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From Peter Coy at BusinessWeek on Feb. 19: While New York Bleeds, Washington Thrives.
Wednesday, February 25, 2009
Northern Virginia Bits Bucket 2/25/2009
Posted by Harriet at 8:40 AM
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58 comments:
Checked out the new '09 Fairfax County assessments vs some of the listings. There is certainly some shock value in places, and I wonder how long it will take to dampen asking prices.
Prime example:
http://franklymls.com/FX6971359
Nice looking house, nothing special, but a heck of a lot better looking than most other listings in 22042 Falls Church.
Seller has it listed for $449,900.
'08 assessment was $464,950. Overlisted (IMO) for the area, but at least below assessment.
The '09 assessment comes in at $316,330!! A 32% cut. Now, as a first-time buyer, I rarely have any sympathy for the sellers that rode the bubble up, but wow is that a slap in the face as you are trying to sell.
Fred,
Dude!! For $316k that'd be a gem of a house!! Man I hope seller's pay attention to what Fairfax is telling them. For $450k it's overpriced and uninteresting, for $316k it's a home. A beautiful sweet little home. If they listed for that it would get bid up and be gone in a week! (says me who's only driven through Falls Church once).
Fred, regarding the 09 assessments.
I am in a spot where I am trying to sell and where I am buying. So I have a very keen and immediate interest in the affect of the assessments vs. the sales price.
Several very smart people provided advice yesterday. I spoke with several realtors and loan officers yesterday.
At that time, they all seemed to indicate the same sentiment (not my thoughts, these are theirs, so feel free to correct for accuracy):
Assessment value means little vs. market value. The county puts out assessments in order to generate taxes. Last year (08), despite the market getting significantly worse, they kept the tax assessed value very close to the 07 assessment, even though everyone knew they should be lower. I was also told that they had a guy raise the land value and lower the building value, just to keep things the same so the county could keep their revenue up. He was then fired. Many people complained that their tax assessment should be lower (and thus, they should pay less taxes) because of the bad market.
Now the county dropped assessment values sharply and are raising the tax rates, in an effort to still generate the needed county revenue. So people won't really be paying fewer taxes, it just looks like they will to the uneducated.
When appraisers look at the house, I have been told they are very strict and go back just a couple months to find comps. Naturally, these comps from December and January were, themselves, priced/sold/appraised on comps from the couple of months before. The assessment value plays a much smaller role, if any, compared to comps. Years ago, houses routinely sold for 10-20% above assessment value. Lately, since the assessment value was too high to begin with, houses sold at or slightly below (talking regular sales, not foreclosure/short sale) the assessed values.
I was told that these assessment values will linger on the minds of the buyers, but won't immediately affect the sale price/assessment price of a house. If a house is priced too high due to comps/neighborhood/upgrades, it won't assess for its sales price, but that assessment won't be close to the 316k that you have listed for that house in FC.
It may or may not be what the seller has listed (449), but it won't be the 316. At least not anytime soon.
The appraised value month to month will likely decrease, but it will not spike down to the 300s for that property just because the house was assessed for 316.
The above is more or less what I was told by multiple people in the business of working with appraisers/lenders/realtors. I have not spoken directly with an appraiser. The info may or may not be accurate, but that is why I am passing it along: to start discussion.
I am definitely interested in opinions that confirm or deny the above to be true. We had a decent discussion on the topic yesterday, when the 09 assessments were released (Monday night). Now that they have been mailed out and are "making news", hopefully we will hear more on how the assessed value affects sale price/appraised price both near term and over the course of 2009.
I was told that these assessment values will linger on the minds of the buyers, but won't immediately affect the sale price/assessment price of a house. If a house is priced too high due to comps/neighborhood/upgrades, it won't assess for its sales price, but that assessment won't be close to the 316k that you have listed for that house in FC.
Getting confused here - I intended to mean "appraised" when I said assessed in every instance save the first one of this paragraph.
T,
Yeah, that's why I asked about the dampening of prices. I'm sure that this particular house will not fall to the low $300s, but when these numbers start coming up in the listings as the assessments, people are going to have a reaction to it, and IMO it will be a factor in depressing prices.
Now, I just posted the most extreme listing that I clicked through last night. Many others in Vienna and closer to McLean had rather insignificant drops. It is pretty obvious that the foreclosure problem is weighing heavily on these assessments.
T, thanks for the follow-up.
So what, if anything did they say the assessed value was based on, if not on comps? Allowing older comps than appraisals would just make the assessment higher...
They are absolutely right about the relative constancy of property tax amounts. And the strange recent history of not dropping early enough, which resulted in a stiff drop in 09 assessments.
What CRT said a few months ago on this subject is relevant. Which is that in order to keep their bond ratings, local governments _must_ realistically set their assessed values, so that they can accurately guaruntee the property tax income stream against which they are issuing a bond. That guy was fired for a reason. It's not in the best interest of a county to be fickle or inaccurate in assessments. The differences from appraisal to assessment you raise are fully understood by the direction the market has gone since the time of the comps used for assessed values.
Thus I disagree with their feeling that sales will transact with prices above assessments at least for a few months. I can see how it seems reasonable because prices "should" be smooth, but I think the underlying premise is actually that they've over-corrected the assessments this year. Because if prices continue to go down, we should get sales prices below assessed values again in short order. (2-4 months).
BTW, You probably didn't have time to look into it with all your conversations last night, but did my "how to price a TH" rant help at all? How did it come out versus the new assessment? If my method comes out above 09 assessments, then they may have a point, that the assessments have over-corrected.
T: sale prices drive assessments. In other words, the assessments are based on past sales (roughly 18 months ago). Fairfax isn't like other areas where they have a formula (x bedroms * y sq ft of land). If you have 5 identical townhouses, and two of them sold last summer for $300k, then they new assessments should be $300k.
Presumably, that assessment of $316k is that is what similar homes sold for last year.
For example, if you look up a place in the FFx county database and click on the "neighborhood sales button", that brings up the sales that the assessor is using as comps. The comps may not be perfect matches, so in some instance (i.e. SFHs), some fudging might be done.
I've been looking over some Fairfax County assessments anecdotally and I think they are surprisingly conservative (on the low side). But I do think that's a typical return to the norm, perhaps. The assessments seemed unbelievable during the bubble.
When we owned a house there from 1994-2001, the assessments were always significantly lower than the market value (I would say at least 20%). And we were always grateful because nobody wanted to pay more taxes.
That neighborhood is nice--right outside the boundaries of Falls Church City--its not one of the shady FC neighborhoods.
I would cry if my assessment dropped so much on my house.
Harriet -
I was a little confused by your post. Do you think the 09 assessments reflect current market value or when you say the assessments seem conservative, do you mean they are still somewhat lower than market value???
Thanks.
dgg,
I think they're close to being right, but are a shade below market value. This explanation from the county website was useful.
Like Cara said, the $316K in the first example on this thread would be a great starting point at which to price the house to guarantee a sale.
harriet,
Perfect link!
So, the take home is that, while we'd all love it if this home was priced at $316k, they can reasonably price 10% over that and consider it to be priced at fair market value currently, or $351k. And I do think this house would command $350k, but it's a question of traffic through the property.
So, T, in Fairfax County, price between assessment and assessment/0.9 to list at fair market value. Up to another 5-10% over that if you want "room to negotiate", but I wouldn't advise that strategy. Simpler and quicker to just say what you mean.
Thanks Harriet,
We close this afternoon on a TH in FFX county. I'm analyzing it til the last moment! LOL Feeling better based on what I've read here and given the 09 assessment (purchase price - $290K, 09 assessment $301K). Apart from an asteroid strike on the TH, looks like we'll proceed!
Cara - I did appreciate your information regarding setting a price for a TH. The trouble I am seeing is that there are very few TH that are similar to what I have, in the area I have it.
For instance, in 22015, on Frankly, I see just 13 actives for 4 bedroom THs.
All are right at 300 or above except for 2, which are either short sales or "as-is" (I assume bank owned), and both of those are 7-8 years older than mine. Those 2 are priced mid 200s. The other 11 are priced between 299 and 450.
Unlike all other TH in my neighborhood, the past few years I had multiple upgrades including vinyl siding (rest of NH has alum), new roof, new carpeting, new kitchen cabinets, new cabinets/vanities in all bathrooms and numerous other items. I won't get into specifics on price but as you know, all of that work is not cheap, even for a TH.
The biggest difference between mine and the others on the list is that mine is 2 levels vs. many other 4 bedrooms are 3 levels. Of the 11 actives that are 299 or above, there are 5 that list SF. Mine is larger/equal to 2 of the 5, and smaller than 3 of the 5.
I will address other issues with the tax assessment in a more general comment in my next reply.
T,
Yeah, I was afraid you'd say that. Around here there's a similarly asburdly large spread in list prices that is vaguely inexplicable.
Use your realtor to get closed sales prices broken down into REO and "normal", and the tax assessments to get Square footage.
Many of the list prices may be totally clueless.
Find the 4 most comparable sales in size and convenience of location, even if it's another neighborhood over.
Find a list of what percentage of the costs of the maintanence and upgrades you have done can be applied to the house price. Somewhere between 50 and 70% of your costs for most of them. But, while "new roof" will help it sell, it's maintanence, not an upgrade so is part of what one is expected to do to maintain, not increase, your home's value.
7 years isn't necessarily much of a difference in age.
2 stories is indeed better than 3 for the same square footage, but only marginally so.
True 4 bedrooms are indeed rare, which is why I suggested another 20k over the 3 bedroom price as one method.
If this isn't working, try to find more similar construction in towns that have been similarly effected by the downturn so far. For instance, there are lots of 4 bedrooms townhomes near me in Springfield. Whether a single one has sold recently is another question, because they're mostly listed over $400k....
A few general comments:
The following is a FFXCTY statement on foreclosures:
"Property foreclosures increased during the past year. As a duress sale, foreclosures themselves, or lender “take backs”, are not “arms-length” transactions under Virginia law. These forced transactions are typically based on the loan amount, not necessarily the fair market value. Regardless, foreclosures generally have had a dampening affect on competitive sale prices, and this influence is reflected in the 2009 assessment decline. The prevalence of foreclosure activity was not uniform throughout the County."
The problem is and has been the past year, the majority of sales (correct me if I am wrong) have been short or foreclosures. Thus, in the past, appraisers and assessors may have overlooked those properties because they percentage of those sales were dwarfed by the regular sales. Now, they have no alternative but to include them in their calculations because their percentage of total sales is now much higher.
As for what my contacts said yesterday, they told me appraisals were 99% based on comps. They said they may/may not look at appraised value, and I assume if they did, it would amount to a very small factor in the overall appraisal. Again, this is just from 2 sources and is not really a true measure, more anecdotal.
As for my experience with reading this site for several days as well as studying property on franklymls for several months, and dealing with a few realtors, I can provide this opinion:
The majority of people who use Franklymls or are on this board are those who are value shopping to get the best deal they can and are willing to wait until they find that property. You guys are very educated and are very aware of everything that goes into pricing a house. But you probably represent about 5% (or less) of the overall home buyers out there who are working with realtors.
The majority of those working with realtors don't know as much as you guys do, and think their realtor is very bright. From my experience, I can say that most people who have posted on this board (I'd say 95% though I'm just tossing a number out there just under 100) are more "in tune" with properties and the business of selling/buying than at least half of all realtors.
That said, and relating to the 09 assessments:
When Harriet said: the $316K in the first example on this thread would be a great starting point at which to price the house to guarantee a sale.
I think that statement is both true and at the same time, somewhat unreasonable. Here is why: yes, it would definitely generate a "guaranteed sale". But at a big cost.
The 08 assessment was 464, and the seller is asking 449. Which may have been an accurate reflection of market value (or slightly aggressive) on this past Sunday, I don't know, I didn't study comps, I am just speculating.
But just because the county assessed it for 316 on Monday, I don't believe that a finger snaps and the market value of that house is now 133k less (449-316).
Part of the reason is this. Most realtors I talk to don't put much weight (if any) on assessed value. To them, it's all about appraised value at the time of closing. Can you get the appraised value when you close?
The majority of people working with realtors don't read frankly, don't read this blog, and don't know enough about assessments/appraisals/market price. They trust in their realtor to find them a house at whatever value they can afford.
Half the realtors who walk into that house priced at 449 won't tell their client it assessed for 316 and we can offer that for the house. They may say then can offer less than the 449, but I highly doubt they would go down to 316.
In the same way, the seller's realtor is not going to drop the price 113k just because the assessment came out at that number.
The reason I come to that conclusion is this:
I am both in the process of looking for and buying a house, and selling one. I know I won't, in the snap of a finger, try to sell my house for 70k less than what I was planning to on Sunday just because of the Monday assessments. Similarly, I would not expect the person selling me a house (regular sale at market value, not a foreclosure/short sale) to suddenly drop their asking price $60k just because of the Monday assessments.
I am far from an expert, I am less educated in this business than probably 99% of the people here. But this is just my opinion, and feel free to correct me. But from those in the business who I have spoken with, they all have told me that it may be a slow and steady slope down in terms of market value on any house, and it is unlikely that it will reach the 09 assessments in 2009. How far down it could go is anyone's guess. Not my info, just sharing what I was told.
Screwed up again:
As for what my contacts said yesterday, they told me appraisals were 99% based on comps. They said they may/may not look at appraised value, and I assume if they did, it would amount to a very small factor in the overall appraisal. Again, this is just from 2 sources and is not really a true measure, more anecdotal.
They may/may not look at assessed value... (not appraised)
re: 22042 home that fred posted (my own zip).
22042 saw huge assessment jumps in 2005-2006 (mine went up 40% from 05 to 06), so a 32% drop isn't tragic (meshel's commments notwithstanding, it's kinda sad to be that EMOTIONALLY invested in the value of your home unless you are in the process of selling).
@ Meshel: It's not that nice a neighborhood. Yes, it's close to the City, but that corridor between 50 and 29 has become rich in multifamily immigrant housing.
Cara - thanks for the continued advice.
My concern regarding sales price and realtors (generally) is this:
From my experience, the average realtor is interested in getting you to purchase a house at whatever you are able, as quickly as possible. When selling, they want you to set as low a price as possible to get the quickest sale.
The ones I have worked with seem most interested in getting something done quickly vs. getting the most bang for your buck. That requires more work on their part, and even though they make a slightly larger commission, they would rather move 5 transactions a month than 2-3.
I already know my realtor wants us to set our price as low as possible, lower than what I though I should price the home (which was, by the way, less than the 08 assessment). I am interested to know what he now says with the 09 assessed values.
Using his logic on the purchase of a house (ignore assessments), if he mentions the 09 assessment on his own accord, I will be able to call him out. At the same time, I want my property to sell. Tough spot...
My opinion on assessments is that they are a data point to be compared with everything else, but tend to be more right than wrong except in cases of extraordinary improvements (screened porches, landscaping, finished basements, etc.) In this case, with apparently few improvements except for the rec room and some granite in the kitchen, I agree with Cara that +5% - 10% on the assessment is a good offer; the link from the country website is great! Of course the seller will not be prepared for that, nor an offer at 350k. It will take 6-9 months before the reality sets in.
T: my opinion is that you are in a little bit of denial, but since you are both buying and selling you have a good appreciation for the challenges. It will take people time to recognize that, for the majority of real estate in the NoVa area, the last 5 years of price appreciation are wiped out. Be glad that it was not 12 years, like the stock market. This is one of the most difficult times to do RE transactions due to the incredible amount of uncertainty. Not necessarily a bad time, but a difficult time. As you point out, realtors want transactions as fast as possible. They will never give you good advice about long-term value of a house.
My suggestion: watch Glengarry Glen Ross before asking for a realtor or buyers agent's opinion on buying or selling real estate!
We can debate Arlington perhaps, but Fairfax County (and townhouses especially) was a big part of that bubble. My view is that the county assessors did the responsible thing by removing a pillar of support of sellers' denial. You're right not to drop the price immediately; the faster you sell, the better you will get on the price. People who are buying now are more likely to be more cautious and check this information. Banks will also be doing this. It is part of the cycle to get back to normal real estate purchases, circa the late '80s.
I watched President Obama's address to congress last night. One point stood out to me as odd - the claim that banks are not lending. I've seen no evidence of this. There were lots of debatable statements loaded with the regular political spin (for instance the homeowner's bailout), but I thought in particular that the statement that banks were not lending was intentionally misleading. The politicians know that lending must return to historical norms and the "lack of lending" is limited to people who should not get loans. Am I being too cynical to think that this is pure political gaming on Obama's part to castigate banks for finally doing the right thing and making financially responsible decisions on loan approvals while knowing that is the country's long term interest that they do so? Or is this the right amount of cynicism :-) ?
I'd be very interested on data showing a continuing credit crisis in the ability to get loans at terms that are reasonable by historical standards.
John,
I give extra credit to any neighborhood within walking distance to Elevation Burger :). What do you think of that neighborhood vs the Falls Church areas more bordering Rt 50? Driving through, this area seems nicer than the Rt 50 hoods, but I haven't lived in either. ???
t--
thank you for a fascinating post. truly a philosophical question: if an assessment falls online but a buyer doesn't know it, does said assessment make an impact on prices?
do you really want to hope for that one uninformed buyer with that one sleazy realtor with that one careless bank to come along?
have you tried this: go back to 2000 and use the assessed value back then, or an appraised value before 2002. use a compound interest calculator at 5%, 4%, 3%, and see what you get. if you'd like, add 50% of the cost of your upgrades. that should give you a general idea of a range of prices that SHOULD make you very happy. (this is based on my own ideals, not some grand economic theory)
by the way--saw on cbs evening news last night that the average sale price in detroit is $7,000. they showed a single mom in her cute brick 3BR house that cost $1,100. said sales volume was up 30% over this time last year.
(i swear i never normally watch the news--2 year old got hold of the remote)
Further to my post about Obama's speech, calculated risk reported significant improvement in credit metrics. While the credit conditions aren't great, the trend is very positive and do not suggest a major problem with banks refusing to loan.
tabitha: great philosophical summary! I used the excel calculator approach when I was looking to buy last year. I did learn one thing: the prospective sellers did not use that approach in setting the price of their house!
blacksilver,
Everywhere I go (many places around NoVA for my job) all of the car dealerships are advertising with big banners or signs on their cars: "We have money to lend"!
I'm sure a portion of it is that they can't lend to the low 600 credit score individual anymore, and that hurts their bottom line, but the credit crunch isn't the (only or best) answer to why demand in cars has dropped of a cliff.
So, banks are lending, and at incredible rates. I was looking and I could get 4.5% from my credit union. They were salivating at the thought of lending me money.
No, the answer has to be some other portion of the equation. And for me, and for most of America, I think, it's these two points:
1) Dude, we've already got a lot of debt, do we really want another 20K (car) or 200K (house)?
2) 20K is a lot of money for a car... I can get a used one for 10K. And 200K is a lot for a house. Maybe I can't afford to pay that much...
Meshel: Point on Elevation burger. The more I think about it, you may be right. I was thinking more on the 50 side of that corridor. Getting over that close to 29, I don't know quite as well.
Many others in Vienna and closer to McLean had rather insignificant drops.
I wonder what our friend, Ann Page, thought about her new assessment:
http://franklymls.com/FX6965360
2009: 1,661,090
2008: 1,866,420
2007: 1,919,150
HaHaHA! The elevator lady's house has been on the market for two years! She even tried to rent it out for $7k a month!
None was as exasperating as when the businessman from Dubai offered $1 million less than the asking price...."He doesn't seem to understand that I can't just give it away.
http://tinyurl.com/6dk2xr
Regarding Fred's initial post, I have a buddy who bought a foreclosure not far from that listing for $320K. 3 bedrooms, 2.5 baths. Sure it needs some cosmetic work but the bones are all there. Is it really worth a $130K premium to have granite countertops and the tiling already finished? I don't think so.
My $0.02
There are some houses around McLean, other than foreclosures, short sales, or "as is" sales, that are below the new assessments. Here are a few:
http://franklymls.com/FX6947458
List price: $1,199,000
2009 assessment: $1,382,480
http://franklymls.com/FX6956348
List price: $1,299,900
2009 assessment: $1,474,970
http://franklymls.com/FX6978235
List price: $1,325,000
2009 assessment: $1,437,840
http://franklymls.com/FX6947458
List price: $1,199,000
2009 assessment: $1,382,480
Yuck, that place is hideous. The inside is not bad, but the outside is a disaster. That ignores that it appears to be on the corner of a busy street across from an office building.
It's never sold before, so I'm not sure what that assessment is worth.
NoVAwatcher:
I don't disagree on the first house. The other two are nice. There are a lot of foreclosures, short sales, etc. going for less than assessment. It looks like other sellers are having to lower their prices to compete.
This short sale doesn't look to bad:
http://franklymls.com/FX6768093
List price: $1,100,000
2009 assessment: $1,270,440
s/b too bad
Here's a foreclosure:
http://franklymls.com/FX6871384
2009 assessment: $2,131,260
List price: $1,350,000
2005 sale: $2,300,000
2004 sale: $1,690,000
quick question -
does a lender need credit report for Good Faith Estimate? i might be wrong but last year i was able to get three lenders to give me GFEs without them pulling our credits. (or maybe they did without mentioning it?)
tks!
North Arlington:
http://franklymls.com/AR6782690
2009 assessment: $942,000
List price: $865,000
North Arlington
http://franklymls.com/AR6888805
2009 assessment: $942,600
List price: $850,000
http://franklymls.com/AR6978902
2009 assessment: $569,000
List price: $519,000
t,
yeah, it's extremely difficult to price houses right now, partially because of the rapid market movement and partly because of the totally uninformed nature of buyers/sellers.
I like Tabitha's suggestion.
But, part of the reason I've been waiting until now to buy is that I personally don't want to have to do the "price discovery" part myself. And that's your current dilemna basically. No one knows the price, they're all over the place, so you can't know either how to sell your house or how much it's going to cost to buy what you want. In my market segment (a step down from your TH) things are starting to reach consensus based on a large number of completed sales, so I feel more comfortable buying (although I'm counting on another 10% drop, or I'm waiting another year). But one rung up is a quagmire.
So there's two strategies, price "reasonably" like 15% over the 09 assessment, and hope for someone to fall for your place. OR wait out the storm with the rest of us, and let your dream home come down to earth as well.
Following along with the "2002 + normal appreciation" valuation - any thoughts on how best to put a value on tear down/new construction?
I don't understand why people speak to the press if they don't want anyone to know their business. There aren't very many members of the honor guard, let alone so many married to women named Christina so ????.
My understanding is that traditionally, military families didn't buy until they were out of the military b/c of the transaction costs and the likelihood of relocating.
T,
Your in a tough position. I feel for you, but here is my perspective.
A previous poster said you can recover 50-70% for upgrades – well sort of – You can recover that much if you find a buyer that values the choices you made at 100%. Put in some expensive exotic colored granite that 90% of the population will puke over, your not going to get .1$ on the 1$. In general upgrades don’t add ANYTHING to my offers; only in one instance a upgraded kitchen that happened to be EXACTLY what I wanted made a difference, and I upped my offer.
Roofs, floors, carpets, windows, sidding….you can’t add anything for those, every house requires them- you upgraded to nicer ones because it was your personal preference not the buyers. Take the emotion out of it, it is a buisness transaction.
Houses themselves don’t really appreciate – think about it, your saying the old lumber, fixtures and so forth are worth MORE that new ones? Especially now. I was pricing out building a house with me as the general contracter (or hiring a good out out, i.e. not using a builder)..So I was pricing wood, the numbers floored me. A container of American Kiln Dried White Oak in any configuration up to 6x6’s (1 container = 40’ x 7’8” x 7’10”) could be had for 4,250!!!!! In 2005 this was 25,600+ if you could get it! OMFG A top grade SFH using ALL top of the line stuff (excluding major appliances) could be built from 42-47$/sq.ft. NOT including land! The cheap stuff that builders are currently using are even less, granite, quartz, silstone has all dropped by half (Odly, corian has not, maybe 10% drop) – the builders must have whopping overhead or they are STILL shafting the consumer. So let us think this little logic through, your old house built with contractor grade compared to a new house framed with hard wood in obscene sizes and qualities…no wonder people have having trouble,
I AM NOT THE ONLY ONE TO NOTICE THIS!
That and I think a lot of people realize that townhomes are way to expensive for what they are, especialy since many comparable (old construction) SFH come at a very small premiun to THs.
-King
MM,
I am not sure what exactly you mean by "good faith estimate." If you mean pre-qualification, no serious lender will give you one without looking at your credit history. But some brokers may accept a verbal assurance that you have a high credit history and issue a conditional prequalification, saying that they will have to verify your claims to guarantee it.
If you applied on the internet, say LendingTree.com, etc., they may get one report and give it to all brokers, but the broker may not find it necessary to reveal it to you.
KingMer -
I've got a couple building/construction questions I would like to shoot past you if you don't mind.
Drop me a line at:
yvfs0ip02 /at\ sneakemail /dot\ com
Thanks in advance.
Big home loans went through roof in 2007
In 2007, the most recent year for which statistics are available, banks and other lenders gave out nearly 419,000 mortgages to buyers borrowing at least four times their annual income, sums that were unheard of less than a decade ago.
An examination of federal lending-disclosure reports show that amounts to 9 percent of all borrowers in 2007, a rate higher than at the peak of the U.S. housing boom.
The size of those loans should have been a clear red flag, says Susan Wachter, who studies real estate and finance at the University of Pennsylvania’s Wharton School. People who borrow that much money are more likely to default on loans.
[...]
Lenders do not typically consider the size of a loan in respect to the applicant’s total income. Instead, they focus on how much of the borrower’s income will be consumed by monthly loan payments, a figure that can change depending on the terms of the loan. But .that measure didn’t capture the risk of expensive adjustable-rate loans, which left buyers facing steep increases in their monthly payments, says Margot Saunders of the National Consumer Law Center.
Writing that kind of huge adjustable loan "is like jumping off a bridge without knowing how high it is, and certainly without a parachute," Saunders says.
Assessments are all over the map and not very accurate. I have checked a number of properties in Vienna, on the same street, and you find lower assessments for bigger homes (two years old) than smaller homes (built in 2008). So I have no idea what the appraiser looks at when they come up with these assessments.
For example
House built in 2006
3,600 sq feet
6 bdroom, 4 baths 1/2
1/2 acre lot
assessed at around $780K
Another house built in 2008
2,600 sq feet
1/4 acre
4 bdrm
assessed at $888K
Another house built in 2008
4,500 sq feet
1/2 acre
6 bdroom
Assessed at $1.2 million
Another house built in 2004
4,600
1/2 acre
Assessed at around $900k
These are all in the same subdivision, most of them on the same block.
T,
I agree with you regarding how to price a home. The assessments do not reflect market value of a home. In fact these are innaccurate.
The best measurement is comps. Some people get lucky and recieve a lower assessment than what their house would sell for, and therefore pay lower property taxes. Others have to fight to bring down their assessment when they believe their properties could not sell for that much.
Assessments have never consistently reflected the market value of a home. If they did, it was just a coincidence. I have watched assessments of homes since 1999, and these never matched the market value, these were much lower for the properties I watched in Fairfax County.
In my opinion, the upgrades listed, for the most part, don't 'add' value.
A house requires constant upgrading to maintain value (adjusted for inflation). For example, if your house is heated by coal, you'll need to upgrade it to a modern central HVAC for it to maintain value. Likewise, if you have orange shag from 1972, that will need to be updated to something modern for the house to maintain value. Notice, that these aren't even maintenance items (new roof, new siding, etc.)
In those examples, I don't consider those 'upgrades' as adding value so much as keeping the house from losing value. Houses are constantly submitted to wear and tear, and like a car, they need regular maintenance. And like a car, it requires constant updating -- when your tires wear out, you don't replace them with bias-plys, but with those new-fangled radials (OK, maybe not the best analogy).
And KingMer has it right: houses don't really appreciate. They're depreciating assets that require constant feeding to maintain their value.
So, what does add value? An addition over the garage. An enclosed porch. Built-ins and bookshelves. An au-pair suite (vs. an unfinished basement). In some cases super high-end appliances, fixtures, etc.
KingMer,
Regarding your comment of THomes vs. older SFH. Have you lived in either one? I have.
Believe me when I say it is much better to live in a newer large Townhome that a smaller, perhaps similarly priced SFH (1950s come to mind). These SFHs need a lot of maintenance. These are usually poorly insulated, quite uncomfortable, not to mention you are living in a house with appliances from the 50s. I came to that realization after awhile and moved back to a newer TH. Could have not made a better decision.
dc2: those are new homes, and assessments are supposed to be based on sales history. Since those places are new, there is no sales history to base assessments on.
NoVawatcher
Yes, there is sale history for some of these homes. The assessment are still all over the map, those that sold last year, for example had an assesment of $1.2 million close to the sale price of $1.275 million. It was built in 2008, on the same street, 4,000 sq feet and also on half an acre. But the house I quoted before at $1.2 million, even though bigger and built in the same year was not sold but built by the owner. The actual assessment is $1.17 million.
I have been watching real estate for a long, long time. I knew prices were already deflating for Fairfax County in the summer of 2005, when nobody knew it. I know what I am talking about.
So again, assessments are inaccurate. Check them out and you will notice how these are not consistent even in one street for similar homes (not talking about subdivisions with cookie cutter homes where all homes are the same).
They may be inaccurate, but they are in the ballpark:
http://novawatch.blogspot.com/
Dc2,
Yes, I have lived in both. SFHs have so much more flexibility than a TH. I will take a 1950’s house on a .25+ acre than a brand spanking new TH for the equivalent price. I can do wonders with that SFH, the TH you are stuck. In my opinion, THs have no place outside of real cities; but that is just a psychological factor for me, to each his own. As to the 50’s appliances; man if it came with a 1950’s enameled double oven and matching enameled frig, I’d be all over it (in full working order that is)!
-King
Zerodown,
The Fairfax County houses I had in mind where the assessment was "conservative" were at the low-end. Perhaps since there have been more sales of those, the county has an easier time "valuing" them, hence the too-high assessments in the upper levels.
Shacking up multi-family style in a big house might be just as fun as buying little houses. Those prices in McLean (and other parts of the county) amaze me for their price per square foot and their location.
Regarding Assessments:
Perhaps I did not explain it very well yesterday.
Assessments are not a good measure of market value.
When you find two similar houses with a difference in assessment of over $400,000, you know that this is hardly a correct figure in the ballpark.
Stats for two houses on the same street in the Town of Vienna:
Built in 2008
5 bdrooms, 4 and 1/2 baths
3,938 sq. feet
half an acre land
Sold in 2008 for $1.275 million
Assessed at $1.2 million in 2009
Built in 2007 by owner
6 bdrooms, 4 baths
3,660 square feet
half an acre
Assessed at $788,000 in 2009
How can you explain a difference of over $400,000 in assessment. The second house is actually nicer than the first one sold for $1.27 million.
As a buyer, what do you do with this information. It is not representative of its market value.
This is just an example. I am sure there a many others all around the region.
Assessments really mean nothing. They are just a way of collecting taxes.
So one should not get too excited about properties with very low assessments because that does not necessarily translate into market value. Check the comps.
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