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Estimating future unsegregated taxes:
• When estimating based on a change in ownership by the developer after January 1st, 1.25% of the sales price is the standard suggested by escrow companies and the Department of Real Estate. If you are aware of any special assessment districts or Mello Roos assessments, you will want to take those into account as they will probably make the tax rate higher than 1.25%. This situation occurs when a developer sells the entire project either
right before the map records or near the time of sale-outs and the Assessor has not had time to issue the new developer’s Supplemental Bill.
• When estimating a bill based on the status of construction as of January 1st, you will want to determine the value of the completed building based on the cost of construction times the percentage of completion as of January 1st. This would then be added to the soft cost and land value for a total estimate. If you are reviewing a new bill that has no building value or still reflects the value of the improvements you demolished, you may wish to discuss the method with the Assessor. By October, the Assessor should already be working on the adjusted valuation. The address and phone number for the Assessor’s Regional Office for your project will be reflected on the bill.
• 1.25% of the buyer’s purchase price can also be used. The buyer is charged and the developer credited. In this case, the developer has an agreement with the buyer through escrow that they will pay both the unsegregated bill and the buyer’s new Supplemental Bill that will be issued as a result of the sale.
• It will be up to you to let your escrow know if you will be providing an estimate for the proration of taxes. You should also make sure that they plan to prorate based on a full year. The Assessor will not segregate a half or partial year. The exception to this is condominium projects of four units or less that have applied for assistance in segregating the bill.
• Once the tax estimate is determined, unless you will be using 1.25% of the buyer’s purchase price, it is customary to divide the estimate equally to determine a per unit amount. Again, this amount is prorated for the entire tax year. If your closing is occurring between January 1st and June 30th, the buyer will be charged the entire estimate amount in addition to a proration of the current taxes. If your closing is between July 1st and October 1st, the buyer’s amount will be prorated from their close of escrow through June 30th of the following year.
• The tax estimate amount can either be held by the developer, the homeowner’s association management company, or a tax hold account can be set up with Chicago Title. Discuss with your Chicago Title Sales Representative whether a tax hold account would be advantageous for your project.
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