Selling

Accurate Pricing

We meet with sellers all the time and make estimates on price. We really do our best to provide guidance on what a house is worth. It is a fascinating art.

But what we try to stress over and over is that pricing right is not about finding the estimate and trying to get 5% more, to provide wiggle room. It’s a natural reaction for a seller. If we ask 5% more, we can always come down. If we price low, we leave money on the table. While this may make sense, it is not accurate in reality.

I have a buyer client who is currently attempting to buy a home. This home is priced right. I would certainly not say I think it is priced too low. I don’t think it is priced too high. What I will say is that it is realistic. We made an offer, a very good offer I felt… but guess what… so did someone else. End Result, we just sent a second offer that upped our initial one by 4.5%… Meaning, the seller is going to land up selling their house for MORE than asking, and in less than a week on the market.

Isn’t this what sellers want? If the seller had asked 5% more than they did, I don’t know that my clients would have fallen in love. They fell in love at the asking price… they were willing to pay more, but they fell in love at asking. If the seller had asked more, and my client’s focus had been at the higher number, there would have been a higher comparison. Perhaps there would have not been an offer, or only one offer. No one to push the other up.

Houses priced fairly are moving very, very quickly in the city. Properties that are priced high, are getting very little attention. Why negotiate with someone who is being unrealistic, when you have options with fair sellers?

On the buyer side… be prepared for a battle. Be prepared to offer quickly and a fair number. Gone are the days of you being the only buyer on a property. Gone are the days of stealing a home. This doesn’t mean you need to offer 5% over asking everything, but it does mean that if you think you can slow play an offer and hope to dance to the middle ground, someone else will be willing to do better. If you really want a house, don’t risk dilly dallying. It’s not always worth walking away.

Value of Tax Value

The City of Charlottesville released their 2013 tax assessments this week. Mailings have been sent to home owners, and the web site has been updated to reflect the changes.

Assessments cause all kinds of a ruckus. There is an erroneous perception that prices should instantly adjust to match these new numbers. Nothing could be further from the truth. Reality is, this is the City’s best effort to meet state requirements to estimate the values of the parcels in the city. No one in the assessors office would argue they are perfect. I won’t go so far as to say they are even close in many cases.

There are, however, certain times when assessments should be darn easy. Like the day a home sells. If a home sells for $745,000 after being offered on the open market, and the transaction is indeed an arms length transaction, it makes total sense that the City would be able to assess that house without really thinking about it. The value at which a seller is willing to sell and a buyer is willing to buy is $745,000. That is the definition of market value. And that’s why it’s truly bizarre to see the assessment today on this house at $381,000. (Assessing this home at 51.2% of its market value.)

From the City assessors web site:

Real Estate Assessments are required by the Codes of Virginia and the City of Charlottesville to be at 100% of fair market value.  Assessments are made each year by the City Assessor’s Office and are effective January 1.

and

As required, the City’s assessment is an estimate of fair market value as of January 1 each year, based on property sales for the previous calendar year.

The City breaks down the city into neighborhoods and then samples that neighborhood to determine what is happening price wise over the course of the year. Then, barring changes to a home, they apply a % change to all the houses in that neighborhood. There are certainly some places where there is more specific work being done, but in general, this is the practice. I pulled up a sampling of 10 homes in the neighborhood that is bounded by Rugby Road, Emmett Street, Westview Road, and Wayside Place. The tax assessments I pulled changed from -4.68% to -4.7%. You can’t tell me that is an accident. So, the question is, how accurate is this practice. I would say we can bicker about whether -4.7% is the correct amount, but in general, I agree with the practice. If my neighbor’s home goes up 5% or down 3%, it is fairly accurate to say mine did too — UNLESS one of us has done improvements or allowed our house to waste away, in which case, they certainly change at different rates.

So, I focused on this one neighborhood and pulled every house that sold in 2012 to see if the new 2013 assessments were accurate for these homes. Nine homes total ranging in sales price from $367,000 to $1,250,000. How’d they do? Mixed Bag.

  • 938 Rosser Lane – Sold for $367,500 – Assessed for $443,600 – 121% of Sale Price
  • 901 Rosser Lane – Sold for $450,000 – Assessed for $449,200 – Spot On.
  • 1865 Field Road – Sold for $469,000 – Assessed for $511,900 – 109% of Sale Price
  • 1825 Edgewood Lane – Sold for $530,000 – Assessed for $734,100 – 139% of Sale Price — (NOTE: On the market for nearly a year)
  • 1859 Wayside Place – Sold for $706,000 – Assessed for $590,000 – 84% of Sale Price
  • 1863 Wayside Place – Sold for $745,000 – Assessed for $381,600 – 51% of Sale Price
  • 920 Rosser Lane – Sold for $753,000 – Assessed for $735,000 – 98% of Sale Price
  • 1872 Edgewood Lane – Sold for 890,000 – Assessed for $778,800 – 88% of Sale Price
  • 1820 Edgewood Lane – Sold for $1,250,000 – Assessed for $993,000 – 79% of Sale Price

Don’t get me wrong, I totally respect the fact that assessing homes that the City has likely never been in is extremely hard. And I respect the fact that the city has a good process. But no one can argue that a group of nine homes that all sold in the past year, arguably the easiest homes to assess, range in values compared to their sale price from 51% to 139% all in the same neighborhood is anything close to useful, valuable, or accurate.

My point here is not to say that all assessments are bad, or that we should be challenging every one. What I want people to realize is that basing listing and offering prices on City (or County) assessments is dangerous. While it can be a guide, and certainly should be considered, it has to be a single tool of many in pricing a home. We look at comps all day long. And the price you paid four years ago for your home will affect its sale price far more than the new City assessments. Prices in the Venable neighborhood did not go down 4.7% this week with the new assessments. The only thing that changed is that the taxes these home owners will pay went down by 4.7%.

 

 

Vacant Showings

I went out yesterday and showed 5 properties to buyer clients. Nothing odd about that. Except that, for the first time in my recent memory, all the properties were vacant, and none were new construction.

VacantHome

The houses I showed yesterday were all in the $300-400,000 range. These are not homes where owners regularly pay cash, nor are they owned by folks for whom owning “an extra home” is not a problem. And so I have to wonder, “What is going on here.”Hmmm. My partner Jim Duncan has written about this phenomenon in the past, and I have certainly commented on it. But, frankly, I’m surprised that I’m still writing about it.

Currently, we have a very small inventory. Across the city and Albemarle County and all product types, there are only 903 properties for sale. Take out those that are “proposed” (meaning not yet started pre-sell new construction) and that number drops to 715 properties. And within that group, there are currently 206 homes that are listed as Vacant for showing instructions or 28.8%. This is certainly down from several years ago when the bubble burst, but not as much as I thought it would be.

There are several reasons for a home being left vacant. 1) The owner has taken a job in another town. 2) The owner purchased another home and has moved out. 3) House was originally a rental property and the owner has ceased renting pending a sale. Or 4) The owners have moved to a retirement facility or passed away. I’m sure there are other reasons that I’m not mentioning here, but these are the big causes.

In case 1, occasionally a new company will be paying expenses during the move, so the vacancy is less painful. But in all the other cases, this is a real expense eating away at cash flow and wealth. Even if you pay cash for a home there is still a cost of capital to the investment costs, plus taxes, utilities, maintenance, and heaven forbid repairs if something should go wrong such as a water leak. There is a reason many home insurance companies drop vacant homes from their rolls, or significantly increase the premium.

During the run-up to the bubble, when people thought houses were guaranteed to sell in 7 days, a vacant house was not necessarily a bad plan, but today, homes need to show their best. And vacant home rarely show as well as furnished homes. One of the homes I went to yesterday had filthy carpets, sticky countertops, and the only blinds that remained with the house were those that were broken. My client instantly knew the property had not been cared for. The price expectation went down a solid 10% upon seeing the condition. (If this is what I see, what do I not see?)

There is not doubt that there will always be some vacant homes on the market, but if you need to leave your home vacant: Maintain it like you live there. Keep it fresh and clean. Run water in all the sinks and tubs once a week to keep the gasses from come through the pipes. Furnish it as best you can. If it looks great when it is vacant, buyers will know you cared about the home when you lived there.

What Homeowners Could Learn From Developers

I remember sitting in one of my development classes and wondering what my professor was talking about with land holding costs and development projects. The scenario was this: A family owned development firm buys a 50 acre tract for $500,000 and holds it for 25 years, at which time the next generation of leadership in the family wishes to develop the land. The management looks at the outstanding low purchase price of $500,000 and moves forward due to a great return on the investment. However, the land is now valued at $6,500,000. The management is thrilled that they only have to show $500,000 in land costs, and the project is great.

However, the problem is that the family may have only put $500,000 into the land, but they have $6,500,000 in the land no matter how you look at it. They could sell the land and pursue another project for $6,500,000 if they wanted to, and it would have the same actual return on the investment. You can’t look at the purchase price to determine the quality of a project. You have to look at the Value of the Property at the start time for the project.

So, what does this have to do with our homeowner today? Easy. There are folks out there that keep saying, “If you don’t NEED to sell this year, don’t!” Well, why not? Prices have retreated from their highs of 2006. That doesn’t mean that if you hold out until the market stabilizes that you will be sitting on 2006 prices. It means that if you hold out, that your prices, when they stabilize will do so at their current levels, whatever that level may be.

Is this an EASY time to sell? Absolutely not. But that doesn’t mean that you are going to get a better deal in a year. Last year I had a client who had moved away and received an offer that was less than she had hoped for on her house in Charlottesville. It was a good offer, but still not what she had hoped for. I asked her if should would buy her house as a rental property at the price she was offered. She said, “No. Why would I?” Well, because if you didn’t sell it for that, you just bought it back.

It is easier to see this analogy in stocks and bonds and other liquid assets. If you buy a stock for 50 and it slides to 35, you should ask yourself, is this the safest investment moving forward, not the past. If you can find a better asset, you should go sell the stock and buy the better assets. Likewise with your home, even if you are not making as much as you would have hoped, or even if you have lost some money, if you can find a better use for your assets, you should move them.

Ed Note: As I read this post this morning, 8 hours after stopping working and heading to bed, I realized that this post (which remains in it’s original form above) ends not the way I would have liked. To clarify: with stocks, you may move them from one to another because of the soundness of the investment or the potential gain. But with housing, the asset is more than just a financial producer, it is the center of family life, it provides for a safe haven, perhaps a launch pad for a specific school district. It has many uses. My point was that if the asset no longer performs the way you need or would like (no master bedroom on the first floor as your knees begin to give – not in the right school district as your child reaches school age – not close to a new job – not enough bedrooms with a new child on the way) then those asset changes need to be put into perspective and weighed. But the idea that because the market is not liquid or active this year prohibits a move, I think is a mistake.

Raising Perceived Value

I had a professor in B-School who at the end of a class session would, as students began coming to the conclusion that he wanted all along, remark, “I love it when a good plan comes together.” Well, I feel that way today. On March 17, I posted a blog on tax assessments and relative value / perceived value. I argued that sellers should fight with the County / City to raise their assessed value when they go to sell their house as this will provide a higher baseline. County of Albemarle - GIS-Web - Property Information.jpg

Well, I have a reader who did just this. Perhaps they are not a reader, but I found a listing this morning where this has happened. Look to the right at this copy from their assessments, and I’ll go over what has happened.

So, here is a very nice home in Western Albemarle that was assessed in 2007 for $924,500. In 2008, that assessment dropped to $899,800. Along with the overall market decline in 2008, the 2009 resulting assessment dropped another $39,000 to $860,000.

Enter the owner who wishes to sell his home. I contacted the assessor to ask what “Appraiser’s Review” meant. According to the assessor, the notes in the computer stated that the “owner contacted the assessors office and stated that they believe that the property assessment did not reflect a high enough value.”

Wow. They keep records of why appraiser’s reviews take place. Even better for my purposes. The new assessment reverses two years of declining real estate prices. The new assessment was valid as of Feb 13, 2009 and was entered at $927,600.

On March 4, 2009, the house goes on the market for $1.125 mm. Now, that is still priced at a 21% premium to the tax assessment. Pretty aggressive. But if you go back the official County of Albemarle assessment, we are now 30.7% premium to tax assessment.

Personal thought: neither will fly. BUT… 20% over tax is certainly better than a 30% premium. And if other agents don’t really look through the history of the assessment, they may not even notice the change.

A note to the readers. In the City of Charlottesville, there are no history files available on assessment values for real estate. Only the current assessment is on line. You can contact the assessor’s office and they will give you the historical numbers, but their on-line information does not have the ability to display the history.

If any readers see additional homes like this, let me know, and I’m happy to look at the process.

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