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Archive for February 22, 2014

Prices per Square Foot, the Truth for Home Buyers

compare home valuesA real estate appraiser’s perspective:  Buying a house based on the price per square foot is like paying for a car based on its miles per gallon; and yet to this day I see buyers, sellers, mortgage and real estate professionals discussing and using square foot price as a method for comparing homes to try and determine value.

 

A 2,000 square foot home that sold for $400,000 did technically sell for$200/sf so the appeal is understandable because on the surface price per square foot takes a very complex problem and appears to deliver a simple solution but it is an illusion. Tempting as it is using $200/sf as the basis to determine the value of any other home is fatally flawed because it is what lies below the surface that counts.

 

Here is why price per square foot is misleading as an indicator of a home’s value. My real estate data comes from Boston and its suburbs but wherever you are there are certain universal truths about American real estate values.   How much a home is worth ultimately depends on the following list of key characteristics that influence market value of a home.

  1. Location
  2. Lot sizeHome Value Checklist
  3. View
  4. Style
  5. Age
  6. Condition
  7. Quality
  8. Size (square feet)
  9. Floor plan (#Room/#Bed/#Bath)
  10. Parking
  11. Other amenities
  12. Time – When the home sold

 

You can tweak or argue the completeness of the list but it is the differences in all of the various characteristics which influence the sales price and ultimately the price per square foot.  Ask yourself this; would someone pay more for a home on a quiet tree-lined cul-de-sac than they would pay for the same exact home along a very busy main street?  And since the sale included the lot upon which the house was built, how much of that $200/sf do you think was for the land?

 

Let us peel back a few layers of the real value problem. Here is a recent real life example of two similar homes that sold recently in Framingham, MA presented in matched pair format where you can see the same sized house sold for two very different prices per square foot, and it is not difficult to understand why.

Address 70 Hemenway Rd 76 Hemenway Rd
location Not a factor Not a factor
lot Size 0.56 acres 0.59 acres
view Not a factor Not a factor
style Slab Ranch Slab Ranch
age 56 years 56 years
condition significant updates 2009-2010 carpet/paint toilet oven cheap cabinets
quality upgraded K&B  quality inferior/original
square footage 1,440 1,454
Floor Plan 8Rm-3Bd-1.5Ba 7Rm-3Bd-1.5Ba (assessor says 1 bath)
Heat/AC FHW-propane/ CAC FHW-Oil/Wall AC
Parking Driveway Driveway
Other amenities Fireplace/Radiant bath/Patio Fireplace
contract date 11/22/2013 11/12/2013
closing date 12/5/2013 12/17/2013
Sale Price $348,000 $233,000
Price per sf $242 $160
2013 Assessment $282,200 $273,200

 

Why the huge difference in the price paid per square foot? These two homes have almost the exact same location, size and bed/ bath utility but there is a difference of $115,000 attributable to the superior condition and quality of the first house.  The other home needed of some repairs and the little bit of updating was of low quality.

 

I describe appraisers as trained professionals who pretend to buy houses for a living.  There is a skill set which comes from training and experience and there are practices and methodology that are brought to bear on solving the problem of; what is this hose worth?  in the end appraisers mirror the behavior of buyers in the market, and everyone; sellers, buyers, realtors and appraisers are all trying to solve the same problem. What is this house worth today?

How often do you buy or sell a home? Do not be penny wise and pound foolish.  If you are buying or selling you need a realtor to navigate through the negotiation and other complexities then hire a knowledgeable independent appraiser to develop their unbiased independent opinion of value.

 

Resource Box: Adam Wiener is a certified residential real estate appraiser in the Greater Boston area.  To see more about on expert methods, tips, and knowledge about residential real estate please visit http://www.aladdinappraisal.com  the sales information is publicly available www.zillow.com  or www.trulia.com . Framingham assessor’s database is found at http://www.framinghamma.gov/index.aspx?NID=658

PMI Removal Appraisals

Private Mortgage InsuranceHave you given any thought to exactly what makes up your monthly mortgage payment?  If you purchased your home with less than 20% down payment, you are paying private mortgage insurance (PMI).

PMI is an insurance you agreed to pay to compensate for the higher risk the lender took on your purchase.  With favorable market conditions in our area many home values have increased.  the question to ask is; is my mortgage balance now lower than 80% of my homes fair market value?  If so, you should remove the PMI immediately and lower your monthly payments putting that money back into your pocket.

There is legislation requiring lenders to communicate about PMI but it is not advisable for you to wait for the lender to get around to contacting you.  if you’ve reached 20% equity in your home by either appreciation, home improvements or paying down the principal mortgage balance (or any combination of the three) you can force the lender to cancel your PMI.  most lenders have a brief form to fill out, and you must provide proof positive of sufficient equity over 20%.

Lenders will not accept your tax assessor’s value, a Brokers Price Opinion (BPO) or a Zestimate.  the assessed value has absolutely no supportable correlation whatsoever with the fair market value. A tax assessment is not the same as an appraisal because the intended use of the assessed value is primarily reserved for property taxation purposes. Actual sales used in the assessment process lag at least six months behind.  BPOs are not considered accurate enough for federally secured mortgages (FNMA).  Zillow publishes its own comparison of actual sales prices vs. their Zestimates which reveals an alarming rate of inaccuracy.

The positive financial impact when you halt PMI payments is similar to plugging a leak in the bottom of a bowl; your money now begins to accumulate. This simple move can give you access to a pool of funds  which can be a financial game changer for your family as you can pay down other debt, invest in retirement, start a college or a vacation fund, etc.

You need to hire the services of a professional real estate appraiser to estimate the fair market value of your properties. The appraisal should be in the form of a well-supported, professional, appraisal report. State and Federal laws require that the Appraiser and the appraisal process be independent from any influence, coercion or undue pressure. Appraisers cannot accept an appraisal assignment based on a predetermined value. This allows the Appraiser to remain an independent, third-party.

Our approach: We understand the potential positive impact to you when you remove PMI.  we offer a free initial consultation and in some cases it may be fairly obvious if an appraisal is appropriate or not.  It is typically not possible to determine in advance if you have sufficient equity in your home to enable you to cancel your PMI.

Appraisers are prohibited by the Uniform Standards of Professional Appraisal Practice (USPAP) from accepting an appraisal assignment subject to hitting a desired value. We are also bound by the ethical provisions within USPAP which guarantees our customers the highest level of confidentiality and discretion. In addition, we provide you with comprehensive appraisal reports that meet or exceed requirements of lenders, the IRS, courts and other various agencies.

Working with Aladdin Appraisal rest assured that you will get the best in professional service and courtesy, while also receiving the highest quality appraisal reports. While we cannot guarantee a value that would “work” for PMI removal  our team of exceptional appraisers will take no shortcuts in the research and comparable verification stages which can lead to comparables and other data that is expected when you hire a top quality appraiser.

Our Senior Staff Appraiser, Adam Wiener, CRA will complete or personally review your appraisal. Our extensive experience includes dealing with local and prestigious law firms in the Greater Boston area. We welcome and invite your questions about our process.

Call  617-517-3711

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Tags: property tax, Real estate appraiser, real estate appraisal

Tips Just For Realtors

Tips for Appraisers Coming Soon

How to Win a Property Tax Appeal

how to succesfully lower property taxIf you are a Massachusetts property owner and believe you are paying more than your fair share of property taxes you only have a limited amount of time to appeal, depending on your city or town.  Typically the appeal deadline is prior to the date of the first annual payment, although you still have to make the first payment even if you are disputing the amount.

There are only three actions available to you.

  1. Discuss your assessment request with your local assessor.
  2. Apply for a tax abatement at your local assessor’s office.
  3. Once denied, appeal to the appellate tax board.

Assessors will not accept a Broker’s Price Opinion or a Zestimate.  This is due to the fact that BPOs are not considered accurate enough for federally secured mortgages (FNMA) and Zillow publishes its own comparison of actual sales prices vs. their Zestimates which reveals an alarming rate of inaccuracy.

Most successful appeals require an appraisal done by a licensed real estate appraiser, who will provide an expert opinion of the fair market value. (MA law provides that the fair market value of property is the price on which a willing seller would sell the property to a willing buyer in an arm’s-length sale if neither party was under compulsion and each was aware of all relevant facts.  See Boston Gas Co. v. Assessors of Boston, 334 Mass. 549 (1956).)

State and Federal laws require that the appraiser and the appraisal process must be independent from any influence, coercion or pressure. This ensures that the appraiser remains a truly independent third party.  The appraisal should include a well-supported, professional report that is defensible in court.  Therefore selecting a qualified appraiser who, if needed, can also give clear testimony can be extremely important.

Did you know that in an assessment the properties must be valued as of the January 1st that preceded the fiscal year at issue?  For example, for fiscal year 2014, which runs from July 1, 2013 to June 30, 2014, the valuation date is January 1, 2013. Therefore, it is critically important that you hire an appraiser experienced in Retrospective appraisals. That is because the effective date of value of your appraisal must match the effective date used at the time of your assessment.   It is not uncommon for an appraiser to use the “current date”.  The dates must match or the appraisal you paid for will not be usable.

Our approach:  When you hire us for an assessment appeal, you’re commissioning us as an independent, third-party to perform a professional appraisal report. As such, we do our own evaluation from beginning to end. If you’re correct that your property has been overvalued our independent report will be more persuasive than any other evidence you can provide on your own. But once again it does depend on our ability to do the work independently.

Appraisers are prohibited by the Uniform Standards of Professional Appraisal Practice (USPAP) from accepting an appraisal assignment  subject to hitting a desired value. Nor are we allowed to take any research or other shortcuts.  We are also bound by the ethical provisions within USPAP which guarantees our customers the highest level of confidentiality and discretion. In addition, we provide you with comprehensive appraisal reports that meet or exceed requirements of the IRS, courts and other various agencies.

Working with Aladdin Appraisal rest assured that you will get the best in professional service and courtesy, while also receiving the highest quality appraisal reports. Our team of exceptional appraisers will be discreet and respect and protect your family’s privacy.   And if necessary Aladdin Appraisal stands behinds its appraisals and value estimates should matters advance to the need for testimony.

Adam Wiener Aladdin AppraisalsOur Senior Staff Appraiser, Adam Wiener, CRA will complete or personally review your appraisal. Our extensive experience includes dealing with local and prestigious law firms in the Greater Boston area. We welcome your telephone inquiries and invite your questions about our process.

Tags:  property tax, how to win a property tax appeal, real estate tax appeal,

If you found this article helpful or informative, I would be grateful if you would like and share it with others. And please let me know if there is any real estate or appraisal related topics that you are interested in. – Adam@AladdinAppraisal.com

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