What You Need to Know About Tax Proration

Now that we know all the steps of a home purchase & have the terms down, let’s talk about taxes. While taxes may be the last thing on your mind as you advance through the home buying process. Yet, there are important tax considerations that need to be worked out before you get to the closing table. This post will tell you what you need to know about tax proration.

Property tax proration is a way to split property taxes fairly to ensure that each side is paying for the specific time that they were owners of the property. Since Illinois property taxes are paid in arrears, tax proration ensures that the buyer is fairly compensated for the tax bills they will receive after the closing, for the period in time in which the seller still owned the property.

Your real estate broker can help you better understand what tax proration is, how it works, and how it is calculated. Once you have a home under contract, your real estate attorney will work with the seller’s attorney to determine the exact amount due to you during the attorney review process.

The Calculation

Below are six facts about the tax proration process. When you reach this stage, your real estate attorney will guide you along with the help of your real estate broker.

The Facts

  1. Sellers will take responsibility for the property taxes up until the day the property is officially closed. The buyer takes on the property taxes from the day the purchase is final.
  2. Tax proration may be a large dollar amount on the closing statement, because it is prorated to the day of close.
  3. The real estate attorney and/or broker can check the county assessor’s website to determine any exemptions or freezes and anticipate changes to the tax bill. Also, always be sure to file for your homeowners exemption after closing!
  4. With new construction or rehab properties, there is special attention that needs to be paid to the real estate tax credits and prorations. This is because the property upon which the listed taxes are based is no longer the same property that is now being assessed as rehabbed or new.
  5. Unlike paying your rent or mortgage on the 1st of every month, 2019 property taxes are paid in 2020 so therefore taxes are prorated at a slightly higher amount because taxes will likely go up.
  6. An escrow account is used in cases where the parties are not certain of the anticipated change in the real estate taxes and cannot agree to a final credit until the bills come out. The seller sets money aside in the escrow account and those funds are issued once the tax bill arrives.

Whether you’re a buyer or seller, it’s important to understand tax proration so that when you arrive on closing day, you’ll feel fully informed and prepared. Be sure to consult your real estate broker as early as possible in the homebuying process so you are comfortable with all of the steps to come!

What Do Rising Property Taxes Mean For You?

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 private mortgage insurance?

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.

Wrigleyville: Neighborhood Spotlight

What to do in Wrigleyville, Chicago | Kelseyshawchicago

As a previous Wrigleyville resident, take it from me: this is one of the most fun neighborhoods in Chicago. Steps from the Friendly Confines, you can’t beat this little pocket of Lake View. Wrigleyville is home to the second oldest stadium in baseball and beloved 2016 World Series championship team, The Chicago Cubs. A magnet for sports fans, young professionals, & families alike; this neighborhood is exceptionally attractive to those seeking vibrant nightlife with numerous bars along Clark, Addison, and Sheffield Avenues.

Must Visit:

  • Wrigley Field – GO CUBS GO! Of course, you can’t come to Wrigleyville without catching a Cubs game!! If you come on an off day, take a tour of field & get the insider experience. If you are lucky enough to get to a game, you obviously need to get a Chicago Dog – but BEWARE: you must not order from the counter, you need to go to a stand & ideally you want to go to the penthouse deck facing Hotel Zachary/Clark for the best dog, city views, & a little known spot within the stadium. Be sure to take a quick walk in the new Gallagher Way before, after, or during the game for a break from the crowds. Lastly, if you are in the bleachers (which is a guaranteed great time) don’t forget sunscreen & be ready to get on TV!
  • Dutch & Doc’s –  American fare & classic cocktails, this new restaurant definitely filled a void in the neighborhood. A two-story dining room provides the coolest experience at the corners of Addison & Clark, just across from the world famous Cubs Marquee. Be sure to get the Mac & Cheese & Mudslide cocktail, because who doesn’t love cheese & a boozy milkshake. Reservations accepted & encouraged.
  • Hotel Zachary – Inspired by the designs of world-renowned Wrigley Field architect and Chicagoan Zachary Taylor Davis, Hotel Zachary is where history and style come together. The bar is so beautifully designed, grabbing a cocktail here transports you back in time. If weather permits, do your best to grab a seat on the terrace & take in the views of the ballpark.
  • Big Star – A new addition to the neighborhood, this has easily become one of my favorite spots. Amazing margarita’s, tons of great menu items, & a two-story open air restaurant this is a great pre-game, post-game, or non-game day spot. Get a pitcher & the Big Star Hot Chips.
  • Al’s Beef – Famous for their Italian Beef’s, this is one of my favorite late night/post game spots. Grabbing a quick & guaranteed delicious italian beef always makes me a happy girl. Ask for the Gypsy Fries, you won’t regret it.
  • Sluggers – It’s an experience we all need to have. Unreasonably expensive beers, fun music & a rowdy dance floor, batting cages, & carnival games – what more do you need!
  • Old Crow – If you love country music, cold beer, BBQ, & fresh air; Old Crow is a must visit. Great bands, live karaoke, & pretty solid deals make this a neighborhood favorite.

If you’ve been to Wrigleyville, tell me your favorite spots! Or interested in living in the area, contact me to get started.