Back in 1994 when homeowners were losing their homes to tax sale because our property tax structure was completely out of control, the Headlee Amendment and Proposal A passed. They stopped the double digit escalation of assessments and capped the taxable value of every home in Michigan at its 1994 value. After that, the assessors could only raise your taxable value no more than 5% or the rate of inflation, whichever was less. Inflation has been running about 3%. So that’s how much your taxable value goes up every year…… no matter what. Proposal A also said when a home sold, the cap came off, and the taxable value was reset. Assessors most always went with sale price as the new taxable value. So the taxes you see on a listing, may not be what the taxes will be when it sells.
That was then. This is now. For the first time in history, homes in Michigan are selling below SEV. And what is SEV anyway? Sate Equalized Value. That’s the figure they think your home is REALY worth….but they can’t tax you on. It’s what you USED to be taxed on before Proposal A came along. So now you see two figures on your tax bill. The SEV, (the figure the assessor thinks your home is REALLY worth), and the Taxable Value, which is the lower figure they’re stuck with using to base your taxes on.
When a home sells and the cap comes off, assessors may choose to adjust the new taxable value to either the sale price or the SEV, whichever is higher. So, since some homes are selling for below SEV, and the townships and cities are broke, they’re choosing the SEV instead of the sale price as the new taxable value. Why? Because they can.
And buyers who get a bargain on a home, are in for a shock when they get their tax bill and find it’s based on a figure that can be twice as much as they actually paid for the home! So they appeal to their local Board of Review, and for many reasons I won’t bore you with here, they deny it. (Some are their fault…some are the way the state forces them to work with formulas). The good news is you can appeal to the State Tax Tribunal, and they most likely will find in your favor. The bad news is, as a result of this problem affecting just about every buyer in the state, the tribunal has about a 3-4 year waiting list!
So……until this mess is fixed, I warn my clients…you may get a great deal on a home, but be prepared to pay a tax bill that bears no relationship to what you actually paid for the house…. for a while anyway.
HOMESTEAD VS. NON-HOMESTEAD
With regard to “homestead exempt” versus “non-homestead” tax status. When Proposal A passed,
and the school tax was removed from homes, they had to figure out a way to get it back. (Of course!) So they hiked the sales tax from 4% to 6% and they said the school tax will only be removed form the home you actually live in. That one is “homestead exempt ”. Second homes, rentals, vacant homes and commercial will be “non-homestead” and will pay an extra 18 mils for schools. (That’s $180 per hundred thousand of taxable value). How do you know if a property on the MLS is “homestead exempt”? On the listing there will either be a “Y” or an “N” next to the word “Homestead”. Depending on the local millage, non-homestead status can raise your taxes 40% to 100%. Example; City of Howell millage is about 42. So adding 18 mils raises it about 40%. But Cohoctah Twp millage is only about 22. So adding 18 mils there nearly doubles your taxes.
Also, since some owners have already moved, and of course all foreclosures are vacant, and the townships are broke, the assessors are on the prowl looking for vacant homes so they can change them from homestead to non-homestead status and get more tax dollars. When the home sells, if the new owners will be using it as their principal residence, they will change back to homestead status at close. That’s the good news. The bad news is Proposal A is a state law, not a local law. And the state will not record the status change every time a home sells. They will only change the status twice a year, June 1st and Nov 1st. So, if you miss one of those deadlines to change the status from non-homestead to homestead, you’ll pay the higher tax rate until the next deadline. So, if you close right after the June 1st or Nov 1st deadline, best you can do is go to the seller and ask for concessions to cover those high taxes until the new status is recorded. Sometimes they’ll grant them, sometimes they won’t. But remember, that’s a normal seller we’re talking about. In the case of foreclosures and short sales, the banks could care less….of course, and they will grant you nothing. So it’s important to know exactly what the tax implications are on a foreclosure or short sale before making an offer.
To determine what your property taxes will be, go to this State of Michigan link and enter the SEV of the home. It will show what the homestead and non-homestead rate would be. https://treas-secure.state.mi.us/ptestimator/PTEstimator.asp. The SEV will not be on the listing. Only the current taxes will be there. You need to look at the deed records to see what the SEV is. Unfortunately that requires a trip to the court house. Or just email me and I’ll send it to you. It will show what the homestead and non-homestead rate would be.