How can you tell if a neighborhood is in decline?
Neighborhoods, like everything else, go through a life cycle. Appraisal texts define the cycle as either growth, stable, decline or revitalization. Growth is easy to spot, as you can see new houses. And tear downs for rebuild and re-modelers trucks point toward revitalization of mature neighborhoods.
But how can you tell if a neighborhood is in decline?
Some things to look out for.
Are there a higher percentage of properties for sale than other neighborhoods? Just drive around and observe the “for sale” signs?
Talk to property managers. Are they having trouble finding renters that qualify for the same rents that worked fine a year ago?
While most neighborhoods are seeing price declines right now, are the price declines steeper than other areas?
Are the market times longer than other areas?
Are people taking care of their homes?
What do the cars in the neighborhood look like?
Does the neighborhood seem clean or is their trash around because people have stopped caring?
Look at the neighborhood retail. Are their high vacancies? Is the tenant mix changing to accommodate a less affluent neighborhood?
Are young families moving IN or OUT? My parents live in a declining neighborhood just outside Detroit. Mom stopped buying candy for Halloween because there are so few kids. My sister lives a mile away where homes are bought as tear downs and there is home remodeling. There are so many children trick or treating my sister runs out of candy. Which neighborhood would you rather buy in?
What may appear to be a really good bargain on a property may not be such a good deal if the neighborhood is in decline. You may be better off spending more on a property that is likely to appreciate when the market recovers.
Tuesday, October 26, 2010
Thursday, October 21, 2010
Property Tax Reductions of $10 million and $5 million
$10 million and $5 million reductions for Property Tax Appeals.
Case #1 is land in the 7 county metro for residential development. The negotiated settlement was reduced from an Assessed Value for Pay 09 of $26.5 million to $16.6 million, a 37% reduction. For Pay 10 it was reduced from $20.7 million to $10.8 million, a 48% reduction.
In addition to the value reductions, the land was reclassified from Non Homestead Residential to Agriculture, as its been actively farmed. This brought the effective tax rate down from 1.3% to .9%. The estimated property tax savings over the 2 years is $220,000.
It was easy to understand how the assessor overvalued the property. A new road was built through the middle of the land, land locking portions. There was a variety of different zoning classifications. It was a messy valuation.
Case #2 is development ready land in the 7 County Metro. For Pay 2009 the assessed value was reduced from $10 million to $4.9 million for a 51% reduction. There was a 46% reduction for Pay 10 and and 25% reduction for Pay 2011.
The dart must have hit the wrong spot on the wall for the assessor to have these values. I can't figure out another explanation. I presented a comparable sale from an adjacent community. I told the assessor if we went to court I would make NO adjustments to this value that was a fraction of their valuation. It was similar in size, topography, neighborhood values, demographics and both parcels had approved plats. The sale was not a foreclosure. It was from one builder developer to another builder developer. Unrelated parties.
“Well,” the assessor, replied. “The buyer was really motivated. We would have to do a “motivation adjustment”.
“What”, I asked, “is a 'motivation adjustment'?”
“Let's just get this settled this morning so we don't have to worry about it.” Estimated tax savings to the developer over the 3 years: $182,000.
Would you would like to learn more winning at tax appeals? I'll be participating in a round table discussion at the Sensible Land Use Coalition
lunch meeting on Wednesday, October 27th, 11:15 – 1:00 at the Doubletree
Park Place in St. Louis Park. Register for the program at
http://www.sensibleland.org
Case #1 is land in the 7 county metro for residential development. The negotiated settlement was reduced from an Assessed Value for Pay 09 of $26.5 million to $16.6 million, a 37% reduction. For Pay 10 it was reduced from $20.7 million to $10.8 million, a 48% reduction.
In addition to the value reductions, the land was reclassified from Non Homestead Residential to Agriculture, as its been actively farmed. This brought the effective tax rate down from 1.3% to .9%. The estimated property tax savings over the 2 years is $220,000.
It was easy to understand how the assessor overvalued the property. A new road was built through the middle of the land, land locking portions. There was a variety of different zoning classifications. It was a messy valuation.
Case #2 is development ready land in the 7 County Metro. For Pay 2009 the assessed value was reduced from $10 million to $4.9 million for a 51% reduction. There was a 46% reduction for Pay 10 and and 25% reduction for Pay 2011.
The dart must have hit the wrong spot on the wall for the assessor to have these values. I can't figure out another explanation. I presented a comparable sale from an adjacent community. I told the assessor if we went to court I would make NO adjustments to this value that was a fraction of their valuation. It was similar in size, topography, neighborhood values, demographics and both parcels had approved plats. The sale was not a foreclosure. It was from one builder developer to another builder developer. Unrelated parties.
“Well,” the assessor, replied. “The buyer was really motivated. We would have to do a “motivation adjustment”.
“What”, I asked, “is a 'motivation adjustment'?”
“Let's just get this settled this morning so we don't have to worry about it.” Estimated tax savings to the developer over the 3 years: $182,000.
Would you would like to learn more winning at tax appeals? I'll be participating in a round table discussion at the Sensible Land Use Coalition
lunch meeting on Wednesday, October 27th, 11:15 – 1:00 at the Doubletree
Park Place in St. Louis Park. Register for the program at
http://www.sensibleland.org
Monday, October 11, 2010
Can you solve this title problem?
Can you solve this title problem?
Sam, from the perspective of his full time job, saw real estate prices plummeting. “I should jump in the market and invest in residential rental property as a supplement for my portfolio.”
Fred, Sam's wife's cousin's son, just got his real estate license so Sam gave him a call. Fred found this great deal on a bank owned condo for only $60,000.
Sam digs in his piggy bank and pays cash for the condo and quickly finds a tenant. Life is good.
Sam got the bug and bought more properties. And wants to buy even more. Sam hit his credit limit with his bank so he went to refinance the little condo he bought in June 2009 for $60,000. And then he noticed the RED FLAGS that both Sam and Fred, brains clouded with inexperience and the excitement of their first deal, ignored at the purchase. Stuff like in the MLS listing:
*Most lenders REQUIRE that you use their title company.
* If buyer chooses to use seller’s title company, seller will furnish title insurance for buyer at seller’s expense. Otherwise the Buyer must pay.
*Title companies assigned by the seller are experienced with their policies and can answer any questions your lender may have regarding title work, power of attorney, etc.
I saw this language a year ago when I purchased a bank owned property. I ignored it, paid a little extra, and used the title company I trust. The one that consistently finds problems the previous title company missed. I want to learn about title problems when I BUY, not when I sell or refinance.
And language I saw this week for a townhome I'm writing an offer for (yes, a short sale that the seller's don't smoke!) has a whole page of reasons trying to persuade me to use the seller's title company that they require me to sign, including: “If buyer chooses to use a title company other than seller's title company...Results of title exam may prohibit the property from ever closing.”
That's the whole point of title work! Some deals SHOULDN'T close.
But Sam and Fred, new to the business, didn't understand anything about title work and thought all title companies were the same. Sam is getting the lesson now.
It appears that back in 2006 a second mortgage for $39,000 was recorded before the first mortgage. The first mortgage holder bank foreclosed and got the condo back and sold it to Sam via an auction in June 2009. The second mortgage was not cleared in the foreclosure because it was recorded first. This was disclosed in the closing documents but neither Fred nor Sam caught it.
Sam's title insurance policy, from the Seller's title company, has an exclusion for this lien.
The auction house and the closer told Sam the title was free and clear.
The lien holder has not contacted Sam and Sam thinks the lien holder thought the $39,000 was wiped out with the foreclosure. Sam is not sleeping well since he learned of this mess.
What would you advise Sam to do?
Sam, from the perspective of his full time job, saw real estate prices plummeting. “I should jump in the market and invest in residential rental property as a supplement for my portfolio.”
Fred, Sam's wife's cousin's son, just got his real estate license so Sam gave him a call. Fred found this great deal on a bank owned condo for only $60,000.
Sam digs in his piggy bank and pays cash for the condo and quickly finds a tenant. Life is good.
Sam got the bug and bought more properties. And wants to buy even more. Sam hit his credit limit with his bank so he went to refinance the little condo he bought in June 2009 for $60,000. And then he noticed the RED FLAGS that both Sam and Fred, brains clouded with inexperience and the excitement of their first deal, ignored at the purchase. Stuff like in the MLS listing:
*Most lenders REQUIRE that you use their title company.
* If buyer chooses to use seller’s title company, seller will furnish title insurance for buyer at seller’s expense. Otherwise the Buyer must pay.
*Title companies assigned by the seller are experienced with their policies and can answer any questions your lender may have regarding title work, power of attorney, etc.
I saw this language a year ago when I purchased a bank owned property. I ignored it, paid a little extra, and used the title company I trust. The one that consistently finds problems the previous title company missed. I want to learn about title problems when I BUY, not when I sell or refinance.
And language I saw this week for a townhome I'm writing an offer for (yes, a short sale that the seller's don't smoke!) has a whole page of reasons trying to persuade me to use the seller's title company that they require me to sign, including: “If buyer chooses to use a title company other than seller's title company...Results of title exam may prohibit the property from ever closing.”
That's the whole point of title work! Some deals SHOULDN'T close.
But Sam and Fred, new to the business, didn't understand anything about title work and thought all title companies were the same. Sam is getting the lesson now.
It appears that back in 2006 a second mortgage for $39,000 was recorded before the first mortgage. The first mortgage holder bank foreclosed and got the condo back and sold it to Sam via an auction in June 2009. The second mortgage was not cleared in the foreclosure because it was recorded first. This was disclosed in the closing documents but neither Fred nor Sam caught it.
Sam's title insurance policy, from the Seller's title company, has an exclusion for this lien.
The auction house and the closer told Sam the title was free and clear.
The lien holder has not contacted Sam and Sam thinks the lien holder thought the $39,000 was wiped out with the foreclosure. Sam is not sleeping well since he learned of this mess.
What would you advise Sam to do?
Wednesday, October 6, 2010
Smoking Part 2
Smoking Part II
In response to last week's Heres The Dirt on smoking's impact on property values, Scott Schulte, the Champlin City Planner, responded:
I think it’s worth posting this commentary on every pack of cigarettes.
I agree, “Smoking can decrease your property values” may do more to deter smokers than the health warnings they continue to ignore. Sadly, many people put money before health.
And a comment from a bank president: ” I have noticed that a very high percentage of people we deal with that have credit problems are smokers. Not only is it a health hazard, but appears to be a financial hazard as well, and we do see the effect on resale values of foreclosed properties for the very reasons you cite in this newsletter.”
I asked the banker if they don't charge higher interest or points to smokers. He replied: “ Not yet, as we are not sure if it would be considered discriminatory treatment, but it does have an effect, so should be justified.”
Last I checked, smokers were not a protected class under fair housing laws.
Here is proof on the property values:
A townhome in a desirable area sold this week, post tax credit, for $142,000. I just looked at, well smelled, an identical unit in the same development—they can't move it at $109,000.
I've lost count of how many smoked filled townhomes I've viewed this week. Plus the extra laundry from the clothes I've worn to inspect the units.
And what is really frustrating is I've been asking the listing agents about the smoke prior to viewing the homes---and they lie about the smell. Or, “the carpet was just replaced”, which only transfers the smoke from the air to the new carpet.
And while only a handful of townhomes are selling post tax credit, I did preview two under contract with contingent offers. Neither smelled like smoke.
The true victims are the neighbors in the townhome development that don't smoke, take care of their homes and pay their mortgage on time. Look at the MLS photos of these smokey units and the homes appear to be in good condition. When they sell, eventually everything sells if you lower the price enough, appraisers, hungry for sales data, will use them as comparable sales.
And the appraisers will have no way to know about the smoke as they don't view the inside of the comparables. So the responsible neighbors take a hit to their property values. And the only winners are buyers like me – assuming I can find a unit that I can breath in at a price that works for rentals.
In response to last week's Heres The Dirt on smoking's impact on property values, Scott Schulte, the Champlin City Planner, responded:
I think it’s worth posting this commentary on every pack of cigarettes.
I agree, “Smoking can decrease your property values” may do more to deter smokers than the health warnings they continue to ignore. Sadly, many people put money before health.
And a comment from a bank president: ” I have noticed that a very high percentage of people we deal with that have credit problems are smokers. Not only is it a health hazard, but appears to be a financial hazard as well, and we do see the effect on resale values of foreclosed properties for the very reasons you cite in this newsletter.”
I asked the banker if they don't charge higher interest or points to smokers. He replied: “ Not yet, as we are not sure if it would be considered discriminatory treatment, but it does have an effect, so should be justified.”
Last I checked, smokers were not a protected class under fair housing laws.
Here is proof on the property values:
A townhome in a desirable area sold this week, post tax credit, for $142,000. I just looked at, well smelled, an identical unit in the same development—they can't move it at $109,000.
I've lost count of how many smoked filled townhomes I've viewed this week. Plus the extra laundry from the clothes I've worn to inspect the units.
And what is really frustrating is I've been asking the listing agents about the smoke prior to viewing the homes---and they lie about the smell. Or, “the carpet was just replaced”, which only transfers the smoke from the air to the new carpet.
And while only a handful of townhomes are selling post tax credit, I did preview two under contract with contingent offers. Neither smelled like smoke.
The true victims are the neighbors in the townhome development that don't smoke, take care of their homes and pay their mortgage on time. Look at the MLS photos of these smokey units and the homes appear to be in good condition. When they sell, eventually everything sells if you lower the price enough, appraisers, hungry for sales data, will use them as comparable sales.
And the appraisers will have no way to know about the smoke as they don't view the inside of the comparables. So the responsible neighbors take a hit to their property values. And the only winners are buyers like me – assuming I can find a unit that I can breath in at a price that works for rentals.
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