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In NC our property tax base is calculated from the characteristics of the property/home, not what someone paid for it.
Things like:
Square footage, number of bedrooms, baths, fireplaces, etc.
Age of the home (which is related to a 'condition' multiplier).
Neighborhood things like whether there is a new development being built within 1 mile.
Lots of stuff. Permitted improvements, for example.
For land, environmental situations are included on a per acre basis.
Thus, the dollar-value given for the tax basis is theoretically independent of the amount of money someone paid for the home. Once all of the properties are ascribed these numbers, and once the county/city budgets are approved, a tax rate is back-calculated so that the budget can be funded.
In my county, Wake, the tax basis for each property is determined every 8 yrs.
I'm looking to buy in the next year in Orange County, CA. Thinking about realtor commissions got me thinking that my home cost is $35,000 more expensive than it should be when the sellers realtor lists the home to essentially make up for their commission. Is there no better way to get a commission than through the purchase price? Because that does effect the buyers property tax rate when I feel it could be done a better way. The community I'm looking at are about $700,000 and assuming 5% commission.
I'm looking to buy in the next year in Orange County, CA. Thinking about realtor commissions got me thinking that my home cost is $35,000 more expensive than it should be when the sellers realtor lists the home to essentially make up for their commission. Is there no better way to get a commission than through the purchase price? Because that does effect the buyers property tax rate when I feel it could be done a better way. The community I'm looking at are about $700,000 and assuming 5% commission.
Hard to feel bad for someone spending 700K on a house and then complains about 35K in commissions.
The price of homes has NOTHING to do with commissions! The price of houses is what people are willing to pay for them. And no prices aren't increased to include the realtors commissions.
"Property taxes are calculated by multiplying the property's tax assessed value by the tax rate. The standard tax rate in the state is set at 1 percent, per the proposition. Therefore, residents pay 1 percent of their property's value for real property taxes. The base year value is set when you originally purchase the property, based on the sales price listed on the deed."
What happens when someone builds up a home and adds value to it? How is the 1% property tax calculated then?
Simple answer is no, commissions don't drive up property taxes. Buyers pay what a home is worth based on other sales, not if there is or isn't a commission.
It's kind of a two way street. Where I live the town taxes you based on the combined assessed value of the land and the home that they determine. However that assessment can be challenged if you feel your assessment is too high. My wife and I actually did this a few years ago, however we had to use comps from homes sold within the past year or something like that, I forgot. So in that aspect, final selling prices for homes in our area did affect our assessed value and the assessment we were going for wasn't quite meant, however the town pretty much met us in the middle of the then-current assessment and what we were asking for. Had the comps we provided been lower priced, then our assessment could have been lower.
Also, I just re-read your initial post, and it sounds like you think the home price is being jacked up from the initial asking price/final purchase price to account for the commission, which isn't the case. The final purchase price is what it is, and the commissions are deducted from that. You're not tacking on an additional percentage anywhere to account for commissions.
"Property taxes are calculated by multiplying the property's tax assessed value by the tax rate. The standard tax rate in the state is set at 1 percent, per the proposition. Therefore, residents pay 1 percent of their property's value for real property taxes. The base year value is set when you originally purchase the property, based on the sales price listed on the deed."
So my understanding is my purchase price drives my property tax. For Sale by owners are 20 to 30 k less than comparable properties. Anyway, I guess if the system is in place there's no way around it. It's just that I wish that the commission didn't affect the total sale price.
First of all, assessed value is not necessarily the purchase price. But if you pay a certain amount for a property, why would you pay that amount if you didn't think the property was worth that amount? (And why is it not fair to base taxes upon your purchase price?) But...it doesn't matter what the Seller originally paid for the property; nor does it matter what expenses the Seller happens to pay to make a sale. What you pay for a property is truly up to you.
By the way, I, too, wish my property taxes were only 1% of my purchase price. My annual property taxes run about 4% of my purchase price.
Most businesses will include their costs to do business in the product price they charge the customer. It has been that way for more than a few years now.
So, why would a homeowner not include the sales person's charges when pricing their home? Does anyone seriously think they just donate those charges to a buyer, especially when they are so high?
OP is in California, where property taxes are indeed directly based on the sales price (with a specific small rate of inflation allowed each year, and methods to adjust both when property values actually decline or when additions are made).
In theory the answer is yes, if you could get the seller and agents to agree to lower the recorded sales price and pay the agents directly, with everyone walking away with the same $$$, it would lower your home's taxable value and thus property taxes. Whether they or the title company would be willing to structure it this way, or the mortgage company would allow is a different question.
On a $500,000 house, the total commissions might be 6% or $30,000. At a property tax rate of 1% (the approximate max rate in CA), that's $300 a year. In other states with higher tax rates, the difference is higher. And yes, even where the taxable value isn't directly using *that* sales price, home value assessments are based on what *somebody* is paying for similar homes/features, so if you can make your transaction look lower than "average" it can help. Note that you may **** off the new neighbors, because the comp will look low in a way that may not be obvious why to an appraiser of someone else's home.
We had the same thing come up when looking at a house that needed a $50,000 roof. It was better for us to buy it as-is and replace the roof later (in CA that counts as maintenance and doesn't trigger a tax value increase) than to have the seller do it and buy it for $50k more. Same for any unrenovated vs renovated house, depending on the type of renovations.
If you're paying 5% more of 1% in taxes, that's $350 per year of your total $7,000 in property taxes.
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