Buyer beware of confusion over property taxes for newly built homes

By Ilyce Glink and Samuel J. Tamkin
Friday, February 11, 2011; 3:34 PM

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, and I picked up a brochure for a "newly built" 3,075-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 square-foot 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 what the builder is currently paying.

A. Builders will frequently pay lower 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, until a buyer closes on that home or until some other local requirement occurs that causes the local taxing body to raise the taxes to the level they should be.

But that doesn't mean that that the builder has misled the buyer. How property is assessed and billed is an important process for any buyer to understand.

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 or how much other homeowners are 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, it's possible that the current taxes on the home in question are $1,092 for the time being. 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 if real estate taxes seem too low, they probably are too low. If a buyer is working with a real estate agent to buy a home, the agent will often be able to alert them to the actual tax they should expect to pay on new homes. Buyers who shop on their own 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, these buyers find out from their lenders that the taxes on a new home will be much higher than what the builder was paying, but they may not really understand that information in the context of the loan application or the total costs of owning and maintaining the property.

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