Coping With The Housing Crunch
Earlier this year, a longtime client of mine found herself downsized out of a job in southeast Michigan. Through networking and business connections, she found the perfect replacement job here in West Michigan — but she wasn’t able to consider it.
“I’d love to move,” she told me, “but I can’t sell my house. To move to West Michigan, keep my house in Southeast Michigan and maintain two mortgages just isn’t an option right now. I can’t afford to make the move.”
Recent changes to state legislation, in combination with a never-before-utilized law, could be enough to change her mind. Michigan has enacted regulations that offer tax relief designed to alleviate the housing crunch, while strengthening disclosure requirements for residential brokers.
And these changes are not just for individuals. Businesses that purchase homes on behalf of employees who are transferring to new locations can benefit as well.
The new and unutilized legislation includes:
Property tax relief: Earlier this year, the Michigan legislature enacted a law that extends the principal residence exemption, historically referred to as a homestead exemption, to homeowners who find themselves with two houses. In recognizing the amount of housing inventory, the legislature moved to offer some relief designed to help Michigan residents.
Homeowners can maintain the 18-mill reduction on their property taxes on a second home that had previously been their principal residence for up to three years as long as the second home is up for sale, unoccupied, not leased and not being used for business.
That means that the homeowner who is trying to sell his or her home and has purchased a new home will not see a dramatic increase in his or her taxes as many have seen in the past.
A copy of the form is available from the tax assessor.
Transfer tax relief: While not new, transfer tax relief is also available to homeowners or businesses. This legislative change was enacted in 1994 with little fanfare as part of Proposal A, a sweeping reform that changed how all residents and businesses in Michigan paid property taxes, in an effort to more equitably fund schools. While the legislature capped some of the property taxes we paid, it also created a state transfer tax so that every time a piece of property changed hands, the state would receive $7.50 for every $1,000 in property value.
Yet the legislation includes a provision that exempts the payment of transfer taxes on residential property if the state equalized value, or SEV, is equal to or lesser than the SEV when the property was purchased or acquired by the seller. This is the first time that this type of tax relief has been invoked, since this is the first real decline in property values since the initial legislation was passed 14 years ago.
Stronger broker regulations: The legislature also made changes that strengthen regulations governing residential brokers. It’s becoming increasingly common for homeowners looking to sell their houses to hire a brokerage service to assist with the process. Brokers must now disclose just what they’re doing for the fees that they receive.
For example, if you pay $500 to a broker, he or she now must tell you what you’re getting for the money. This may buy you a place on the multiple listing service database, or MLS, and include help with marketing, presentation of offers, assistance with the closing and other services — or, it may just buy you a spot on an MLS database.
The new regulations require brokers to disclose their standard practices and guidelines, ensuring that you are comparing apples to apples when selecting a broker to help sell your home.
It’s important for homeowners and businesses to educate themselves about the new tax relief and the consumer protections now available.
Melissa N. Collar is a partner at Warner Norcross & Judd LLP. She concentrates her practice in real estate and construction law and serves as chair of the firm’s Construction and Condominium Practice Groups. She can be reached at firstname.lastname@example.org