Chicago property taxes

In Chicago, specifically referencing Cook County, property taxes rose in 2018 & everyone is left wondering – What now?

This year, 2018, was a reassessment year for all of Chicago, so homeowners & hopeful homeowners will receive increases – for example, I had clients who’s taxes went up a shocking 83%.

So, as a Seller, should you lower your asking price because of rising taxes? As a Buyer, should you low ball the Seller & justify your offer price due to the anticipated tax increase?

My opinion to both of those questions is: No.

This past Spring & Summer we were in a Seller’s market, so the chances of Seller’s having the hindsight to adjust their asking price to outweigh the impending tax burden were slim to none. While the market is starting to stabilize into the Fall, I still advice my Buyers against submitting offers asking for a significant tax proration, due to the lack of inventory the ball was still in the Seller’s court so we need to be reasonable, but definitely take the impending tax hike into account.*

While this tax bill hit everyone with some ‘sticker shock’, we need to recognize that the previous reassessment figures sent out in the 2015 Triennial were based on 2012-2013-2014. 2012-2013 was coming off the worst real estate crash since the Great Depression, so those previous assessed values were low – because the market was artificially low.

My best advice is ALWAYS do your due diligence, talk with your Broker & Attorney on the anticipated increase & be sure to understand how it will affect your bottom line. Be aware of exemptions that may alleviate the tax burden & be explicit with your questions so you are fully aware of what you are committing to with the sale or purchase of your home. Communication is key.

The good news, if you did purchase or are currently an owner in Cook county, you can appeal & most homeowners appealing to the Assessor’s Office do not use an attorney. 51% of residential appeals to the Assessor’s Office are successful; the amount of reduction varies, however. If you are looking for more guidance I do know a great tax appeal attorney – so reach out to me to discuss your options.

If you’re appealing your property taxes: 

  • Someone appealing does NOT have to (do) the work. The assessor’s office will look up comparable properties for them. If someone wants to submit their own list of comparables, that is, of course, fine. We just make it clear that appellants don’t have to worry about how “long” it’ll take to file an appeal. It is a one-sided form which takes approximately five minutes.
  • Appeals are for the purpose of reducing the Assessor’s valuation of a property. They do not automatically reduce a future tax bill. Dollar amounts of tax bills are decided by the tax rates and levies in individual communities (school districts, etc.). Most property tax revenue goes to public schools.
  • If someone “loses” an appeal and does not receive a reduction, their assessed value will NOT go up. It stays the same for the three years between triennials (unless they appeal the following year and win).
  • If you are successful in one of your appeals, the reduction will be reflected on the second-installment tax bills to be mailed in the summer of 2019.

Helpful links:

Click Here to Appeal Online

Illinois Property Tax Calculator

For more information on this, check out this article.

What is PMI?

As the first post in the First Time Home Buyer Series, I want to address the initial question clients always have when looking to get a mortgage: What is private mortgage insurance?

Private mortgage insurance, PMI, is a type of mortgage insurance from private insurance companies used with conventional loans. Similar to other kinds of mortgage insurance policies, PMI protects the lender if you stop making payments on your home loan. PMI can be arranged by the lender and provided by private insurance companies.

So, what is PMI? The ultimate catch 22**

Most lenders require PMI when a homebuyer makes a down payment of less than 20% of the home’s purchase price – or, in mortgage-speak, the mortgage’s loan-to-value (LTV) ratio is in excess of 80% (the higher the LTV ratio, the higher the risk profile of the mortgage) – https://www.investopedia.com/mortgage/insurance/

While it helps borrowers attain a loan with a lesser down payment & potentially become a home owner sooner, its purpose is to protect the lender. Important to note: Similar to interest, property tax, and homeowners insurance, payment of your PMI does not build equity in your home.

You may be thinking that buying insurance on your mortgage may sound a little strange, but it protects the lender’s investment in the home. While yes… it’s another fee you need to pay, it’s advantageous to homeowners as it makes home affordability a reality sooner.

PMI MISCONCEPTIONS

  • PMI isn’t just for people who can’t afford a 20% down payment. It’s also for people who don’t want to put down 20%, so they have more cash on hand for repairs, remodeling, furnishings, emergencies, etc.
  • PMI isn’t forever. Borrowers pay their PMI until they have accumulated enough equity in the home that the lender no longer considers them high-risk.
  • The rate of your PMI depends on the size of the down payment and mortgage, the loan term and your credit score. The greater your risk factors, the higher the rate you pay.

 

**Disclaimer: I am not a mortgage professional, always consult with your lender regarding mortgage decisions. If you are wanting to get connected with some of my highly suggested lenders in Chicago (& elsewhere) contact me.

As a segment of the First Time Home Buyer Series, I will be discussing the 5 common mistakes first time home buyers make & how you can avoid them.

5 common mistakes first time home buyers make

1. Not getting your financing in line prior to start your home search

I love HGTV, but they have done home buyers a disservice with their unrealistic portrayal of the American couple. The idea that you can be a button collector & a dog walker yet have a budget up to $1,000,000 is obviously unrealistic.

While there is an exception to every rule, not everyone is as blessed with their budgets & making sure you are aware of yours is a very important factor. While many home buyers run their numbers & are financially literate – having your pre-approval will not only be able to set expectation for what you can reasonably afford it will be necessary when submitting offers. More to come on mortgage specifics..

2. Not hiring a REALTOR, or using an agent who isn’t knowledgeable in the market you are interested in

There is no bigger disservice a home buyer can do to themselves like hiring an inexperienced broker. Education, neighborhood knowledge, pricing guidance, & market expertise are a few things that a REALTOR brings to the table & necessary for a seamless transaction. Also, did you know that hiring a Realtor in Illinois is FREE? The listing brokerage pays the buyers agent their commission.

3. Being unprepared for the hidden costs of purchasing property

I have found a common theme with first time home buyers – they are generally aware of their budgets, but always unaware of all of the costs that are included in purchasing their properties & what funds they need to bring to the closing table (in addition to your down payment). These costs can include: property taxes, homeowners insurance, title insurance, origination fee, doc prep fee, etc. Long story short – be knowledgeable of all costs involved.

4. Holding out for a better deal

The condition of the market is something that can be sometimes volatile & will dictate the speed of search. I always recommend to reach out to a broker 9 months prior to a move, not because it should take that much time, but just so you have get all of your ducks in a row.

From contract to closing, Chicago lenders can close anywhere from 30-45 days, so it can be a fairly speedy process. Many buyers won’t offer on the first house they see as they feel something better is out there. The beauty of being prepared & be knowledgeable is that even if its the first house you physically see, sometimes it really is the best. The grass isn’t always greener.

5. Not being prepared and/or being impulsive

The hardest part of home shopping for buyers can be the struggle to remain unattached & unemotional. Purchasing a home is likely one of your biggest commitments you can make & obviously you will become immersed in the deal. Don’t let your heart overtake your head. Be ready with all of your financials in line & look at it as an investment, because at the end of the day – It’s likely the biggest investment you will be making.

 

While home ownership can be a scary thing, it doesn’t have to be. If you can avoid these 5 common mistakes first time home buyers make, then you are already setting yourself up for success.