How High Property Tax Affects Seller Credit

How High Property Tax Affects Seller Credit
Posted By Jeffrey Hogue @ Mar 9th 2017 10:25am In: Real Estate

High property tax in Berks County is the gift that keeps on taking. Here is yet another way high property tax affects value and affordability for home buyers and sellers.

In 2016 almost half of all home sales in Reading, PA and Berks County included some degree of seller credit. Through the first two months of 2017, there have been 568 total home sales. Of these sales, a whopping 277 included a seller credit or approximately 49%.


So what gives? Why do seller's need to credit buyers money for purchasing their house? Many home sellers believe there is something inherently wrong with this practice. Not really, read on.


Last year I wrote an article entitled "What Would Happen to Home Value if There was no Seller Credit." The article stated that if seller credit were disallowed by lenders property values overall would fall, (visit my website to read the full article). This is particularly the case in Berks County due to challenging economics.

In my opinion, the issue is not the actual credit but the amount of that credit.


Lenders, or should I say the Fed, allows up to six percent of the purchase price to be credited to buyers by the seller. The six percent can only be used towards the buyers closing costs. If the closing costs equal five percent, then five percent is the limit.


For many home buyers to acquire a mortgage, the lender requires them to escrow taxes and insurances. The escrow is part of the buyers closing costs. Homes with high taxes require more escrow and thus more seller credit. Property tax proration is also a part of the buyer's closing costs. All this means that close to a full year of taxes instantly become part of the buyer's closing costs. It is plain to see why high property tax leads to larger seller credit amounts.


It is a blessing that lenders have the flexibility to allow seller credits. The credit creates more willing and able buyers in the market which leads to stable sale prices. It is once again those darned high Pennsylvania property taxes that spoil the party.


Don't forget to let your local congressperson know how you feel about your property taxes. You make the difference!


Knowledge is Power!

Jeffrey C. Hogue

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