I live in Texas where there is no personal state income tax, but there is a significant tax on real estate.
I am considering buying a new home, built to my specifications (ehh, to an extent...) in a new neighborhood by a home builder.
I have significant equity in my current house and a large cash down payment. Thus, most of my monthly housing budget (half or more) is towards property taxes and not mortgage payments.
I'm having difficulty determining how much property tax I am likely to owe, and thus how much house I can afford.
- A rough estimate of property tax rate for the area, as a sum of the districts that overlap in the general vicinity, although some of the districts don't exist yet.
- What the purchase price of the house will be
- An estimate of what the price per square foot is for comparable houses in the area
My issue is that I don't understand specifically how the property tax will be assessed. My understanding is that the assessor will estimate the value of the house, in an attempt to determine what it would sell for in an open market where neither party was under duress. I believe they tend to estimate this using the square footage of the property, times the going rate of dollars per square foot.
When I've bought houses in the past, I've overrode the assessor's valuation by bringing documentation from the sale. Since they're estimating a potential sale, and such a sale actually occurred, they're generally willing to adjust their valuation based on the sale information.
This would lead me to believe that the property tax valuation of the home should be the amount I pay the builder. However, it seems like I could "game" this system somewhat.
For instance, say I tell the builder to put in cheap flooring and fixtures, and then I buy the house less expensively than I would before. At some point (even before moving in), I replace the cheap items with more expensive ones. Or I could pay out-of-pocket for "custom" upgrades and (builder willing) have them install stuff I bought for me. The costs of these would (hopefully, builder willing) not show up in the purchase price of the house.
The property tax assessor doesn't know about these improvements, and if they were basing their valuation on the sale price, my property taxes would be lower, right?
The other side of that coin is that probably I will pay a premium to have my house built "my way." Like a new car, the value will decrease significantly as soon as I take ownership. If the assessor bases the valuation on the sale price of the house, aren't I getting screwed over in terms of the actual value? In terms of upgrade pricing, they are almost certainly charging way over market, but they have me over a barrel, which is probably technically "under duress" although I doubt anyone else sees it that way.
Or perhaps the assessor is going to look at the blueprint, disregard the sale price of the house, and estimate the value of the house based on the price per square foot of comparable houses in the area. Thus, the interior of the house is irrelevant, and I might as well get whatever I want.
I find it difficult to determine how much house I can afford, because I can't accurately estimate these property taxes. I could (and have) asked my Realtor, but he's a salesman with a stake in this game, and I can't implicitly trust him. Similarly, the builders are trying to sell houses and have no responsibility to truthfully inform me about property taxes, and I doubt that's an area of expertise as well. I've spoken to many people and gathered many data points, but I still feel like I don't have enough information. Thus, I am seeking additional advice...