Dear Michael: We are buying our first home and closing escrow next week. Who pays the remaining property taxes that are due?
Answer: Taxes are prorated. The seller pays the days that he/ she owns the house to the day escrow closes. The buyer pays the remaining days left on the current bill (property tax bill is from July 1 to June 30) as well as any supplemental tax bill. Supplemental tax bill reflects the difference between the new assessed value at time of purchase and the old prior assessed value when the seller owned the home. If the property is reassessed at a higher value than the old assessed value, a supplemental tax bill will be issued. Typically tax rates are 1.25 percent of the purchase price. These are based on 1 percent of the purchased price plus an additional .25 percent for local assessments.
Dear Michael: We have been renting a home for three years. Now that the real estate market has improved we are thinking of buying our first home and would like to know how does purchasing a home compares to renting?
Answer: The two don’t really compare at all. The one advantage of renting is being generally free of most maintenance responsibilities. But by renting, you lose the chance to build equity, take advantage of tax benefits and protect yourself against inflation from rent increases. Also, you may not be free to decorate without permission and may be at the mercy of your landlord. Owning a home has many benefits. When you make a mortgage payment, you are building equity. And that’s a long term investment. In retrospect, given the freedom, stability, and security of owning your own home, makes this investment very well worth it.
Dear Michael: I am looking to buy a condo on the Westside. This will be my very first property. I want to make sure the HOA has strong reserve. Can you please tell me what percentage ratio should a reserve be funded in order be to be considered a safe purchase?
Answer: It all depends on many aspects of the HOA. A new development will not need to replace capital expenditures for at least 15 to 20 years, giving enough time to accumulate cash for reserve. But a 30- to 50-year-old community on the other hand will typically face the need for large expenditures within the next five to 10 years. Therefore the correct amount to set aside is not a bi-product of the operating budget. Instead, it is a function of the community’s present financial and physical condition. It is common to have 35 percent to 45 percent of the annual assessment going into the reserve in order to fund an HOA that has to play “catch-up” after years of under-funding. And, in many cases a special assessment is certainly in the works to stabilize the HOA’s finances. Any association that is funded at 40 to 50 percent is considered marginally acceptable and over 60 to 70 percent is considered a safer investment/purchase.
Michael Kayem is a Realtor with Re/max estate properties serving Culver City and the Westside since 2001. You can contact Michael with your questions at 310-390-3337 or e-mail them to him at: homes@agentmichael. com
