It’s been said that one of the 2 certain things in life is “taxes” – but when it comes to Orange County real estate, it seems that there certainly are a lot of questions. The following brief description of how the OC property taxes work is written in simple terms and the full detail can be found at http://tax.ocgov.com/treas/faq.asp

Simple Formula – For When You Buy a Home

Annual Property Taxes = (Price of home x  approx 1.2%) + Special Assessments

All property taxes are not created equally. Well, kinda….

            In basic terms, all OC real estate owners pay property taxes. The annual amount of the tax is calculated by taking the assessed value of the home and multiply by approx 1.1% to 1.2% (each area has slight differences). The property is reassessed when it changes hands from one person to another (usually very near the purchase price of the home) and the assessed value can only increase by about 2% per year. For example: Buy a home for $600k, the standard property taxes will be about $6,600. The next year the property will be reassessed at no more than 2% higher, resulting in a max property tax in year 2 of approx $6,732.

And then… some people pay more for “Special Assessments”

            Here’s where the issue gets a bit cloudy. Some properties in OC (most of the homes built after about 1990) have “Special Assessments” (see reasons below). The Special Assessments are typically a flat dollar amount (annually) and may stop about 25 or 30 years after the home is built. The assessments are determined at the time the home is built and don’t change significantly. For homes built in 1993, it is common to have a Special Assessment of around $2,000 per year. For homes built in 2003, it’s common to have a Special Assessment of $5,000 per year. Big difference.

            The best thing to do is to check with the OC County Tax Collector to find out what the Special Assessments are for any given property (just punch in the address and it will tell you the amounts) at http://tax.ocgov.com/tcweb/search_page.asp

“So What’s the Tax Rate on this Home?”

            This is a common question in real estate in OC. But it’s probably not the right question to ask. A better way to do it is this: Assume the standard tax rate of approx 1.2% of the price of the home. And then ask, “How much are the special assessments for this home per year?” – this will give you a much more clear picture of what the total bill will be for each year.

What is this Mello Roos and Why Do I Have to Pay It?

            The story goes something like this: Back around 1988-1990, land developers were looking for a way to pass some of the costs of developing raw dirt to the end user. In other words, they sought out a way for the homeowner to pay for building schools, streets, parks, sewers, and other public facilities that builders pay up front for. A couple of California politicians championed legislation that made it possible for a community to assess the homebuyer over the course of 25-30 years for these expenses. Yes, their names were “Mello” and “Roos” and the Special Assessments quickly became known as “Mello-Roos tax.” Of course, nobody writes a check to either Mello or Roos and some people debate whether its really a tax or whether is a bond repayment (it shows up on the Property Tax Bill) but regardless, this is the common term thrown around in real estate.

Why Is the Assessment Different for Each Home?

            In the earliest of the Mello Roos Special Assessments (1990-ish), the amount assessed per property was calculated based on the size of the lot. It would stand to reason that a condo had a lower Assessment than a large single family home.

            As time went on, builders noticed that potential buyers were averse to these assessments. Some builders would pay a portion of the development fees up front and therefore DECREASE the amount of each homebuyers Assessment (it helped them sell more homes). That’s why it’s possible to have some homes built in the mid-late 1990’s with lower assessments than older homes built in 1990.

            Some of the most recent areas developed in South OC (parts of Ladera Ranch, for example) have potentially higher assessments. Basically the cost of building the public facilities has increased over the last 15 years, therefore the assessments are higher. In many parts of these same areas, the builders paid more money up front to try to keep the assessments lower for a homebuyer.

What if I Refuse to Pay Mello Roos / Special Assessments?

            The answer to this is simple: If you really don’t want Special Assessments, then just get ready to buy an older home. Special Assessments started for land that was developed after approx 1990. If you don’t want to live in a Special Assessment district, then you can simplify your home search by looking for homes built before that time. Every now and then you may find good fortune and find a home that is newer than that with no Special Assessments, but it’s uncommon. Check Laguna Niguel and small pockets of laceName w:st="on">TrabucolaceName> laceType w:st="on">CanyonlaceType> for these rare homes.

Real World Possible Scenarios

Real World example 1:

            Person bought a home in classic Mission Viejo in 1975 for $45,000 (before Mello Roos was a factor). The home has been reassessed a few times over the years, today it’s assessed at $200,000. Total Property Taxes = approx $2,400 per year.

Real World example 2:

            You buy the home in classic Mission Viejo from person 1 for $600,000 today. Your property taxes will be approx $6,600 per year. (no Special Assessments)

Real World example 3:

            Home built in Rancho Santa Margarita in 1997, purchase price from builder was $500,000, Special Assessment is $3,000 per year. Current homeowner is paying $9,000 per year ($6,000 + $3,000 assessment). You buy the home from him for $1,200,000 today. Your new tax bill will be approx $17,400 per year ($14,400 + $3,000).

Real World Example 4:

            New home built in Ladera Ranch in 2005. Special Assessment is approx $5,000, you buy it today for $1,200,000. Your new tax bill is approx $19,400 per year ($14,400 + $5,000).

Where to Get Help on Property Taxes

            The numbers in this article are ballpark figures and some of the concepts have been greatly simplified for illustration purposes. To get the whole story on these details, please refer to http://tax.ocgov.com/treas/faq.asp

Where to Get Help with Finding a Home

            Home shopping is often complicated and involves weighing out many variables. Please feel free to give us a call to sort through some of the challenges. Normally we can help you focus after just about 10 minutes on the phone with no obligation or commitment at (949) 888-6788 or TeresaMihelic@RealtyExecutives.com