Finding Out the Cost of Property Taxes on Your Home in California

Of the four components that make up a monthly housing payment - principal, interest, taxes, and insurance - "taxes", as in property taxes, are most often overlooked. Yet, they should be easy to remember, thanks to the industry standard "PITI" - principal, interest, taxes, and insurance - which all go into a home buyer's monthly payment. (The abbreviation is pronounced, "pity", as in pity the homebuyers who forget to include property taxes in their calculations.)

Real estate agent Tom Lyons, based in Pleasanton, says that, "Buyers are not always considering property taxes," even if they have purchased a home before. "If you're buying a home that is $600,000 or $800,000 . . . that works out to a sizable amount of money."

In order to prevent any last-minute panic, Lyons walks through all four components of PITI for the buyers he represents. "At certain levels, I give them exactly what their entire payment would be - all four components, broken down, and the total. Because principal and interest are only about 65% of the total payment."

Nor do home buyers stop being surprised once they account for property taxes in their total payment. "Prop 13 sets the rate, but you have 1915 Special Assessment Districts and Mello-Roos assessments that will increase that rate," explains real estate agent Todd Ensley. "While the rate is really about 1%, in Oakland, it is often closer to 1.3%, because of the special assessments."

Mello-Roos refers to legislation that allows local governments to tack on additional taxes, provided they are approved by at least two thirds of the voters. Nor are they the sole province of cities. Counties, school districts, and other local government entities can request such funds be levied (by placing them on the ballot).

This means that, although counties in California send tax bills, other local entities can assess additional property taxes. So individual homes in the same city or area could have very different property tax obligations.

Another type of special assessment, 1915 Act Special Assessments, are also added to property taxes. These are additional assessments for infrastructure, such as roads, sewers, and utilities. 1915 Act Special Assessments also require approval by two thirds of voters.

"By law, the seller has to disclose if the home is part of a special assessment district, and those disclosures are part of the disclosure package discussing the property," Ensley notes.

But property taxes can still surprise home buyers - and the surprise often comes after they have purchased their home.
"What happens is that the closing will take place, and the buyer gets their first tax bill," Ensley notes. "This will still be at the old assessment rate, because it can take several months to be re-assessed at the newer, higher value. So several months later, a supplemental bill will arrive."

As expensive as buying a home can be, Ensley says that, "It's important for buyers to hold back money for that supplemental bill." Occasionally, banks will open an "impound account" to collect these funds prior to the bill's arrival, but Ensley says that "this is very rare".

"What is ideal is if the seller provides a copy of their tax bill, so the buyers can see what special assessments exist. The seller is not required to do this, but it helps the buyer understand what property taxes exist on the property."

Of course, thanks to modern technology and an entrepreneurial spirit, home buyers can look up property taxes in many areas of California (for a fee), including most East Bay counties.

The web site CaliforniaTaxData.com also offers free information, including detailed explanations of 1915 and Mello-Roos assessments. (The site hopes to have a property tax estimator available soon.) While this gives sellers a quick way to list all of the property tax-related obligations, it also provides potential buyers with a way to check taxes on a given property.
As Lyons notes, "For a lot of buyers, property taxes are substantial costs and definitely factor into the equation."