During a real estate transaction, property taxes play a significant role. It is common sense that the seller pays for his part of the ownership of the property and the buyer pays for his part of the purchase of the property. That is well and good if the property is closed in October or November or December.
Per Texas law, the tax assessor for each county has to send the property owner or their agent on or before Oct 1 of each year. What happens when you close the property at other months, for example, say May? Since the Tax Assessor does not finalize the property taxes, the parties to the transaction agree to use prior year’s tax number, to pro-rate the amount and also decide to settle once the final property tax numbers become available.
Say the property tax based on the prior year is $8000 and the closing is on Jun 30th. The seller will credit the buyer $3967.12 at closing for their portion. Let us assume in October the buyer (new owner) received a final property tax bill for $12000. In this scenario, the seller owes $5950.68 for his share of ownership of the property. The sellers now contractually owe the buyer an additional $1983.56 ($5950.58 – $3967.12)