Rising Taxes Effects Between Buyers and Sellers.
Hey, guys, let’s talk about rising taxes and pro relations between buyers and sellers at closing. So as we know, we’re seeing a significant. Increase in our values and our property values and our assessed values, which in turn is making our taxes increase, our property taxes increase. So a lot of people ask, what are the taxes and what values should taxes be based on? Is that the current year?
Is it last year while I got my statement? So why can’t we use this? So as a rule of thumb, they go on the previous year’s taxes and they do that because that is what is set. That is what the actual is. And until we have new information, that is what it should be based on. But what’s happening is rates are not set until the CAD, the central appraisal district, certifies the values.
So the beginning of the year, we get our statements and then we have until May 15th to protest those, which means that you are protesting that value in some way, shape or form. So then the hearings after you set a protest, the hearings happen between May 15th and July 15th.
And during that time, the values can change. So those values may not be set until up until September. And then October is when the statements come out. So if you’re closing anytime up until that time. It’s in your best interest to go ahead and use the previous year’s taxes.
So. We all know that buyers want it based on the highest price because they want that collected from the seller, and the seller wants it at the lower price. So there’s two ways in the contract that this is protected. You can ask the title company to use a different value, and they might if it’s already said, if you have data and you know, maybe that you have information and your seller says, I haven’t protested the taxes, it is at a lower rate. If the buyer and seller do agree, you can give that to the title company and you guys can tell them you want it based on. That new, new value. Right.
So you can do that. But most of the time it’s going to be based on the previous years because that’s what’s set in stone. So let’s pull the contract over Omkar and I just want to remind everybody of two paragraphs in the contract. The first one, paragraph 13 talks about the preparations and how that works.
So as we know, the taxes are collected from the seller for the period of time that they owned the home up until closing, and then it’s credited to the buyer. And then when taxes come due, the buyer is responsible for 100% of it. So taxes for the current year, interest maintenance fees, assessments, dues, rents will be pro-rated through the closing dates. The tax proration may be calculated, taking into consideration any change in exemptions that will affect the current year’s taxes.
If taxes for the current year vary from the amount prorated at closing, the parties shall adjust the operations when tax statements for the current year are available. If taxes are not paid at or prior to closing by or shall pay taxes for the current year.
So that’s what that says. You know, seller’s going to credit the buyer and when the taxes come due, buyers are responsible for the rest. So what if that value is different? And what if there’s a significant difference in that versus what the seller credited you?
So if you go down to 19, paragraph 19 of our contract. It says all covenants, representations and warranties in this contract survive closing. So just because you’re closed doesn’t mean that you can’t go back on these things. To the seller and request them to. To make it whole. If any representation of seller in this contract is untrue on the closing date. Seller will be in default.
Unless expressly prohibited by written agreement, seller may continue to show the property and receive negotiated backup offers. So the important thing to remember here is this survives closing. So after closing, if you get the tax statement and it’s significantly off, then you go back to the seller and you request them to pay the difference.
You know, I always look at things, how it would look and play out in a court of law. And I always go by the contract, write the contract says it survives closing. So if you had to take them to court, I don’t see any reason how you wouldn’t win, but you would have to do that. So there are some hoops to jump through, but just know that there are those protections if your clients ask.
So if you have any questions on that, please let me know. And you know, we we think sometimes that, oh, values are not going to go down, values may go up, whatever. Don’t assume anything when someone is protesting their taxes.
Right, because they could go down. You just never know. Right. So even if they don’t protest and they get their tax statement, it could still go down. So don’t just assume during that time that it’s not, you know, that based on last year that it’s just going to go up. It could go down. It depends on what information and data that they have. So again, again, if you have any questions on that, please let me know.
But just, you know, have this conversation with your clients and make sure that they are aware you don’t want to get a call in October and they’re like panicking because there’s a significant difference in that number and in that value.