For homebuyers, a real estate agent is more than a professional advisor who manages the business and legal complexities of purchasing a home. You become part financial adviser, part market guru, and part trusted ally in many aspects of the new life that purchasing a home can give your clients. Securing this trust-based relationship is crucial, as repeat and referral business makes up 82% of real estate transactions.
When you can become a trusted advisor and give your clients the insights and information they need to reduce their stress, they may become a client for life (and offer you plenty of referrals along the way). One route for building trust is to help your client understand their property tax obligations. Walk them through how property taxes work and how they can go about lowering their property taxes. Operate as an authoritative guide in the space, and your clients will feel much more comfortable turning your way for help.
Property Taxes Are a Big Part of Your Clients’ Homebuying Budgets
Many homebuyers are peripherally aware that property taxes are a big part of the costs of homeownership. But they might not be aware of how big a role property taxes play in the actual homebuying process.
During your initial meeting, take the time to discuss how mortgage loans work, including how lenders will generally calculate your clients’ approved loan amount. Then, cover how they can explore different counties to lower their property taxes from the get-go and get more out of their house-buying budget. Here are some key things to keep in mind:
Texas Property Taxes
Out-of-state homebuyers may be unfamiliar with Texas property taxes. In Texas metroplexes, especially, many of your buyers may be from California. Other states calculate and manage property taxes differently, especially because local Texas governments rely on property taxes rather than state income taxes. Your new clients will likely not be familiar with the Texas property tax code, and they won’t have in-depth insight into why it affects their budget so much.
Different Cities Have Different Tax Rates
Property taxes are handled by local governments. An appraisal district will appraise the value of homes and other properties within their jurisdiction. The local tax office will then assess the taxes due and send out notices.
However, even within this county-by-county structure, taxes can differ across city lines. Residential property taxes have four major levies making up the total: city taxes, school district taxes, community college taxes, and county taxes. Simply being one street over can drastically change a homeowner’s property tax obligations for each of those levies.
Property Taxes and Loan Approval Ceilings
Lenders weigh property tax costs when calculating loan approval ceilings. Property taxes will have a significant impact on how much a lender can approve for you as your loan amount. For example, if your client makes an annual household income of $100,000 and expects to pay $5,000 a year in property taxes, the total purchase budget may be $355,500 (at an interest rate of 8% for the loan). But if the property taxes are $6,000, the budget shrinks to $344,800; at $7,000, it’s $334,200.
Property taxes are a piece of the puzzle in calculating DTI ratios, so your client’s budget will change for each area. (And this is just one of the ways regional details matter to lenders. For example, the FHA loan ceiling varies based on county incomes and housing norms. The more you know about this in advance, the less frustrating the experience will be for your clients.)
Taxes and Monthly Mortgage Payments
Property taxes are part of monthly mortgage payments for most buyers. Of course, it’s not just your client’s lender that cares about costs. Homebuyers need to have a clear understanding of their monthly budget before putting in an offer or closing on a property.
Most lenders provide escrow accounts, which house funds collected throughout the year for property taxes and house insurance premiums. If your client loves a house with property taxes of around $3,600 a year, that will add $300 to their monthly mortgage. If your client prefers a house with $4,800 in annual property taxes, that’s an extra $400 a month. That $100 difference is significant for everyone.
Discuss these points with your clients so they understand why property taxes matter before they even show up to tour a prospective purchase property. You can even show up to your first meeting with the current property tax rates of different towns on their wishlist.
How Realtors Can Help Homebuyers Lower Their Property Tax Bills
It’s clear that property taxes matter, and you can help your clients understand why they need to look at the numbers before putting in an offer. This alone ensures you’re providing a lot of value in a process homebuyers find incredibly opaque and difficult to navigate.
But you can go even further by offering insight into how they can systematically lower their property tax obligations as a new homeowner. Not only does this help them feel more confident moving forward, but it also continues to build trust between you and your clients: you’re giving them value beyond your mandate, and they’ll remember that. (You can even use the property tax cycle to develop key contact points throughout the year.)
Related: Ultimate Guide To Proposition 4 And How The New Texas Property Tax Laws Will Lower Your Property Tax Bill
While you can’t promise lower taxes, you can help them understand many of the behind-the-scenes mechanisms so they can fight for fair property taxes. Take these six strategic approaches:
Make Sure They Understand Local Property Tax Laws and Obligations
Your role is primarily educational when it comes to property taxes. You can’t fill out the forms for them, but you can direct them to the municipal resources for their new address. This might include:
- Sending them the PDF of the statewide homestead exemption form—successfully filing for a homestead exemption can save your clients hundreds of dollars every year. On approved primary residences, they can save around $400 on school district taxes every year—currently pending changes in the tax code may increase those savings to approximately $1,000.
- Breaking down how and when property taxes are handled—consider creating a handy guide of timelines for your client. Property values are based on the value of a home on January 1 of a given year, and homeowners will receive a notice regarding the appraised value in the spring, at which point they can protest that valuation. Local tax assessors then calculate the property tax bills and send them out in October, with payment due by January 31 of the following year.
- Acting as an intermediary between them and their lender—set up a three-way call to discuss the particulars of their escrow account, property tax estimations, and how much property tax is due at close. Your clients may feel more comfortable having you on the call to ask the lender questions and support them, especially if they’re a first-time homebuyer.
Discuss Property Tax Exemptions, Including the Ag Exemption
Property tax exemptions are one of the two major approaches for reducing property taxes. Homeowners can apply for multiple different exemptions that may apply to their property, including:
- Homestead exemption—this is the primary exemption for most homebuyers. If their new home is their primary residence, they can apply to receive this tax relief. It now shelters $100,000 of their home’s value from school district tax calculations, which often have a 1% levy—resulting big savings. The homestead exemption also caps increases to the property’s assessed value at 10% per year—after the first full year of living in the home.
- Senior and disabled homeowner exemptions—for senior residents and residents with documented disabilities, an additional $10,000 is exempted from school district tax calculations. Disabled veterans can also exempt large portions of their property value based on the applicable VA rating.
- Ag exemption—while colloquially called an ‘exemption,’ the agricultural exemption is simply another way of calculating property taxes. Rather than being appraised by the potential sales value of the land, the property is appraised by its production value. This changed mechanism results in significant savings for estates with acreage used for agricultural purposes.
New homeowners should apply for these exemptions as soon as possible and make sure the details are ironed out with their local appraisal district.
Chat About Solar Exemptions and Local Incentive Programs
Texas does not have statewide tax credit programs for eco-friendly installations. However, different municipalities might offer credits and incentives for different sustainability or green improvements to the property. Texas also offers a statewide exemption for the appraised value of solar panels and other power-generating installations on properties.
Explain How the Property Protest Process Works
Finally, be sure to explain how homeowners can protest their property taxes. This is a step every homeowner can and should take in the spring when new property appraisal values are released.
If your client thinks the property appraisal value is too high and unfairly inaccurate, they can submit a protest notice articulating their argument and proposing a countering appraisal value. The appraisal district may immediately agree or may escalate the protest through a series of meetings and a formal hearing.
Related: Answers for Your Clients’ Common Property Tax Questions
By protesting, homeowners can fight to lower the appraised value that tax assessors use to calculate taxes. For example, if the property is newly appraised at $450,000 at a 2% tax rate and the owners argue down the value to $400,000, that’s an immediate $1,000 in savings. Property owners can do this every year to keep the appraisal value in check and prevent it from steeply creeping up.
Learn More About How Home Tax Shield Can Provide Value for Your Clients
The more you know about property taxes, the better you can serve your clients and become a valuable advisor throughout the processes of buying and owning a property. At Home Tax Shield, we’re here to help. We regularly publish insights about changing property tax rules, the financial benefits of protesting, and how realtors can support their clients.
We also offer complete property tax protest management so your clients don’t have to do it alone. Once they sign up, we manage the protest process every year and fight for lower property taxes on their behalf. Reach out today to see how we can work together to give your clients a better home-owning experience for years to come.