City Assessment Data, Part 2

Originally Published February 8, 2009

OK, so I have continued playing with the City Assessment data and 2008 pricing… Read on for info on the ratio of assessments and sales prices. I had told a reporter that it was my gut belief that the majority of homes sold in 2008 in the city sold for less than assessed value. Well, I was wrong… but not by much…

Sales Prices to Tax Assessment

OK, here is what I really wanted to know when I started this. What percentage of homes sold for less than their assessed value in 2008?

First off, I had to take 10 of the 284 out of the study because they were assessed only on the land with no improvements, so they sold for more than their earlier assessments.

Of the 274 remaining city sales, 141 sold for more than assessment, 3 sold for assessment exactly, and the remaining 130 sales were below assessment.

Looking at those that sold below assessment. I fully expected to find a large number trading at a substantial discount to assessment; and I did. I found a total of 57 homes that sold at a discount of more than 10%. That represent nearly 20% of the city sales. A total of 91 homes sold at a discount of more than 5%, or 32% of the transactions.

Looking at those that sold above assessment, you find a similar curve. 63 homes (22%) sold for more than 110% of tax assessments, and 95 homes (33%) traded for more than 105% of assessments.

OK, here is the crazy part. When I then compare to 2009 numbers, There are 32 Homes that sold in 2008 whose 2009 Tax Assessment are MORE THAN $50,000 LESS than the sales price. Doesn’t it go to reason that if I pay $500,000 for a house, I believe its value to be …. $500,000… Apparently, the city does not think so. In fact, one home buyer from 2008, paid $705,000 for a home assessed at $470,300 in 2008 and his 2009 assessment did not go up a single penny. Quick math tells you that the city is missing more than $2,200 in tax revenue from that home owner alone.

If you take all the homes whose 2009 assessment is Less than the sales price minus $25,000 (55 homes) then you have a total loss of tax revenue to the city of over $36,450. This represents an average of more than $662 per home. Hmmm. You’d think the City would have figured this out.

And truth be told, while there were 141 homes that sold for more than assessment in 2008, by 2009, there were 146 homes whose assessments were less than sales price. Not sure how the City would respond to that.

Stealing A Home

Originally Published February 1, 2009

I was reading The Bubble Blog as I do most days, and as normal there were various comments that readers made that I thought were interesting, insightful, and sometimes spot on. But there are also the comments that make me think for a while and say, “Why?” In general, readers of the Bubble Blog are in agreement with the authors and support the notion that Charlottesville prices are too high. Given the current stall in sales, I tend to agree that movement is necessary in prices. But I’m not sure why everyone on the Bubble Blog is so convinced that it is all the Sellers who need to move. No, I’m not arguing that we have hit the bottom and we are about to skyrocket to 2005 price appreciation rates.

A year or so ago I was approached by another local Realtor who asked if I would be interested in selling my home. I told her, “Absolutely.” And I then proceeded to quote her a price somewhere North of 40% above my assessment. She said, “You’re crazy, your house isn’t worth nearly that much.” Well, she was right and wrong. It wasn’t worth that much on an open market, and it wasn’t going to be worth that much to her client, but to me, it’s absolutely worth that much. I had no interest in moving, and I still don’t. If someone wanted me to move, they were going to have to make it so worth my while to move that I would never have thought twice about it. And for me, that was about a 40% premium. And frankly, I’m not even sure I would have sold it for that.

Right now, I have lots of buyers looking for a steal. They don’t want a fair market price, they want a steal. They want to know that in five years when they look back at this period, that they took advantage of some pathetic seller who had no choice than to sell, at an absurd price. Today’s buyers want to know that there was no blood left. Well, guess what… today’s sellers aren’t all that desperate. Some are, but not all.

I have sellers who want to sell for various reasons. Some to move up, some to downsize, some who have been offered jobs in other areas, some who are having more children and want a bigger house. But on the news, you hear all about the millions who are losing their houses to foreclosure, and the banks are willing to sell for less than the debt. Not all sellers are bankrupt, and not all are willing to bleed for you to get your steal.

Market value is not just the price that a buyer is wiling to pay. It is also the price at which a seller is willing to sell. When the seller wants too much, or the buyer is willing to pay too little, no transaction occurs. It doesn’t always mean that the seller is over pricing. It can mean that Buyers are not wiling to pay market value.

And that brings us to the last few months of real estate. Buyers are convinced that Sellers are going to drop prices, but they haven’t. And when you look at my research into the city neighborhoods, most have not fallen in price more than 5%. And that does not represent the “steal” that buyers are looking for. Sellers on the other hand, may or may not have to sell. No one wants to be taken advantage of. Sellers are willing to drop prices when offers are being made that are fair and represent a market value transaction. But few are asking to be robbed.

I am not saying that values have not fallen in the Charlottesville area. They absolutely have. On Thursday night on 29 News I said as much. Transactions are occurring below assessments, and in 2009 we should expect to see that spread widen. But there is no indication that we are in a free fall, or that we should expect 20% price reductions anytime soon.

For Sellers, my recommendation is to seriously look at your reason for moving, and set your price accordingly. It could be that you won’t sell your house. But if you don’t need to sell, you certainly don’t need to be robbed in the process. For Buyers, assess why you are purchasing a home. For many, this is purely an investment decision. To you, I say watch for the short sales and foreclosures. You may not get the perfect home with the perfect view in the perfect school district, but you will find a good deal. There are many to be had. But don’t search for the perfect home, and then expect to steal it. It rarely happens that way.

Quick and Short Run

Originally Published January 8, 2009

In a three month time, mortgage rates went from 6.47% down to 5.03%. This is the lowest rate in decades. The goal was the get the financial markets running, and it did. Unfortunately, it did not do anything for the purchase market, but rather got the refinance market off and running. In fact, the mortgage market saw the most applications taken in over 5 years. But it was short lived, and this week as rates inched up to 5.07%, applications dropped over 8%. People are sitting back and waiting for the big foot to drop. They want rates below 5.000%, and they are going to wait for them. The prospect of 4.75% rates are keeping people from taking advantage of the best mortgage environment this country has ever seen. For a quarter million dollar mortgage, this represents less than a $50 difference in payments, or 3% change. Interesting times.

Migration Patterns of U.S. Adults

Originally Published January 8, 2009

I just finished reading an article put out by the Pew Research Center. In it, they have studied the migratory properties of Americans and their loyalty to their home state. Pew calls the two properties ‘magnet’ or ‘sticky’. A sticky state is a state where persons born in the state tend not to leave. A magnet state is a state which attracts persons born elsewhere.

In the article, there is discussion of the patterns of movement, but there is no real discussion of what states are doing about it. In marketing, it is commonly known that keeping a customer is cheaper than gaining a new customer. Are states thinking the same way?

Virginia ranks well (roughly, the top 1/3) in both magnetism and in stickiness. (17th for Magnetism, and 19th for Stickiness). Of persons born in Virginia, 61.9% remain in Virginia. Contrast that to Washington DC where  87% of persons born there have left, and 63% of the current residents where born elsewhere.

Should a state be focused on retention or attraction. I don’t remember where I read this, but it was some 15 years ago, but I read that Darden School of Business was founded in the 1950s as a reaction to the best and brightest young minds going to business school in the Northeast and staying there. U.Va. was trying to respond to that giant sucking sound by building a great school that would retain residents in Virginia.

I wonder if many institutions even see it that way any more, or if the State thinks of the university system as a means for retention.

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