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Frank - In my home state of North Carolina, the tax valuation on real estate has nothing to do with sales price. Currently, in most counties in NC, tax values are reassessed every 8 years. The tax office has their own real estate appraiser. The appraisal criteria used by the tax office includes market sales data for the entire area, heated square footage, porches, decks, etc. The tax valuation of your home can be well below what you paid or well above what you paid for it. "Hiding" part of the sales price would have zero impact on the tax valuation, but would certainly seem to have a negative impact on neighborhood values. I have no idea how your state handles tax appraisals.
If a is mortgage is involved in this transaction, the appraisal will very likely come in at or near the artificially low contract price, and I don't see how that benefits the buyer or seller. Maybe a mortgage expert will chime in, as it seems that this transaction has mortgage fraud implications written all over it. In NC, loan fraud is being vigorously prosecuted and there are numerous attorneys, mortgage originators, real estate agents, and appraisers going to prison for their roles in mortgage fraud. Buyers who sign fraudulent documents and lie are also going to prison. The Government also requires that the sellers real estate sales transaction information be reported. In NC, the closing attorney submits that information to the government via a form with the sellers social security number. The sales price you mention doesn't sound like it would trigger capital gains taxes payable by the seller anyway.
I just can't see how this silly arrangement benefits either the buyer or seller. The entire proposal sounds fishy and the seller should proceed with caution. Its never the wrong decision to do business the right way is it?
Hello all.
I work in a place where a number of people plan on retiring and moving out of the area within the next few years. I also plan on doing this.
Well, one of the guys is selling his house and told us today he has found a buyer. He is not working with a Realtor, he plans on selling his house by himself. Well, he says he has a buyer who is thrilled with his house, and they have agreed on a price. His house is assessed below current market value he says, and the price they agreed to sounds about right for the house, in my opinion.
Here's the rub. He says the buyer wants to buy some other things with the house, like some furniture, garden equipment, etc. The buyer says he wants to "hide" the true agreed to price by buying these items for much more then they are probably worth, or just pay the seller a large amount in cash privately, so the assessment does not go up to the actual selling price. He says that by doing this everyone wins. He gets what he wants for the house, the buyer gets the house with the assessment not increased, because publicly it will look like he bought the house for much less. He says closing costs will also be cheaper, and that if the buyer needs a mortgage the appraisal would be in line with the assessment or something, thus making the process "smoother".
It just does not sound ethical to me, and I told him that it sounded fishy. He says it is not much different then a "sellers buyback", and that nothing is wrong with it. To me it sounds like if it WAS legal, you would hear about it all the time. He says it is just "creative financing", and I'm being naive.
Whatever he does is his business....I just can't believe it can be done, especially with perhaps banks involved, etc. It seems like this is undermining the tax and assessment process. It just seems wrong to me, but I could not really prove to him why. Even if he does this, it seems to benefit only the buyer, and I think that as a seller he could get in trouble for it. For me anyway, when it comes to selling my house, I think it is stressful enough to do it the normal way without being "creative" like he says.....
I know many of you, especially the Real Estate pros here can shed some light on this for me....
Frank
Edit: Reading closer I see that the guy wants to pay an inflated price for the items and then lower the price of the house. If this is the case, and he is not paying market value for them, then yes this is some type of fraud imo. If he does not pay market value and report the market value then this is something to stay away from.
What exactly is he buying separately? If he is buying furniture, lawnmowers etc, then those things are not part of the house and are not assessed anyways, and there is nothing unethical about what he is asking.
If he is buying light fixtures and then things like that you have a point. The buyer is making this seem shady and something to be covered up for no reason, it is something legitimate and it is something that happens often.
Bottom line, your friend and his buyer are trying to pull the wool over the assessor's eyes. Probably done all the time in some form or other but I have not previously heard about it in home selling. I do hear about it in auto sales though. I guess you just need to decide wether or not this will effect how you feel about this guy. My opinion, don't lose any sleep.
If the guy sells the house for 250k, and instead of selling it for 250k, sells it for 200k and then sells a old wooden table to the seller for 50k then yes this is most definitely illegal.
NYS mandates frequent often yearly reassessments so he may get a lower tax bill for a year or two but not longer than that. Anyone who would be looking at comps would see that this sale price was skewed and not use it as if it were a close family sale or something similar. As for any mortgage he will actually be getting one for less than he's paying for the house so I see no problem here either. It's not as if he's inflating the price and asking for cash back from the seller.
Sounds like the guy thinks he's smarter than he actually is.
the tax valuation on real estate has nothing to do with sales price.
This is generally the rule across the country.
The buyer seems to be trying to depress the market price of the home. If the price is posted at a lower price, then it also depresses comp values which are all public. Thus in theory it could set up other homes in the area to get sold at lower values.
I'm not sure what is technically legal from that point of view, I'm no lawyer, and I don't have any particular experience in that, and probably niether do most of the posters here.
this is definately not mortgage fraud. how could it be if the sale price is lower? where is the benefit? if the sale price was listed artifically high, then it would be. the lender isn't lending on the purchase of the table. I'm assuming the buyer knows this and is paying a large chunk in existing funds, or else he's in for a rude awakening.
the danger I see in all of this, once the legallities on the taxes issue is worked out is...
the timing of the transactions. say seller and buyer agree to doing both these transactions. buyer signs everything for the house, so does seller, and whoops, buyer doesn't pay for the table. He bought your 250K house for 200K and you're stuck with a $50K table.
All things related to the sale of a home must be put in writing and disclosed on the agreement of sale if you are getting a mortgage. Now a cash deal can play out different.
The buyer will have a couple of problems with this plan to keep his taxes lower.
First, his mortgage broker will lend him money based on the sale price of the house. If he says he's paying $450,000, and wants the interest rate associated with putting 20% down, the bank is only going to lend him 80% of $450k. How's he going to get the rest of the money?
Second, the tax assessment is not necesarily based on the sale price. Tax assessors know that sometimes houses get sold to friends or relatives, or by people unaware of the fair market value. They will, at least here in NJ, usually want to go look at the house and make an assessment of that property so they can collect the maximum tax possible.
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