An investor client called me a few weeks ago and told me that the county assessor sent him property tax bills for an amount higher than the standard 1.25% on his recently purchased property. He didn’t understand why the taxes were higher, and needed advice on what he should do.
Most real estate agents correctly tell their buyers that property taxes in California are approximately 1.25% of the sales price, give or take a little depending on the specific location of the property. Normally this is sound advice. But what some agents do NOT know is that the assessor’s office has discretion to raise the property tax on your newly acquired property if it feels that you paid a low price. So your “great deal” may not be reflected in your taxes.
In all my years of selling real estate this is the first time I have seen this happen, which tells me that the assessor’s office is either starting to heavily scrutinize sales and related comparable sold properties, or that my client was very unlucky. One of his purchases was really an amazing buy, but the other fell in line with comparable sold properties.
Under California state law, Proposition 13, property is reappraised only when there is a change in ownership, or upon completion of new construction. Aside from these two situations, property taxes cannot be raised more than 2% annually. The tax rate in California is 1%, plus the costs of any additional fees, bonds, or special charges (thus the reason why agents tell their buyers taxes are “about” 1.25% – some areas/neighborhoods may have slightly higher or lower tax rates, depending on the additional fees, such as mello roos taxes, bonds, etc.).
Once a property changes ownership, the assessor determines whether the property needs to be reappraised. If an appraisal is ordered and comes in higher than the value the new buyer paid, the taxes will be assessed based on the appraisal. Note that a transfer between husband and wife does not require a reappraisal for property tax purposes, including those transfers resulting from death or divorce, nor does a refinance.
So what can a homeowner do upon receipt of a higher than anticipated property tax bill? The homeowner can appeal the value of his new taxes. Go to the assessor’s website and find out the steps for doing so, then get started. Keep in mind that it can be a drawn out process, but do not give up. Be sure you have all related comparables, and can show why those properties do or do not compare to yours – extra photos can help. Be prepared to really compare each one – I advise you use your real estate agent to assist you with this.
For further information on this and answers to related frequently asked questions in the San Diego county area, click here.