Property tax rate disconnect

Question

I live in Santa Clara County, California and I have been shopping for a mortgage for a home purchase in this county.

I am repeatedly told by every bank that the tax rate is 1.25% of the home purchase price (give or take, can change slightly), and that's what we should budget to spend on taxes.

However in the first two online calculators I tried the rate is a lot different. Surely the local bank knows better than a generic online calculator, but also surely these calculators can't be plain wrong?

For example consider 700k house. $8750 in taxes (1.25%).

However this calculator estimates $4690 for Santa Clara County (0.67%)

This calculator estimates $5273 (0.794%)

Why the disconnect?

Answer 1

I expect that the rate calculation for less than 1% is using official posted rates or an average of all of the buildings, both residential and commercial, in the county.

You could just go to the Santa Clara County Office of the Tax Collector and look at property bills for comparable houses to see what are the existing rates:

https://payments.sccgov.org/propertytax

You may note that there are additional tax assessments not part of the official tax rate but show up on the same bill. My guess is that the banks' 1.25% is more accurate than the other online calculators you linked to as it takes into account these additional fees. Also do realize that any valuation you see at the Tax Collector site are historical due to Prop 13.

Answer 2

There are two taxes (at least) involved here.

The first is a land transfer tax, payable once, at the time of purchase.

The second is the annual property tax, payable yearly, to the county/town/city.

Answer 3

The complexity is due to two factors, one of which makes it hard to give any county wide estimate, and one specific to California.

The general problem is that in most county's there are several tax rates in the county. In some cases it is to pay for a specific transportation project, in other cases it can be to pay for trash service in part of the county.

For California and a few other jurisdiction it is made even more complex because in the 1970's they passed bills to limit how much the property tax could increase from year to year. That means the longer a person lives in the property, the lower their actual tax is to the actual value of the property. This makes it impossible to give a county wide estimate. Two identical houses on the same street, in the same condition; one could have a tax rate double the other if one has a new owner and the other has had the same owner for decades.

For more details look up California Proposition 13.

Answer 4

You should leave some leeway in your budgeting. If you are that tight that 0.5% difference in the property tax concerns you, you'd better think again about getting in the market. There are various unpredictable costs associated with owning a property. The actual property tax is determined by the local authorities and changes, increases, every year. Give them a call to make sure.