Life Cycle of a Home’s Value (2005-2009)

November 12, 2009 at 6:18 pm | Posted in Uncategorized | 3 Comments
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As we all know, the real estate boom of the past decade is over as we knew it.  Like many, I was fortunate to have bought my first house in 1999.  And 2005/2006 was the beginning of the end.  I mean, we all knew that things were out of control, but like dot coms and tulips, you just had to buy or you were labeled an idiot by those who were already making loads of money.

And similar to buying, people were able to custom build their dream homes- they’d get a construction loan from a local bank, buy a lot for a quarter million and then go nutso gonzo as they built the end all be all of custom homes- not personally for most, but we’re talking essentially a home built from step one with owner direction.

A few years ago, I was fortunate enough to work with a few local banks that were helping people build their dream homes.  And what they’d do is get an appraisal based on the finished product.  This is called a “proposed construction” appraisal.  And essentially it’s the same thing as a normal one, but it’s based on the hypothetical assumption that the home will be built as described in the blueprints and any other documentation that shows the finish of the home.  So even though the home wasn’t even started, I’d use current comparables to estimate the value of the finished product.

Now when it takes a year to build a home, the assumption (and bank business decision) is that the market values will stay the same or continue to go up…

Case in point:  I got an assignment to do an appraisal on a home that was just completed- this was in July of 2007.  It was a custom home on an acre in Queen Creek.  I go out there, do the normal appraisal and based on the closed sales from July 2007 or thereabouts, the home was worth $875,000.  Now the original construction appraisal had it pegged at right around a million dollars, so losing $125k in value is a big chunk of money.  Either way, based on what the owners put down, the loan went through.  And please keep in mind, I don’t know if every deal goes through.  It’s not the Appraiser’s job to care if a deal goes through.  This was more of a curiosity thing and I was friends with the loan officer.

Custom home I appraised in 2007

Custom home I appraised July 2007

Literally 3 months after this- we’re talking October 2007, the same loan officer called and said that they owners now wanted to take out a home equity line so that they could do their yard, put in their pool, etc.  Ironically, the owner owns a landscaping company so I figured he’d have an in- at least with the landscaping.  But anyway, I did the new appraisal and unfortunately, all the now new comparables painted a different picture.  Let’s describe this era as “the beginning of the end” or the “world of wishful thinking”.  Now, only 3 months later, the home appraised for $780k- that’s right, almost $100k lost in 3 months.  Needless to say, the homeowners did not get their home equity line.

And now is where I go into the mindset of that era.  Back then, I would get calls from loan officers- and I’m talking about the ones that I knew, and they would be in the process of taking a loan application for a borrower.  I would do a limited desk appraisal based on county records and present the loan officer with the applicable comparables in the neighborhood and invariably, the loan officer would ask if there was anything else (as if I’d be holding out the “good comparables” just to upset them).  When they realized that they couldn’t get a 80% loan, they would ALWAYS take the attitude of holding off for better comps…  Now my gut- based on my insight of the market, told me that there would not be any better comps, but it’s not my job to influence or predict.  So a month later when that same loan officer would call for the same property, let’s just say that my “told you so” news wasn’t always taken so well.  After all, it’s the Appraiser’s fault that home values were dropping right?  Shoot the messenger, etc.

So anyway, beyond seeing that deals aren’t going to happen (based on appraised value and my limited knowledge of either what they were hoping their home was worth coupled with what county records shows as their original mortgage amount), I simply move on with my life.  I’ve got enough of my own things to worry about to be concerned about every homeowner- that would drive a person insane.

So, let’s flash forward to 2009- November to be exact.  I just got an appraisal request for this same property that I’ve described to you above.  First off, let’s just say that that is such a statistical improbability that images of being struck by lightning- twice, come to mind.  Now back in the heyday of refinancing, I’d appraise the same home 3 or 4 times in a 2 year period.  But that was because the homeowner was refinancing with the same loan officer while rates went down and values went up.  But in today’s world of foreclosures and declining markets, it is now a statistical anomaly.

When I pulled up the county records of the home, I recognized the street name and neighborhood and wondered if by chance it was the same home, and  then I saw the owner’s name and it all came back to me.  As it turns out, the owners of said home couldn’t get their home equity line and have lived in the home for the past two years.  But now they are short selling the home.  Even though it’s not in any way my fault, I know that it was my appraisal that stopped their “progress” back in ’07.  So when I called the Realtor to go see the home, of course I asked if the homeowners still lived there- and of course they do.

Long story even longer… his mother was there when I inspected the home, so no uncomfortable conversation.  And at least I didn’t have to remeasure this bad boy as custom measures tend to take a little while.  But as you can see by the photo, nothing has changed- in fact the house is already a tad run down and neglected with uneven pavers, some of the stone accents missing, etc.

Custom Home 2009

Same Custom Home November 2009

So that’s my story.  Any questions you might have are welcome… oh wait, did you want to know what the home is selling for right now?  Do you really want to know what that “million dollar home” is worth today?  Alright, I’ll tell you- but you need to leave me a comment!

$342,000.

Visit our website at www.advantageappraisalsllc.com, and if that doesn’t roll off the tongue, just try www.appraiserdude.com. Or now you can follow us on Twitter at @appraiserdude.  Give me a call at 480-544-1217 if you have any questions. I look forward to working with you.

Property Taxes- How are they Determined? (ported from Blogger)

October 20, 2008 at 3:42 pm | Posted in Uncategorized | Leave a comment
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Response to a question posted by Loralei:

A reader had a question about her property taxes. She purchased her home 12 years ago and has refinanced twice and has a 2nd mortgage on the home. Do appraisals affect the property taxes?

The quick and dirty answer is: No. Refinance appraisals do not affect your property taxes. But when you buy your home and the transaction gets recorded in county records, then your property taxes will definitely be affected. Actual market purchased set the baseline that is used to assess property taxes.

Property taxes are assessed annually by your local assessor (usually at the county level). Your property and every one of your neighbors is appraised using the same appraisal principles utilized for mortgage purposes. Now the assessor is not physically measuring each property and going inside to check things out. They typically rely on tax records which show your property’s characteristics- sort of like what we call a “Drive By” appraisal. But do they actually visit your property in their car? I’m sure some of them do, but I would guess that most homes are not viewed in person by the assessor or thier staff. So if your tax record shows that your home is 2300 square feet and you know that it’s actually 2800, then you should be pretty stoked (for tax purposes). However, if you refinance your home and your lender only orders a drive by appraisal, then you’ll only get credit for that 2300 square feet- Catch 22? Perhaps.

Your actual property tax is then based on a cumulative analysis of services that we all use- police, fire, schools, library, city hall, etc. Yes, this is how our teachers and mayors get paid. If you are a tax paying homeowner, you have a right to get mad at that police officer who gives you a rolling stop sign ticket at 2AM- that’s your employee! But anyway, once they figure out how much it’s going to cost to run all these services and how many properties are in the municipality, they do some simple long-hand division and your county tax rate is determined accordingly. That rate is then multiplied by your property’s “Full Cash Value” to determine the actual amount you owe. So if you have more property, you pay more taxes. If you have a 700 square foot home on a 4000 square foot lot, then you might not want to start yelling at that officer who’s writing that aforementioned ticket. You have 8 kids living in your 1000 square foot home? Well you’re getting a smoking deal on your kids’ education.

Now the big question is how accurate the county’s appraisals are. And to be honest with you, I’ve seen their values spot on and I’ve seen them way off- sort of like Zillow. Some assessor websites sites allow you to pull up a specific property and then click a link for “similar properties” which in the case of my own primary residence turned up 5 sales- all from between 2005 and 2007… of which 3 are over a mile from my house (and I live in a tract home) If you want to learn more about how your particular value is determined, ask your assessor.

You can see your “Full Cash Value” by which your tax assessment is based simply by visiting your county assessor’s website or visiting their office. If the assessed value is close to reality, then there’s nothing you can really do to reduce your property taxes.

The big issue nowadays is of course homes that have declined in value substantially over the past few years. So if you think your assessed value is too high, you should check with your own County Assessor’s office to get an appeal form- again, usually available online. If you know of recent sales that support a lower value for your home then you’ll want to itemize those for the assessor to review. But remember, the assessor is using the same basic appraisal principles as an appraiser is. If you really want to make your case, hire a reputable appraiser who can professionally demonstrate the value of your home in the “language” that the assessor will understand.

Visit our website at http://www.advantageappraisalsllc.com/. Give me a call at 480-544-1217 if you have any questions.

George

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