Show me the money! How much do you walk away with after the sale of your home? That's what you really want to know -- right? Here's the calculation:
Sales Price - Your Mortgage Payoff - Expenses = Net Proceeds.
A good listing agent will provide you with an estimate of these Net Proceeds based on different sales prices prior to placing your home on the market. Later, when you receive an offer, your agent will revise this estimate based on the specific variables in the offer.
Examples of common seller expenses are: Brokerage Fees (covered in Part 1), Pro-rated Property Taxes, Title Insurance, Home Warranty, Recording Fees, and other Misc Fees which vary with each transaction.
In part 2 of this series, we're tackling the subject of pro-rated taxes. If you live in almost any other state...it's probably no big deal. But if you live in Indiana, where taxes are billed one year in arrears.....it's a crazy big deal! So, here's a brief and hopefully easy to understand explanation of how pro-rated taxes work in the state of Indiana ("easy" and "property taxes" -- now that's truly an oxymoron!)
In Indiana, property taxes are billed twice a year, in May and September for the prior year. It works like this: In May of 2009 a tax bill was mailed, from the county where the property is located, for payment of property taxes for the period of January 1 through June 30 of 2008. In September 2009 a second tax bill will go out for payment of taxes for the period of July 1 through December 31, 2008. This continues each year until a homeowner decides to sell their home. At the time of closing, since the seller has been paying a year in arrears, they will need to "catch up" on taxes through the date of closing. Understand, the homeowner isn't behind in their payments. The county hasn't billed them yet!
Let's look at an example of how this affects a seller: It's June 1, 2009 and you've just successfully negotiated an offer to sell your home and the closing is scheduled for June 30. The purchase agreement specifies taxes are to be pro-rated through date of closing, which is customary in Indiana. You've already paid the May 2009 bill which was applied to the taxes for the first half of 2008, but you still owe taxes from July 1, 2008 through date of closing, June 30, 2009, even though these have not yet been billed.
For our example, let's say that taxes on this property are $2000/half (every 6 months), as the seller you will be required to pay the buyer $4000 at closing in order to "catch up" to the date of closing. Why does the money go to the buyer? Why doesn't it go to the county? Good question. Because the seller has paid all of the taxes which have billed, the county won't accept "pre-payment" for future bills. That means that the next bill in September 2009 will go to the new homeowner, even though it's for a time period prior to their purchase of the home. Make sense?
This pro-rated tax amount can be a significant number and may seriously impact a seller's bottom line. Here's the good news. When you purchase your next home, the seller of that property will also be paying you a lump sum at closing to cover taxes which are due, but not yet billed.
Well that's a brief and over simplified explanation of pro-rated property taxes for Hoosiers. Over simplified???? Unfortunately, yes! For instance, not all counties bill at the same time of year, and many counties, like Marion (Indianapolis) are often billing an additional 6 months or more behind. The good news? -- You don't need to understand every scenario, that's why you hire a knowledgeable agent to guide you through the process!
For more detailed information regarding Indiana Property Taxes:
- General Property Tax Information
- Property Tax Deductions
- Property Tax Appeals Process
- Learn Where Tax Dollars Are Spent in Indiana
Unless otherwise noted, blogs are authored by Tonda or Steve Hoagland