Frequently Asked Questions from home owners about property taxes in Michigan.

Please feel free to add comments on questions from clients, or ask questions if you are a Michigan home buyer or seller.

Answers Copyright 2008, By Lynn Afton, Realtor, (and former Board of Review member for 4 years)

(Note: I am not an attorney, and this is for informational, not legal purposes. Contact a real estate attorney if you have legal questions or concerns). All information subject to changes.

Q. What does “SEV” mean?

Michigan assessors determine a property’s “True Cash Value” - TCV, and that figure is divided in half to arrive at the SEV, or “State Equalized Valuation” = 50% of TCV. Ideally, over the years, the SEV continues to reflect an amount that is half the market value of the home at any given time. In reality, due to many different factors, this is not always accurate.

Q. How is “True Cash Value” (TCV) determined by assessor?

Initially, a property is assessed (value determined) according to the area market values of similar homes sold in the past year, condition of the specific property, and the improvements that exist on that property as of December 31^st, known as “Tax Day” in Michigan.

Q. What is a “Homestead Exemption” or “Principal Residence Exemption” (PRE)?Homeowners “Principal Residence Exemption” (PRE) replaces the term “Homestead Exemption” used to describe properties that have reduced taxes because of the “Headlee Amendment” of 1995. (For homes that are not a homeowner’s principal residence, the term still used is “Non-Homestead”)

Q. Can I ever have more than one home with a PRE exemption at the same time?Possibly, if the following apply:

                            “if an owner is eligible for and

claims an exemption for that owner’s current principal residence,

that owner may retain an exemption for not more than 3 tax years on

property previously exempt as his or her principal residence if

that property is not occupied, is for sale, is not leased, and is

not used for any business or commercial purpose by filing a

conditional rescission form prescribed by the department of

treasury on or before May 1 with the local tax collecting unit.

Property is eligible for a conditional rescission if that property

is available for lease and all other conditions under this

subsection are met.”… http://www.legislature.mi.gov/

In other words, if you move out of a principal residence house with the PRE exemption on it, and it remains vacant for the year until December 31st, you can keep the PRE on it by filing the form by May 1^st for the year that you move into your next PRE home. (legislation introduced to change the filing deadline to October for this) This is called “Conditional Rescission” of the PRE, new in 2008.

Q.  What is a Qualified Agriculture Exemption?

An Agricultural Exemption is essentially the same “discount” on taxes as the PRE, and you cannot claim both on the same property.

(A side note: Many people claim the Ag Exemption on property that really should be P.R.E., and the undesirable effect is that when the property sells as “Ag”, it is recorded that way for the township SEV figures, and eventually raises the area taxes on true agricultural crop properties, which are generally much lower in market value per acre than residential properties.)

Q. When I buy a home, will the property taxes always go up?

Not always. If you are purchasing a vacant or rented home that does not currently have a PRE, the Non-Homestead tax rate is about 45% higher than the PRE taxes. In this case, the tax rate stays the same for the full current year, and will go down the following year if owner occupied & the Principal Resident Exemption was filed at the time of the sale. (See other questions on mortgage payment effects.)

Q. When I purchase a home, how are the taxes divided up between buyer & seller, and who makes sure the taxes get paid off at closing?

The title company ensures that the owing taxes are paid at closing, according to the agreed split in the purchase agreement signed by buyers & sellers. Make sure your agent fully explains the consequences of the tax pro-ration, and what your expenses will be. (Watch out for paperwork supplied by foreclosure companies, as their addendums usually are worded to supersede any and all wording in the initial purchase agreement, especially taxes, inspections, repairs, closing costs, and the owner’s title policy, and can have added fees, such as $100 per day if you don‘t close on time.)

Q. What happens to the amount of taxes I have to pay if my home purchase closes after May 1^st?

If the home has a PRE on it, you will be paying that smaller tax amount, and your lender should be pro-rating your escrowed taxes based on those figures. HOWEVER: If the VACANT home you are purchasing has NO Principal Residence Exemption, and it closes after the May 1^st , (P.R.E. deadline), that higher tax amount will be charged for the remainder of tax bills for that year, and also for your lender’s reserves for tax dollars escrowed at close, and also for your monthly payments till the end of the year (and beyond…if you don’t have it changed!)

If this happens, make doubly sure that your PRE is registered with the township or city when your home closes, so that your lower tax amount will start as of the beginning of the next year. Then, call your lender in December, and tell them you want an analysis of your escrow account, and that your monthly payment tax amount in your mortgage payment should be lowered, starting in January. They probably will want the township or city tax authority to send them the corrected amounts in order to change it. They will not automatically do this - you must call the lender yourself.

Q. The property taxes on the home that I purchased were pro-rated at closing, and now I found out I have to pay more into my mortgage escrow for the winter tax bill, even though they take money from my monthly payment to pay the property taxes. Why do I have to pay more?

At closing, the unpaid taxes were likely estimated according to the millages, etc. at the time of closing, which are sometimes not accurately projected for future tax bills.

Q. I pay my own property taxes, and they are not part of my mortgage payment. I thought that at closing the seller paid most of the taxes that would come due in the “calendar year”, but now I find out the winter tax bill is unpaid, and I have to pay the whole amount. The taxes were pro-rated to the date of closing, so why do I have to come up with the winter taxes?

At closing, the title company would include tax pro-rations according to the purchase agreement. Contact your agent and have them explain it, or call the closing agent at the title company. If the seller had amounts credited to you at closing as part of the pro-ration, you were in effect paid those dollars, even if they were not in the form of cash received in your hand, it reduced the amount of money that you had to bring to closing. So, in effect the seller has paid his portion to you, and now you must pay the tax bill in full because his portion was already credited to you at close. If you feel there was a mistake made, contact an attorney to look at your purchase agreement and closing statement, and see if they agree.

Q. Will the value of the home for tax purposes be based on what I pay for a home?
Typically, the tax base will change to the SEV at the time of the sale, but other assessors may automatically pay a visit and re-evaluate the property because of the sale. It is illegal for an assessor in Michigan to “chase sales”, or use the sale price of a particular home to set the assessed value. It should be based on the area property market values of sold homes, not just your home. Sometimes, they do work out to be close to the same dollar amount.

Q. What does “uncapped” mean, in regards to property taxes?
When property ownership transfers in Michigan, it becomes “uncapped”.The new property owner’s taxable amount and the SEV amount, (or State Equalized Valuation) will then both start out as the same (newly determined) figure.

Q. Why aren’t the SEV and the Taxable Value the exact same amounts, on the home I am about to purchase?

When a home’s ownership is transferred to someone else, the assessed amount of what is supposed to be “True Cash Value” (TCV) is established. Let’s say it is determined to be $100,000, for this example.

The TCV is then divided by 2, so 50% of the TCV becomes both the “State Equalized Value” (SEV) of $50,000, and also the “Taxable Value” (TV) of $50,000. The Taxable Value figure is the only figure that is used to determine what your taxes will be for the year.

Every year after, the State of Michigan will issue an factor percentage, which is a multiplier similar to a cost of living, or inflation increase (or decrease, as values fall). This is applied to the Taxable Value, which may raise your taxes some each year. The Taxable Value is “capped”, however, and not affected by market changes, only the state multiplier factor.

So, if the multiplier is 1% a year, your are paying on the Taxable Value of $50,000 the first year, $50,500 the 2^nd, $51,005 the 3^rd, and so on.

Meanwhile, property values could have skyrocketed in your area over the 3 years, raising the SEV from $50,000 to $60,000 over the 3 years. (In the near future, if property values plummet in an area, the SEV could actually be lower than the TV).

You can see that over time, it is possible that the two figures may grow farther & farther apart in numbers.

Market changes do affect the overall SEV’s of the area, as all sold properties amounts are used to help determine an updated area wide assessment change, figured at the end of the year for each township or city. Your SEV may keep going up year after year, but you are not paying taxes based on the SEV. Taxes are based only on the capped Taxable Value as long as the property has the same ownership.

Q. What can I do if the tax base seems way too high compared to the current market value?

You can appeal your assessed amount to the local Board of Review in March, July, and December of each year, but only certain issues are covered at each Board of Review period. (dates should be on the assessment). You can do this by letter, and do not have to appear in person. If you don’t feel the Board action is correct, you can appeal it to the Michigan Tax Tribunal.
The assessment figure for your home should reflect current market value for similar properties in that particular area of the township. As more properties are sold at less value, area assessments will go down, but “equalization” figures are about 2 years behind the sales happening. This is partly because they are figured based on the year ending at tax day, Dec. 31, then the following year they are analyzed for the next year’s use.

Make a phone call to the assessor to explain the condition of the home, if it is not on par with the neighboring properties. Typically, a foreclosed home is not taxed as a “Principal Residence” (homestead), so buying after the May 1st deadline, you will pay whatever the current taxes are to be billed this year. You could also call the township supervisor, who is by law the designated secretary of the board of review.
Other things to know:

Call your county clerk and make sure they have you as the new owners, and that your P.R.E. is on file. If your taxes are paid in your mortgage payment, you can call your township or city & request that a tax bill copy be sent both to you and to the lender’s address.

It is good to check with the lender when your tax bill comes, to make sure they do have a copy. If your mortgage at any time through the years is sold to another lender, be sure to follow through & change to the new lender address with the township or city clerk so your tax bill is sent to them on time. Then call & check to see that they do have it when a copy comes to you.

If you will occupy the property, make sure that at the time of the sale you fill out a “Principal Residence Exemption”, and that it gets filed with the taxing authority in order to get the discounted Headlee Amendment tax rate. The taxable amount (the basis for your property tax amount) will then only increase by the inflation percentage set by the state, while the SEV will fluctuate according to area market trends.

There is a bill introduced in the Michigan House of Representatives by Rep. Fred Miller, removing the May 1^st filing deadline for the Headlee Principal Residence Exemption , and changing it to a pro-ration based on the date the form is filed. Essentially, you could have the P.R.E. exemption for the period of time you occupy the home, from the date you buy it, if you file the form that day (If the bill passes). I Support House Bill 5334, which will help at least half of the people buying homes in Michigan.

Broad Selection. There are over 1600 homes on the market in the West Central Michigan area. Regardless of the price range a buyer desires, there are plenty of homes from which to choose. Your Realtor can help you locate the home of your dreams. There are lots of options in this market!

Save Gas & Money. Today’s buyers can save money on that expensive gasoline! Reasonably priced homes are within biking or walking distance to schools, shopping and work, saving you not only money, but your valuable time as well!. Many homes are near Rails-to-Trails for year around recreation as well. Your Realtor has more tools than ever to help you find the homes closest to your goals. You can be among the first to know when a great new listing is available!

Bidding is Easier. There is less competitive bidding in this buyer’s market. You won’t see bidding frenzies with homes selling far above listing prices, or buyers authorizing their agents to outbid other offers by thousands of dollars. Your Realtor will help make negotiating a pleasant process! Today the selling price averages about 90 to 96% of the listing price (WCAR MLS). A seller will not be insulted if you make a reasonable offer. (A few years ago when you made an offer, the only question was how high above the list price could the buyer reach in hopes of being the best offer on the table

Time can work for you. In the hot seller’s market that existed before, the process was more rushed. Find a house before other buyers did. Hurry up and make the offer. Today a buyer can take more time to look at several homes and compare before making a decision. Your Realtor can help you recognize the exceptions that need to be acted on quickly - namely the best values in new listings. Those homes with the best updating, least maintenance, the most features and located in the most desired areas will still go quickly if they are priced right! When your Realtorâ works for you, they can help you determine many factors that may affect your decision-making such as: property taxes, (which vary); types of services available; history of a particular property in the market; and other factors specific to a particular property.

Inspections are encouraged. In this market a buyer is encouraged to obtain home inspections, termite inspections, and an appraisal. In the past, many buyers waived these contingencies in order gain an advantage with multiple-offer situations. Your Realtor can help you arrange for inspections and make sure your offer protects you as the buyer if you are not satisfied with inspection results.

Repair requests are more welcomed. After a buyer completes a home inspection, they may be allowed to submit a repair request to the seller. In today’s market, sellers are encouraged to have properties in good shape or offer repairs if necessary. (In the past, a seller might just insist the home was sold ‘as is’ with no repairs, because there were back-up buyers waiting in the wings. This happens less - with more homes for sale.)

There are plenty of brand new homes. In the not too distant past there were sometimes waiting lists in order to obtain new construction in a desired area. In today’s market, builders have an abundance of new homes ready for immediate occupancy, and also beautiful development lots just waiting for your home!

More “handy-man” Specials are Available. There are hundreds of repossessed homes available at less than their normal market pricing. Many of these homes need work, sometimes extensive repairs, and are available at low prices for those willing to restore them. (Note: Usually properties owned by lenders are sold ‘as is’, and very close to the listed price. Your Realtorâ can help you negotiate and navigate through the lender-specific paperwork & rules involved with a repossessed property sale.

Solid Financing is available. The zero down, no doc, adjustable, sub-prime loans are gone. Fixed rates are back. FHA financing, first time homeowner programs, special loans for teachers, and police officers are back in business. It’s a great time to buy real estate, especially with the low interest rates! This may be the year that people will be looking back wistfully & saying “I should have invested in more real estate in 2008 when the home prices & interest rates were so low!”

If you are thinking of selling your home this year, you probably are wondering if it will be worth waiting until later.  You could be right.  But, if you MUST sell your home now, there are some simple things that you can do to improve your chances of selling, AND your chances of getting the best price.  The key is not to spend too much money getting your home ready to sell!

Number One:  Clean it up! Make sure your home is as clean as it can be.  That means remove every fingerprint from the light switches & door jambs, and scrub out every corner of every room.  Pack up all the extra “stuff” from the room & give it to a charity.  Use the energy & time you would have spent having a sale to do the next steps instead!  

Number Two: Paint it Up! Put fresh paint neatly on every painted surface.  Do not be tempted to paint rooms in dark colors.  While the colors may be admired, they will not enhance your home as much a a feeling of lightness and open spaces.  You are not selling your decorating, you are selling the square footage.  The more you vary from neutral, the harder it is for some buyers to imagine themselves & their furnishings in your home.  Big no-no: creative painting & borders.  Resist the urge to sponge paint, dapple, or rag paint a wall.  The closer to plain, the easier the sale.

Number Three:  Spruce it Up! If something is broken, fix it or remove it.  You may have been a wonderful caretaker of your home through the years, and yet that missing shade, crack in the mirror, stain in the carpet or loose banister sends buyers a different message.  It makes them wonder what else is wrong, that they cannot see!

Number Four:  Glam it Up! Take a good look at your floors.  If they look great, you are half way home.  However if they are stained, scuffed, or shredded, if there is any way you can afford to do it, put a new neutral carpet in the livingroom, or even a wood-look laminate floor.  These can be as inexpensive as possible, and still greatly improve the look of your home.  Buyers want something to look nice, and many people are actually unable to imagine something different than what they are looking at. 

Remember: Buyer’s are purchasing their “NEW HOME”!  The better your home looks, the better choice it will seem than those other homes on the market that are still stained, scuffed & shredded!

Did you know that your Realtor can offer suggestions on improving the sale-ability of your home?  Different regions have their own trends when it comes to getting the best re-sale value for your dollars spent in improvements.  Call your Realtor and ask them to come & take a look at your home BEFORE you add improvements that may not help the future sale of your home!

Call Lynn Afton, Realtor, at (231) 349-9191, for Personalized, Professional Real Estate… at your service! Greenridge Oakmont Realty, Big Rapids

Welcome to Arlynn “Lynn” Afton’s Blog! This blog will provide you with valuable information, tips, and general insight into the real estate market in Big Rapids.