Greg and Sandra Seyler thought they were doing everything right when they bought a home for retirement in Alpine last year and then sold their Santee home earlier this year.
Greg, 54, who earns a living washing windows, and Sandra, 56, a dog trainer, wanted to take advantage of Proposition 60, a 1986 state law that permits seniors, and later the disabled, to keep their low tax bills if they sell one property and buy another for a lower amount.
But the county assessor’s office denied their request because its appraisers believe the Seylers sold their house for more than it was really worth. The county believes the couple owe more than $5,500 in property taxes rather than the $2,000 they had planned on.
If the county prevails, Seyler predicts, all seniors with the idea of taking advantage of Proposition 60 should think three times before doing so.
“I’d never recommend this to anybody,” he said.
Assessment services chief Jeffrey Olson, who is running for county assessor next year, disagrees, saying the Seyler case is so rare that homeowners should have no worries when it comes to taking advantage of this tax perk.
“I don’t think there should be a fear factor,” Olson said. “This is a very rare occurrence, and if they have any questions, contact the assessor’s office.”
Asking questions is what Seyler did, and he says the more he asked, the more confusing his prospects have become.
The Seylers listed their 1,400-square-foot house in fall 2008 with a real estate agent and eventually sold it through Craigslist for $480,000 in February to Glenn and Lori Turgeon. The Seylers provided financing to the Turgeons on a 20-year, market-rate basis.
Because Sandra Seyler was 55, she and her husband were eligible to transfer their Proposition 13 assessment of $165,523 into the house they had bought in April 2008 for $475,000. That would have meant their taxes this year would be $2,008.
But in October, the Seylers learned that the county would not recognize the Turgeon price as legitimate, claiming the Turgeons overpaid by $100,000 for the property, based on comparable sales in the area. Such a ruling automatically meant that the Seylers’ new house would be valued at its purchase price for tax purposes, and their tax bill would be $5,505.
“I never would have moved to begin with if you had said I can’t sell my home for more than $375,000,” Seyler recalled telling Olson in one of many calls and meetings they have had in the past few weeks.
Olson said that in his more than 20 years in the assessor’s office, he has come across only one or two instances like the Seylers’, and in those cases, the assessment appeals board eventually ruled in the taxpayers’ favor. But he said the law requires him to correctly assess the homes in question, regardless of the impact on the county or the owners.
“If they paid too much, we cannot assess it for an extra amount because we want to prop up the tax rolls,” Olson said of the Turgeons’ purchase. “Our responsibility is to determine the market value. Whether it’s higher or lower doesn’t matter.”
When the Seylers learned of the county decision, they immediately filed an appeal with the county Assessment Appeals Board. There are four three-member boards that meet weekly on a rotating basis to resolve disputes between the assessor and property owners. Olson said he intends to speed up the process to have the Seyler case resolved by February if he and the couple cannot reach a settlement. The Seylers plan to pay the higher bill and hope for a refund later.
Speed is of the essence, because under Proposition 60, the Seylers must buy a replacement property within two years before or after the sale of their residence to retain their low tax basis. Olson said they will have plenty of time to buy another house for $375,000 or less. But Seyler said he can’t afford to buy a second home without selling his present residence and doubts he can find something suitable at that price. He is counting on keeping the low tax basis as he looks toward retirement.
“They’re throwing up a bunch of smoke screens,” he complained, saying county appraisers are raising all sorts of charges, from coercion to kickbacks. “They’re being bullies. … They won’t answer me.”
Olson described Seyler as “a real nice guy” but maintained that his hands are tied. “This is how we resolve disagreements,” he said. “There are always going to be disagreements — we’re not going to make everyone happy.”
The tricky thing in this case is the definition of “market value” — not just the cash amount that exchanged hands, but the terms and conditions involved that may have inflated the price.
For example, Olson said, if the seller financing is less costly than commercial financing, then the difference would be reflected in a reduced market value. If the seller covers closing costs, that amount would come off the top.
Likewise, if the owner sells to a relative or someone else in a non-arm’s-length transaction, then the stated price would not stand. And if the price is substantially more than comparable sales elsewhere, then the value would need to be adjusted.
But Seyler said he used a tax attorney and advice from the assessor’s office to make sure the price was less than the home he had bought in Alpine. He did not know Turgeon; he arranged the mortgage terms to comply with Internal Revenue Service guidelines; he advertised the home on the open market; and he set the price at what he thought was a premium level compared with what he called “blue collar” homes around him.
“They may not like it, but that’s just too bad,” he said.
The house includes a pool, lush landscaping, photovoltaic cells to generate electricity and an 800-square-foot workshop. It has been upgraded inside to the point that Glenn Turgeon said it was move-in ready, needing just a bit of paint.
“Everything’s been done,” Turgeon said. “The other properties I’ve seen — there was a lot to be done on those houses. There was no lawn; no landscaping was done. There was a lot of money still to be put into them.”
Ironically, the county stands to lose money if it wins. Beyond the cost in staff time in dealing with the Seylers and preparing a case before the Assessment Appeals Board, there will also be lower collections from the Turgeons, whose tax bill is currently set at the $375,000 basis. The county would also lose out if the Seylers have to sell their Alpine home and buy another for $375,000 or less to keep the low tax basis carried over from the Santee house.
But that’s not at issue, Olson said: “The key is getting it right.”
Sounds like this retired couple is getting screwed over to me.I had no idea this exemption existed.I know there was one for a parent to child.
I think the property taxes are 1% and it can be raised 2%/year under prop 13.It can add up to a huge difference if you can carry over your basis to a new house and pay less tax.
The property appears to have sold in an arms-length, open market transaction. There was apparently no commission paid by the seller, for which an UPWARD adjustment to the sales price for tax valuation purposes that more than cancels out any reduction for closing costs needs to be made. And it would surprise me enormously if San Diego County reviewed every change in ownership statement to adjust downward for seller-paid closing costs. If seller paid closing costs are typical of the market, as they have been recently, no reduction is in order anyway.
Someone in the Assessor’s office needs to review the standard of proof required to overcome a purchase price as the best indicator of market value for an owner-occupied home. It’s clearly stated in the Revenue and Taxation Code and the SBE rules. Furthermore, the person determining value ought to be in the Appraisal Division, NOT the Chief of Assessment Sevices.
I have seen cases where the purchase price was not accepted for a Prop 60/90 base year value transfer, but it’s very rare and usually there is something else that’s not right about the transfer, like a disguised intra-family transfer. These folks should win at the assessment appeals board/hearing officer level. If not, a lawsuit is in order.
The property appears to have sold in an arms-length, open market transaction. There was apparently no commission paid by the seller, for which an UPWARD adjustment to the sales price for tax valuation purposes that more than cancels out any reduction for closing costs needs to be made. And it would surprise me enormously if San Diego County reviewed every change in ownership statement to adjust downward for seller-paid closing costs. If seller paid closing costs are typical of the market, as they have been recently, no reduction is in order anyway.
Someone in the Assessor’s office needs to review the standard of proof required to overcome a purchase price as the best indicator of market value for an owner-occupied home. It’s clearly stated in the Revenue and Taxation Code and the SBE rules. Furthermore, the person determining value ought to be in the Appraisal Division, NOT the Chief of Assessment Sevices.
I have seen cases where the purchase price was not accepted for a Prop 60/90 base year value transfer, but it’s very rare and usually there is something else that’s not right about the transfer, like a disguised intra-family transfer. These folks should win at the assessment appeals board/hearing officer level. If not, a lawsuit is in order.
$480K for 1400 sqft in Santee? Sounds high to me.
And if it was an arms-length transaction, why did they do seller-financing?
Either
a) the property wouldn’t appraise at that price so they couldn’t get a bank loan, or
b) the borrowers didn’t qualify for a bank loan so they paid an inflated purchase price to buy the only house they could find that someone would finance
Check out the comps and there is no way that was an arms-length transaction:
Redfin
I guess the moral of the story is, if you want to qualify for the tax transfer, make sure a bank does the financing. Good to know for RE professionals.
It shouldn’t be too hard to find a bank willing to finance anything under the FHA limits anyway.
-Erica
Exactly, this was probably not an arms length transaction and their actions suggest it.
Wait, they sold for $100k above comps, and they are complaining about an extra $3.5k / year in tax? Seems a fair tradeoff to me.
And to think this law is to protect poor income constrained seniors. Remind me how it is right that tuition is rising by double digits at state universities while these income constrains seniors are trying to cash in on a $475,000 house, earn interest on the sale, and pay only $2,000 a year in property taxes.
Oh yeah an move in ready =$500,000. I did not know that was the hurdle for such a high price.
Lastly these people extracted a premium from people who likely have bad credit and then want to cash in for a life of lower taxes.
Hate to be cynical, but I’m with sdbri and WCV. This reeks of seller kicking back to the buyer for a higher sale price. It’s also a little eyebrow-raising that there’s only a $5k difference in price between the old and new houses.
And where’s the information on the new house they bought (did I miss it?) I bet it’s nicer than the one they sold. Why would seniors move to a new house of similar value in the same area? It’s not like they can live a better life with $5k profit.
I’m glad the assessors are challenging this. Maybe I’m wrong and the whole thing’s legit, but It’s nice to see someone call “BS” when something looks fishy. Someone’s gotta start policing real estate.
The California Revenue and Taxation Code is very clear on this issue. Read Section 110(b).
http://www.leginfo.ca.gov/cgi-bin/displaycode?section=rtc&group=00001-01000&file=101-136
Property Tax Rule 2 says the same thing. The Assessor will have to present a “preponderance of evidence” to overcome the presumption the purchase price was fair market value. Perhaps one of your readers that is an attorney can explain the hurdle the Assessor is facing.
In addition, I don’t recommend appraising a property as of a date in the past (the sale date) by looking at what is currently on the market according to Redfin or by what Zillow says properties in the area are currently worth. This property was apparently extensively remodeled and had features other properties in the area did not. The property may have been overimproved for the area, but that does not mean the improvements are worthless.
The best part of the story is the buyer seems to agree the property was worth $480,000. If the seller wins his case, the buyer will have to come up with approximately $1,000 to $1,200 a year more in taxes than if the Assessor wins. At least until he files for a temporary reduction under Prop 8…
Lets just say I am not convinced that s buyer who purchased without professional assistance on Craigslist with seller financing is an expert on home prices.
A lot of subprime people thought places were worth outrageous prices cause a broker (who may have subsequently been convicted of fraud) told them it was worth that much. If an appraiser and the assessor feel the home is worth less I would be feeling insecure if I was the buyer.
I agree with Blur:
I plan to use Prop 60 at some point as well and I’ll make darn sure the buy/sell price differential is more than only five grand. I think the Seyler’s (sellers) took quite a risk here.
The best part of the story is the buyer seems to agree the property was worth $480,000
The buyer may agree if the only financing he could have gotten was seller financing. It might be worth $100K to the buyer to be able to buy a house at all, rather than not being able to buy a house.
I also don’t agree with the sellers acting like their house is “special” compared to the surrounding area. Unless it’s a superior property with respect to view. I’m sorry but $480K for 1400 sq ft in Santee seems pretty high even if it’s completely upgraded.
Sounds like we’re in agreement. Greg and Sandra deserve prison rape, not sympathy.
BTW the Seylers are probably still not as smart as they think they are. They are likely writing a loan for an inflated price to buyers with poor credit. Good luck with the California foreclosure process. Will they need to offer an Obama HAMP modification? Clearly at an inflated price the buyers cannot refinance and pay them off.
Sounds like we’re in agreement. Greg and Sandra deserve prison rape, not sympathy.
Nobody deserves that type of treatment, one of my pet peeves is how people think that prison rape is an acceptable punishment. I wouldn’t wish it on my worst enemy. Prison rape is a major problem in the US and one of the reasons that our prison system is so dysfunctional.
If we want to punish somebody for a crime it should be through the court system and not the vigilante justice system of rapte.
This case brings up a point I’ve been wondering about for a while.
It seems that the GSEs (and FHA?) still allow a 6% kickback from the sellers to buyers. Is this true? If so, is that amount included in the recorded price?
What would happen if buyers decided to give the sellers a 6% kickback for commissions/costs, so they could get a lower price (which affects their tax basis for as long as they own that home)?
Quite frankly, **any** money outside of the actual sales price of the house should not be included in the recorded sales price/assessed value of a home. This includes commissions, 6% kickbacks/seller concessions, upgrade allowances, etc. These costs distort the market value because real estate is so dependent upon comparable properties to establish market prices. It forces future buyers to overpay if these “concessions” were included in the prices of neighboring sales.
JordanT,
Agreed. I was being facetious.
Except for Mozilo.
The seller financing kind of smells. That’s fairly unusual these days. That, combined with the fact that there was only a five grand difference between the first house and the second, must have set off alarm bells at the tax office.