by dangr

Thank you all for your comments.

I initially asked that 110% be written into the offer, but our buyers' agent stated that 105% is the marketplace norm. Knowing that the taxes increased 8.5%, I'm worried the 5% won't cover their portion of the bill. Ultimately, it's not the biggest of deals.

Thanks again.

Apparently 110% is the norm for city realtors, but 105% is the norm in the 'burbs. It's not enough.