Desperate Michigan Home Sellers Lure Buyers With Tax Credits

Yesterday’s edition of the Detroit News tells the story of Ed Roland, 88, who recently joined Michigan’s growing ranks of desperate home sellers.

He had already moved in with his daughter in Florida and watched helplessly as his Canton Township home languished on the market for nine months.

“It’s vacant and we’re paying property taxes and paying lawn service,” said his daughter Judy, from Naples, Fla. “We just thought, ‘Don’t mess with it: We’ll just accept whatever (the buyer asks).’”

And what, exactly, did the buyer ask?

Pay the rest of this year’s taxes - about $2,400 - on the property.

If the market were healthy, the seller could tell such a buyer to get lost. But some desperate sellers, facing seriously tough competition in a market with falling home prices, are now offering property tax credits to sweeten the deal for interested buyers.

It’s unclear how common the practice has become, but buyers emboldened by the housing market glut and low Michigan mortgage costs are certainly not ashamed to ask for it.

Such tax credits can bring significant relief to new home owners, given the property tax “pop-up” that they will face. This year, a new homeowner in Metro Detroit will pay 22-31 percent more in taxes than the prior owner.

In some cases, that amounts to thousands of dollars a year.

That’s because a 1994 Michigan law, Proposal A, caps annual property tax increases, allowing it to keep pace with inflation but not appreciation - until the house is sold, of course.

Then the cap is removed, and the taxable value on a home jumps to the value  of the assessment, even if home is bought at a discounted price.

Gary DeGrandchamp, a Livonia, Mich., real estate agent, uses this argument to convince his sellers to offer tax credits in this buyer’s market, at least for the first year.

“It’s not the buyer’s fault the taxes are so high,” he said.

But that is tough for sellers to swallow, and the landscape may yet improve even more for buyers looking to enter the tepid Michigan housing market. Last month, state representatives introduced several bills that would soften the tax “pop-up” to new homeowners.

One calls for phasing in the assessment hike over three years after the sale. Another calls for city assessors to use the sale price as the “true cash value” of the home, as opposed to the estimated value that had been used. In some cases that could eliminate the tax jump altogether.

In a climate where mortgage loan rates are advantageous to the buyers, and the inventory for sale has turned in their favor as well, it will be very interesting to watch how these pieces of legislation progress.

SOURCE: Detroit News