County Council Passes Bill Requiring Full Property Tax Disclosures for Homebuyers
Measure Requires Sellers to Tell Potential Buyers in Advance
What Their Actual Tax Bill Will Be After Purchase
ROCKVILLE, Md., December 4, 2007 – The Montgomery County Council today unanimously approved a bill that will require sellers of homes to provide a potential homebuyer with an estimate of what their actual property tax bill will be in the first full year after they purchase the home. The bill will eliminate the shock that many County homebuyers have endured in recent years when they learned that they will pay significantly higher property taxes than did the seller.
The bill, whose primary sponsor was Councilmember Phil Andrews, passed by a unanimous 8-0 vote (Council President Marilyn Praisner was absent). It will take effect on April 1, 2008.
Andrews’ bill addresses a common problem in Montgomery County that has arisen during the era of swiftly rising residential property values. Although the State of Maryland re-assesses residential properties every three years, the taxable assessment on a specific property is capped at a 10 percent maximum increase per year, unless the home changes ownership. Under this scenario, although the assessed value of a home could increase by 70 percent or more, the annual property tax paid by the homeowner will not increase by more than 10 percent a year (unless property tax rates are increased). However, when the home is sold, the new owner will pay tax based on 100 percent of the taxable assessed value for that year, often resulting in a difference of thousands of dollars between what the former owner would have paid in property taxes and what the new owner must pay.
For example, a home on Mateny Hill Road in Germantown was advertised for sale earlier this year for $565,000, with taxes listed at $2,049. However, someone purchasing the home would have faced a tax bill of $4,728 for Fiscal Year 2009, the first full tax year after they moved in, based on the home’s taxable assessment multiplied by current property tax rates. By contrast, if the house were not for sale, the current owners’ tax bill for FY 09 would be $2,680, more than $2,000 less.
“Prospective homebuyers will now have the best available estimate of what their property tax bill will be in the first full year after they purchase a home,” said Councilmember Andrews. “This measure will arm homebuyers with information that will help them determine if they can afford to purchase and stay in the home.”
Andrews, who said he hopes this bill becomes a model for counties statewide to adopt, said the situation is particularly trying for homebuyers who have calculated to a very thin margin of whether the home they want to buy is affordable based on their income.
The bill would require that homesellers include on any written or electronic material advertising the home information about what a new owner would owe in estimated total property taxes the first full tax year after they purchase the home based on all applicable property tax rates in force at the time the advertising material is produced.
The County will provide an easy to use Web-based worksheet for sellers to determine the estimated property tax bill for a future homebuyer. The County’s Office of Consumer Protection will enforce the law and will provide assistance regarding the required estimate.
The County law does not apply to the municipalities of Barnesville, Kensington, Poolesville or Rockville. However, those jurisdictions can adopt similar consumer protection measures regarding home sales within their borders.