When Richard Feldman was getting ready to close on the sale of his home on North Kenilworth Avenue last April, he got an unexpected surprise. His Realtor called to remind him that he had to pay $7,480 to the Village of Oak Park for the privilege of making the sale. Oak Park?#34;along with many other communities in the Chicago area, he learned?#34;has a real estate transfer tax.
You can't sell your home, with some exceptions, until you pay the tax. Oak Park's tax is $8 per thousand of a home's sales price. Only Berwyn and Cicero at $10 per thousand have higher rates than Oak Park in the Chicago metropolitan area.
"I'd never heard of it," said Feldman. He's not alone. Many sellers are not aware of the tax until they have to pay it.
Carolina Jiron, a real estate attorney with Pellegrini & Cristiano in Oak Park, is careful to always inform her clients of the tax.
"It's quite common for them to be surprised," she said.
"It's the sort of thing you never factor in," noted Cindy Richards. "It sneaks up on you." Richards, senior editor of Chicago Parent, a sister publication of WEDNESDAY JOURNAL, and her husband Scott Fisher have a side business of rehabbing and selling homes. By now, Richards is well aware of the tax and always factors it in when setting her selling price.
"What are you going to do? If you want to sell the house you have to pay it. It's a cost of doing business," she said.
The state and Cook County also levy their own transfer taxes. In addition to paying the transfer tax to Oak Park, sellers must pay 50 cents per $500 in sales value to the State of Illinois and 25 cents per $500 to Cook County.
In River Forest the transfer tax is a much lower $1 per thousand, doubled from 50 cents per thousand last May.
How much money?
The transfer tax raises a surprising amount of money for Oak Park. According to Finance Director Greg Peters, Oak Park collected $4,324,644 from the transfer tax in 2004. That's 10.85 percent of the total revenues in the village's general fund. In 2003, the transfer tax raised $3,366,964, and in 2002 it produced $3,600,229.
It's a major contributor to the budget and the village has benefited from a strong and active real estate market in Oak Park. Of course, if the real estate market slows and there are fewer sales and/or lower sale prices, village revenues will take a hit.
In River Forest, the transfer tax is not used as a revenue generator, according to Village Administrator Charles Biondo. Proceeds from the tax are used primarily to fund the mandatory home inspection required before a home can be sold. River Forest collected $119,000 in the fiscal year ending May 1, 2004 from the transfer tax.
Through Jan. 25 of this year, the village has collected $103,000.
Oak Park first enacted its real estate transfer tax in 1978. At the time the rate was $5 per thousand of sales value. In 1986 the rate was raised to $7 per thousand and the village board raised the rate to the current $8 per thousand in 1993, according to information provided by the village clerk's office.
A seller who sells to a nonprofit is exempted from the tax.
In a few communities, the buyer is responsible for the tax, but in both Oak Park and River Forest it's the seller's responsibility. Some communities?#34;Berwyn is one?#34;waive the tax if the seller moves within the town limits. Oak Park does not.
So Feldman, who moved a few blocks to another home in Oak Park, still had to pay the tax and was not happy about it.
"The thing that sticks in my craw is there is no reason why someone who is staying within Oak Park should be hit like that," he complained.
But there's also an argument that the tax is most unfair to those who move out of a community. After all, a seller moving away from Oak Park pays a hefty sum to the village and won't be around to reap the benefits of any more services. It's a substantial exit tax. That's why in some communities, including Chicago, Naperville, Wheaton and Wilmette, the tax is levied on the buyer, not the seller.
Sell a home in Oak Park and buy in any of these communities, and you'll be hit with a transfer tax on both ends of the transaction.
The problem with levying the tax on the buyer, according to Rich Gloor Jr., president of the Oak Park Board of Realtors, is that buyers often have enough trouble coming up with down payments and closing costs without burdening them with the transfer tax. Sellers usually can pay the tax out of the proceeds from the sale. So most municipalities levy the tax on the seller.
Paying the piper
In fact, most sellers never actually sit down and write a check to the village. Here's how it usually works in Oak Park:
A day or two before closing the seller, or more typically the seller's Realtor or attorney (or someone from their office), will go to village hall. There they pay both the seller's final water bill and the transfer tax. Then the village clerk's office issues a transfer tax stamp, not much larger than a postage stamp. The stamp, showing that the tax has been paid, is affixed to the deed at the closing. After the closing, the deed is taken to the Cook County Recorder of Deeds office to be recorded in the buyer's name. Without the stamp, the deed can't be recorded. Without the stamp, the closing will not be completed and there will be no sale.
If the seller's representative pays the tax for the seller, the representative will be reimbursed from the sale proceeds at the closing along with his or her other fees. Since sellers often don't write the check to the village, they may not be aware of the transfer tax, at least until they receive detailed statements at the closing and see it deducted from the proceeds of the sale, along with the Realtor's commission and the
Because most people don't sell property frequently, the tax doesn't generate a lot of opposition. You never think about it until you're selling. And if you want to sell, there's usually no way to avoid the tax.
Gloor said that when he informs his sellers of the tax, many aren't even aware of it. And when he explains it to them?#34;and they realize what it's going to cost?#34;they usually just shake their heads.