Thursday, October 27, 2011

Your Assessment as a Factor in Negotiations




Is your assessed value equal to the price you could reasonably expect to get on the market today? Good question. The table below shows recent sales of Madison west side, single family homes, with sale prices from $250,000 to $350,000, sold in the third quarter this year. Looks like on average owners priced around 106% of assessed value, typically reduced to a price closer to assessment, and accepted offers just slightly above assessment. 

For what it's worth, and maybe this is too small of a sample, maybe the slim gap between sale price and assessment is another indicator that the pressure is on pushing or holding price down. Buyers are using assessment as an argument in their favor. Competition for the property will trump opinion on assessment--if you have more than one buyer, you have competition; scratch that if both buyers are working from the same playbook. 



Wednesday, October 26, 2011

Real Estate Might Be Your Second Career for POPs

In 1992 I attended a real estate franchise conference in Las Vegas. I was 33 years old and in my fourth year as a Realtor. At 8:30 AM I exited the elevator at the lobby where I waded into a sea of thousands of my peers. Their excitement for the company and industry hoopla was scary intense. It was early and Las Vegas. I wasn't ready for this.  The crowd started moving toward the main hall for the welcome and keynote address. I was swept along in the heavily perfumed, blue haired, business suited, gold and diamond laden, wave of ladies with high heels, and higher pitched voices.... all speaking at once. Like a  10 year old boy in a church full of nuns, I looked for a way out. If there were  men, young or otherwise,  in the group, I didn't see them.  I grabbed the first elevator back to my room. Any one of those Realtors were probably more productive in sales than me. Their talent wasn't what I fled from. I didn't fit in their group.

Twenty years later, I'm a 52 or 53 year old gray haired broker, in an industry where the median age of brokers is 57 according to the NAR 2011 member profile. In the last few years 22% of the Realtors have left the National Association of Realtors (source) . The doors are wide open for new Realtors and I think we will see business skilled, well connected, savvy people who are at home with technology, take the place of those recently departed.

 Flexibility, support, professional associations, potential for a better than modest income are all available to the person who is willing to apply their skills to this field. Smart people, leaving careers and coming into real estate might look to the established agents and find ways to form Process Oriented Partnerships. (POPs). These are not Teams in the sense that we know them in the real estate business. A POP is a formal business agreement, prepared by an attorney with the input of the partners, to combine the different talents of the partners to achieve outcome goals. Goals can be financial, flexibility, travel opportunities, education, leadership, ... A POP allows the parties to combine their spheres of influence, apply  their systems to the process of real estate service, and by accountability standards, each party puts the effort of their talents and skills into accomplishing the goals.

In challenging times, merging agents into POPs makes sense. New agents have plenty to offer, even if the most they can offer is a wider sphere of influence. Some business to work on is better than no business. Some income is better than no income. That's true for the new agent and the seasoned professional.





Your Assessment. Be part of the discussion of what is fair and equitable

Cross Plains Town Hall was a busy place last week when they held Open Book following their recent property value reassessment. The question on everyone's mind for the hired assessor was, "How do you increase my assessment when the real estate prices are going down?" I heard pieces of the answer. It was delivered with the confidence of a person who has evidence on his side. What made me chuckle was his evidence was actually a lack of evidence. One home owner said, "There are no homes near mine that have sold." The assessor responded that he has comparable sales in the township from 2006. "That was the height of the market", the home owner countered. Disregarding the fact that the sale was 5 years old, the assessor said  the top of the market was 2008, and he agreed the recent sales pool is shallow. I wouldn't want his job.

Certainly assessors, appraisers, and realtors use relevant, but not necessarily comparable, properties to determine a reasonable market value. Appraiser's hands are tied by the lack of recent sales because of underwriting rules which demand new sales in the appraiser's calculations. An assessor, however, may be free to use various data to calculate square foot costs, give land a value by the foot, and when finished, his figure is your assessment number...Provided the method was fair and equitable.

A host of factors trigger new assessments. In Madison, when values were going up, a sale caused the property to get a new assessment... at the new sales price. That's not the same in smaller communities. Townships and Villages for example, go for years without changing assessments. A home with an assessment of $225,000,  could sell for $275,000 and two years later, sell again at $290,000, and still be assessed at $225,000.  I may not be able to convince you, but assessments are not a reliable representation of value for determining a real estate sales value. Of course it's possible to show average sale prices to assessments, but averages mean nothing when we look at one property at a time.

When it comes to real estate sales, assessments are no more than a convenient tool for a buyer or owner to argue their position on their price/value opinion. I noticed this spring that buyers were coming into open houses armed with data showing the sales prices compared to assessments for homes. Even though 20% of the homes in their data were distressed sale properties, the number no the facts carried the most weight for those folks.


Here are a few other observations about assessments:

  • People who question their assessment have a reasonable chance of having an assessment lowered
  • Sales prices are the best indicator of value
  • Homes owned by the same person for decades seem to have higher assessed values than neighboring properties
  • In modest priced neighborhoods, the atypical, high value homes are sometimes assessed at a lower percentage of their sales market value than the typical property for the neighborhood
  • Elderly home owners could benefit from a family member or friend assisting them with reviewing their assessment
We are in different economic times. If you are interested in being part of the discussion regarding your assessment, take a close look at a guide prepared by the Wisconsin Department of Revenue: Property Assessment Appeal Guide For Wisconsin Real Property Owners   
November through January  is a good time to get ready for next year's assessment. Or, if you were recently reassessed, get in touch with your local assessor.  If the link above doesn't work, copy and paste this: http://www.revenue.wi.gov/pubs/slf/pb055.pdf

If you are interested in comparable sales in your neighborhood to get a handle on your property value, you can select: SEARCH SOLD LISTINGS on  my web site: www.TomMeyer.com, or just send an email to me and I'll do the search for you.

Wishing you well,

Monday, October 3, 2011

Market Muscle in the $300,000 to $400,000 Core Through September

Like a well trained athlete, the Madison real estate market has strength in its core. From data available this morning on the Realtor Association of South Central Wisconsin, MLS, we see 11.5% of the sales through September 30th are in the $300,000 to $400,000 price range. Another 13% of the sales occurred in the $250,000 to $300,000 range. That 24.5% muscle is important  because in this price range, people who sell are likely to be buying, and the buyers more often than not could be expected to have sold something. The exponential impact to the real estate market might look like this: 1 Buyer was 1 Seller and 1 other Seller becomes 1 more Buyer.  We could say the $250,000 to $400,000 sale has a real estate market impact of 4. (1+1+1+1=4). Of course, I could be wrong if the sellers are moving to an apartment or a homeless shelter.


In 2006 the $250,000 to $400,000 price point represented 27.5% percent of the sales. To be certain, a significant number of those sales were builder spec home properties. While the economic impact was surely powerful for a builder owned home sale, (jobs, retail sales, tax revenue...) the real estate impact in that price range might not have been as significant as a sale today since there was no home occupant of the spec home who moved out and bought another property.

Today's version of the spec home as far as real estate impact is concerned are the REO sales, and in Madison we have a bunch under $150,000. In fact, of the 274 homes sold under $150,000, there were 71 homes under $100,000 so far this year! The MLS comments have distressed sale written all over these entries. The real estate impact is negligible, and the economic impact is only slightly better than zero as the banks takes their money and store it in the mattress of the Federal Reserve. For proof that the world has changed compare 2011 sales to the same time in 2006 when only 8 homes sold under $100,000.  On a side note, a quick scan of the roster of sales under $100,000 shows the sales prices average 55% of their assessed values. (There's a story in itself.)

We expect the under $250,000 seller to be the buyer of the $250,000 to $400,000 homes. So far, they've made their presence known and as a reward for participating, they've acquired properties from 10% to even 20% below their highest market values while cashing in on low interest rate mortgage loans. There are 1368 single family, non-condo, homes on the market in the areas that make up the east and west Madison market, including Middleton, Shorewood Hills, Maple Bluff, Fitchburg. 24.5% of the homes for sale are in the core group price points--$250,000 to $400,000.

Notice that the 24.5% homes for sale number is exactly the same as the 24.5% number of homes sold in that $250,000 to $400,000 price range. There's some balance, although the seller's are losing money at closing, at least they have buyers to sell to. I suppose too much of the market activity is in the lowest prices and that's been trending there for a long time. Maybe when we see the a trend of the upper lower price points dominating the market we will be on our way to a more robust economy.