Q: Do builders get a tax break before they sell their houses?
In a recent column, you wrote “Are you accusing your builder of deliberately misleading you on how much your property taxes would be? That’s a serious charge…”
Well, I live in Maryland where I picked up a brochure for a “newly built” 3075 square foot home. The home is valued at $624,900 and the taxes are listed as $1,092.
Wow! Is that misleading, a mistake, deception, or what?
For comparison, my taxes on a 40 year old 2,200 sq. ft. home on 1.5 acres are almost $4,728. And my home is just down the road from this new home.
I hope you take a look at this situation and alert new homeowners that their taxes may truly be higher than the builder is currently paying.
A: Builders will frequently pay less property taxes on undeveloped property and in many instances, the real taxes on a newly built home won’t take effect until the home receives a certificate of occupancy from the municipality, or a buyer closes on that home, or some other local requirement occurs that causes the local taxing body to raise the real estate taxes to the level they should be.
But that doesn’t mean that that the builder has mislead the buyer. Understanding how property is assessed and billed is an important piece of information for any buyer to find out.
In my mind, bad behavior on the part of a builder would include deliberately providing misleading information about taxes or outright lying about how much a buyer would pay and how much other homeowners were already paying.
Often, a builder will know what the true taxes are going to be and simply won’t provide that information even if asked directly. It’s the kind of bad behavior that makes everyone in the new construction industry look bad because it sows the seeds of mistrust.
However, if the current taxes on the home are $1,092, that information would at that point in time be accurate. In some parts of the country, developers are required to disclose an estimate of what taxes are expected to be once the home is sold. However, that requirement does not cover all areas nor does it cover all types of new construction.
You are correct, however, that buyers should be aware that real estate taxes that seem too low are probably too low. If buyers are working with a real estate agent in the purchase of a home, those real estate agents will frequently alert buyers to the actual amount they would expect to pay on new construction homes.
However, many buyers shopping for new homes frequently shop on their own and may not be aware of the real estate taxes they should expect to pay on a newly built home. They may miss out on other information as well. Frequently those buyers may find out from their lenders that the taxes on a newly built home will be much higher than what the builder was paying for the home but may not really understand that information in the context of the loan application or the total costs for owning and maintaining the property.
The buyer may sit down with the lender, who might explain that he or she needs to pay a monthly real estate tax and insurance escrow to the lender and that number may be computed on an estimate of what the taxes might be. But the buyer might not connect that monthly estimated payment with the information given to him or her from the builder.
In some parts of the country, new home buyers expect that they could pay up to 3 percent of the value of the home yearly in real estate taxes. Certainly that amount varies by location and in some places it’s considerably lower, while in states that do not have an annual real estate tax, the amount is zero.
Thanks for your insight and comments.