They say only two things in life are certain, death and taxes. I’m happy to report that as Realtors®, we don’t get asked about death a lot, but people do often have questions about property taxes. We often hear questions like: “Aren’t California property taxes expensive?” and even more often, “What is the tax rate in [Name Your Favorite] County”.
Folks within the state are trained to ask, “Does this property have Mello Roos?”, whereas folks from out of state think a Mello Roos is a laid-back male chicken — a myth I will dispel conclusively as we go along.
Yes, I know, that was pretty bad. I’d better get right to the article, at the risk of further taxing your patience.
1) I Live Out Of State and Have Heard that California Property Taxes Are High. Is That True?
Actually, yes and no. It’s more correct to say that California property values are high. Many property taxes are taxes that are levied “according to value”, but we often say ad valorem because saying things in Latin is so much more fun. Because of this, according to the Tax Foundation, California ranks #10 from the top in the median property taxes paid on homes among the fifty states, but ranks 46th (i.e., 4th from the bottom) in terms of the property tax rate.
Statewide, our ad valorem property taxes were limited (by proposition 13) to 1% of the market value, and there rate of increase was limited to a maximum of 2% per year for inflation. (In other words, in the first year they’d be 1%, the second year 1.02%, etc.) Later, Proposition 8 required assessors also have to take possible devaluation into account, hence Purva Brown’s recent post about Sacramento County taxpayers getting a lower bill.
2) What’s the Tax Rate in Sacramento County and Surrounding Areas?
Though our statewide rates are limited to 1.0%, voter approved bonds and fees can and do increase that figure. Both Sacramento and El Dorado County claim average tax rates of 1.1%. When I first got into the real estate business, I was taught to use a more conservative figure of 1.25% to give to my clients as a ballpark number, and most lenders I know use that estimate when calculating the Tax component of PITI (Principle, Interest, Tax, and Insurance). In all these cases, we’re talking about an initial rate based on the market value at the time your home was sold.
3) What’s A Mello-Roos, and Do I Want One?
Proposition 13 was originally passed in 1978 because older Californians were being priced out of their homes by the ever-growing tax burden, given the wonderful appreciation we enjoy in California. (Ahem: well, most years we enjoy it, anyway). Of course, once you limit the amount of taxes counties can collect, now you’ve got a new problem, especially as new communities develop — how do you pay for things you might want, like streets, water, drainage, sewage facilities, policemen, parks and recreation. Along came state Senator Henry Mello and Assemblyman Mike Roos, who co-sponsored 1982’s Community Facilities District Act, which allowed communities to pay for these services through bonds when 2/3 of the voters in the district approve them. Bonds issued under that legislation still (accusingly?) bear the names of the authors of the bill.
Of course, being bonds, the good news is that unlike taxes, they’re eventually paid off. The bad news (can you say “proposition 13 loophole”) is that now your effective tax rate could be 2.5% or more depending on how much the Mello-Roos bonds bring to the table.
4) Are there Any Mello-Roos Bonds On [Name Your Property Address]?
Well, you’d think we could just go ahead and give you a straight answer to that one by looking in the MLS or calling up the county assessor’s office, wouldn’t you?
Well, yes and no.
The good news is, that in most cases we can get you more information from the county, or in certain cases you can even go online yourself and check. (We’ll do a tutorial on this soon). The reason we have to say that “in most cases” is that Community Facilities Districts who issue Mello-Roos bonds may ask the County Tax Collector to include this lien as part of your biennial tax bill. They may, and in most cases they do, but here’s the problem: they don’t have to. For example, the El Dorado County Tax Collector shared with me that the city of Placerville has several properties with 1911 bonds (another form of special assessment) that aren’t on the tax role. So folks in those areas of Placerville get a separate bill. Although most Mello-Roos bonds and other special assessments are levied through the county tax collector, if you call any assessor or tax collector in any county, you’ll no doubt come up with several similar exceptions to that rule. The bottom line is can get you an answer that has maybe a 95% chance of being right within a business day of hearing from you.
5) How Can I Find Out More about Mello-Roos and Other Special Assessments for the Home I’m Buying?
Fortunately, the State legislature has your back on this one, and enacted legislation in 1992 requiring the seller and the listing agent to disclose whether there are Mello-Roos bonds on the property. In 1992, legislators noticed that some builders were cleverly using other forms of special assessments to avoid having to disclose that they had Mello-Roos bonds. (”Hey we don’t have any Mello-Roos” [wink, wink]). Senate Bill 1122 therefore extended this disclosure requirement to other forms of special assessments.
Now if there’s one thing broker’s don’t like (other than water chestnuts — I hate water chestnuts), it’s having liability to disclose something that the seller may not even know, especially where the information is not obvious and our usual way of finding out the answer is right only 95% of the time. So naturally, companies have sprung up to do the disclosing for us. One such company that we particularly like is Property ID. Property ID provides natural hazard disclosures, but as part of their report they also include a special assessment disclosure that is ensured up to $20 million. We always write Property ID into our agreements asking the seller to provide this when writing up a purchase agreement.
Most agents don’t order Property ID or another disclosure report up front, but if it’s available, we’re happy to provide it to you prior to opening escrow. Usually you get the report while you’re in escrow and under your inspection period. If you really want to try to nail it down with more certainty, you might try ordering a report from Mello-Roos.com, but most of our buyers have found that checking with the assessor up front and then getting Property ID (or a report from another reputable disclosure provider) in escrow is a cost-effective alternative.
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