How do people find the value of a home? Meaning, what a home (usually their home) is worth?

Of the most common ways to find the value of a home, a formal house appraisal is the most accurate.

If you REALLY want to know what a property is worth, you need to know why most (cheap and easy) ways to find a home value aren’t accurate. If the value you find for a property isn’t right, then what good is that?

Ways to Find Home Value

On-line (Internet) “instant” home values websites
These are probably the worst way to find the home values – they rely on incomplete information, and the data is often out of date. Yeah – they’re fast but what good is fast if it’s wrong?

What a neighbor’s house sold for last year
Another unreliable source of information – unless the neighbor’s house is exactly like yours and the sales price has been confirmed by someone with access to the real numbers for the sale. Even then, the market TODAY might not be what it was when the neighbor’s house sold and we all know that timing matters a lot in real estate.

The tax records
Although these should be a good source of home values information, tax records are frequently wrong since the tax district doesn’t usually know about updates or renovations to a home unless the updates required a permit. Tax records also don’t show that the homes sales prices in an area are going up or going down. Tax values also rely on huge databases of information that may not be up to date.

A local real estate agent
An experienced real estate agent can give you information about other homes that have sold in your area, which can give you an idea of what your home might sell for if you are planning to sell it.
Unless you really are planning to sell, though, and are looking for an agent to list your home, a local agent might not want to spend the several hours that it takes to pull the best sales data for homes like yours that sold in the last few months.

A house appraisal
Otherwise known as a real estate appraisal, a house appraisal is the formal way to find the value of a home. Real estate appraisers have to have formal training, pass difficult exams and use very well-defined ways (approaches to value) to figure out the actual, current market value of a home. Read the article Appraisal Steps: Determining Market Value of Property to understand what an appraiser does to figure of the value of a property.

Which Way Will Work For You?

Sometimes, you just want an idea of what the value of a home is. In that case, check out the on-line home value sites. Or, check out the tax records just for fun.

If you’re planning to sell your home, call a local real estate agent who knows your area well.

If your home is unusual (really big, really small, on a huge lot, heavily upgraded . . .) or you want the most accurate market value opinion for your home, you should bite the bullet and call a local real estate appraiser to do the job.

Would this house make the list of FHA approved homes? It might - if there were actually a list!

Are you looking for a home in Texas that you’ll be buying with an FHA loan, and need the list of FHA approved homes?

Unfortunately, there is no list of FHA approved homes.

To buy a home with an FHA loan, you need an FHA approved lender, and then you need to find a home that passes the FHA Appraisal Guidelines.

So How DO You Find a Texas Property for an FHA Loan?

Here is your short list for finding FHA approved homes – details to follow:
1. Find a good real estate agent
2. Find a good mortgage broker or lender (an FHA Approved Lender) – preferably referred by your agent
3. Find a house you can afford with an FHA loan
4. Get the house under contract
5. Get the house inspected to make sure it’s not a total dump
6. Get the house appraised by an FHA Approved Appraiser (your lender handles this part for you)
7. Negotiate Repairs
8. Close and Move in!

Low Down Payments Mean You Probably Need an FHA Loan

First, if you’re buying a home with an FHA loan, you probably don’t have a lot of money saved up for the down payment and closing costs.

That means you’ll need to find a home that fits within BOTH the FHA loan limits and your own financial means, in other words, something you can afford the payments on.

In 2012, in most areas of Texas, the upper limit on FHA loans is $271,050.

You can find lots of homes to buy with an FHA loan in the Greater Austin Area that are well below that limit.

First Things First: Find the Right Mortgage Lender for an FHA Home Loan

Before you go shopping for your home, you need to talk to an FHA Approved Lender.
By now, you’ve probably already hooked up with a real estate agent. He or she can probably refer you to an FHA approved lender that he or she has worked with well in the past.

If you don’t already have an agent, you can still find an FHA lender by checking on the FHA Approved Lender search page on the HUD website (US Department of Housing and Urban Development, the folks behind the FHA loans).

This step – finding an FHA approved lender – is really important.

You really can’t go shopping for a home until you know how much home you can qualify to buy!

The FHA approved lender will take all of your information (how much you earn, how much you owe, how much you have saved), will check your credit scores and can give you a really good idea of how much house you can go shopping for.

Now What? Go Shopping!

Now that you know how much home you can afford, you can go shopping with your real estate agent.
He or she should ask you a lot of questions, to help you find the right area and the right house, based on what you want the most: schools, commute to work and so on.

When you find a home you want to buy, within the price range you can afford, you can write an offer with your agent.

Although “writing an offer” sounds scary, your agent will be using standard forms used for almost all single-family home purchases in Texas and will be able to walk you through the whole form and answer your questions.

If your offer is accepted, you will first get the home inspected by a state-licensed inspector of your choice. Then, if you decide you still want to buy the property, you will let your lender know and he or she will send an FHA appraiser to the property to see if it is worth what it needs to be worth for the loan you want on the property.

NOW is when you find out of the home will qualify for an FHA loan.

Kind of the long way around for finding FHA approved homes, isn’t it?

Safe and Sound: FHA Loan Requirements

To meet the FHA appraisal guidelines the home will need to be safe and sound. If it needs repairs to make it safe and sound, the repairs will need to be made before the loan will be approved.

Who Determines What Repairs are Needed?

The house you have under contract will need two inspections. The first inspection is by a licensed home inspector, and the second inspection is by an FHA approved appraiser who will be a Texas licensed real estate appraiser.

If you read our article about FHA Appraisals, you will know what you need to know about how the home you have under contract will be appraised. You will also find information about what “safe and sound” means in that article.

You and your agent will need to find the licensed home inspector – your agent might have a list but you should do your own research on this one.

The appraisal on the property – to determine the actual market value – will be ordered by your FHA approved lender.

The House is Safe and Sound!

Now, if all has gone well, the house you want to buy is both safe and sound, in other words, in decent shape, AND it has been determined to be worth as much as the purchase contract amount.

When that happens, AND you have finished your loan approval process so both you and the home have been approved for an FHA loan, your home purchase transaction can close – be finalized, and you can move in!

The real estate agent you choose to guide you through this process is critical , so make sure you do your research and pick one that knows the area you want to buy a home in, and is willing to explain the things you need to know to buy your FHA approved home!

No List, But You’re Still HOME

When you first stopped by, you were looking for the list of FHA approved homes.
We hope this article helped you understand the basic steps for finding a home that meets FHA loan requirements.

If you still have questions, give me – Alison – a call at (512) 585-4758 and I can help you find the answers to the rest of your questions.

Once upon a time, Savings and Loans (S&Ls) ran amok. FIRREA (Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (aka “Title XI”)) was passed in 1989 in response to the Savings and Loan Crisis after it bankrupted the Federal Savings and Loan Insurance Corporation (FSLIC).

American taxpayers footed the bill for over $75 billion (according to Mortgage News Daily).

Definition of “Federally Related Transaction”

FIRREA (Title XI)

and

The Texas Appraiser Licensing and Certification Act (Section 1103.001) of the Texas Occupations Code (Chapter 1103) define a Federally related transaction to be a real estate-related transaction that:

Requires the services of an appraiser; and

is engaged in, contracted for, or regulated by a federal financial institution regulatory agency.

What are Federal Financial Institution Regulatory Agencies?

According to Section 1103.003.6-b of the Texas Occupation Code, these are:

The Board of Governors of the Federal Reserve
System;

The Federal Deposit Insurance Corporation;

The Office of the Comptroller of the
Currency;

The Office of Thrift Supervision;

The National Credit Union Administration; or

The successors of any of those agencies.

Why Should You Care?

A real estate appraisal used in a federally related transaction must be performed by a state-licensed or state-certified appraiser to be considered valid.

Who Regulates Texas Appraisers?

The Texas Appraiser Licensing and Certification Board (TALCB) licenses, certifies and regulates real estate appraisers in Texas. Other states have similar licensing boards.

As A Homeowner, Do You Really Need to Know This?

The good news for you if you are a homeowner is this: you won’t be the one ordering the appraisal for a federally related transaction. The person ordering the appraisal is usually a mortgage broker or lending institution and the appraiser receiving the appraisal will need to certify that he or she is properly licensed by his or her state to perform the appraisal for the property in question.

Yes, you read that right. A $5000 fence is very unlikely to be worth $5000.

Fence Cost does not equal Fence Value

Most home improvement projects don’t return 100% on the investment.
Maybe one would if you did all of the work yourself, and used materials left over from another job, but that is not often what happens.

After a homeowner spends money on an improvement, they hope, or really really hope, that the cost of the improvement, i.e. the value of the fabulous thing they installed, is actually the same as or more than the cost of the improvement.

Let’s talk about a theoretical home improvement situation. If you were appraising (as an appraiser), or listing for sale (as an agent), or buying a home (as a buyer) with a brand new $5000 fence, would you consider the fence to be worth $5000?

I would say probably not.

You might think it was worth something, but in part that depends on what the fence replaced – an old rotting one that was the neighborhood eyesore? A brand new cedar fence with a custom gate, installed by the developer as an upgrade for clients that couldn’t close? Did it enclose only part of the yard and block the greenbelt view enjoyed by other homeowners? What is that fence value, to you?

We call this a running joke because most of us fall prey to this, in our own home improvements. We upgrade from a serviceable thing to a fancier thing and really really hope that when we go to sell, the buyers, and the real estate agent and the appraiser will value it as much as we do.

In real life, that is almost never the case.

So, if you really want that $5000 fence, put it in because you LOVE it, not because you think you’ll get your money back. And please, don’t hassle the real estate agent that tells you it doesn’t make your $135,000 house worth $140,000, and don’t give the appraiser a hard time, either.

Both of those professionals have to rely on what the market will pay for an improvement of the kind you put in, and if the market doesn’t value it, it doesn’t really matter what it cost.

The short answer is: it depends, maybe or yes.

Most of us know that when you put your house on the market, it needs to look and be as spiffy as possible. For this reason, many of the resale homes we appraise have been de-cluttered and carefully organized to present the best possible image to potential buyers.

Stuff Gets in the Way

De-cluttering and deep-cleaning your home can also be beneficial to the appraisal process because a home packed to the gills with stuff, albeit fabulous stuff, is hard to get a good look at. It can be more time-consuming to measure if the rooms on the second story (which is measured from the inside, whereas the first floor is measured from the outside) only have a single-file maze cut into the boxes and toys flowing from room to room.

Oh, yes, we’ve seen that, and not just in our own home after the holidays or at the end of summer vacation!

The appraiser shouldn’t penalize you for the inconvenience, but the easier it is for the condition of your home to be evaluated, the more accurate the resulting appraisal will be.

Condition Counts

The condition of a property is evaluated during the appraisal inspection and when your home is clean, organized and de-cluttered, you are presenting your home in the best possible condition short of making major improvements to the surfaces (flooring, counters, paint) or the structure of the home.

You may find that when you decide to get your home ready to sell, you may want to do a little extra: maybe paint over the dirtiest walls, replace the worn-out vinyl that you didn’t notice until you cleared out the laundry room, and/or steam clean the carpet.

Each of these acts improve the condition of your home, and might have an impact on the appraised value. I say might because it depends on the before-and-after impact of what you decide to super-clean, upgrade and/or replace.

Keeping up with the Neighbors

You may want to be careful that any modifications you make are in keeping with current trends for your area.

For example, you might not want to put in economy vinyl if travertine tile in the norm for your neighborhood, and don’t waste your hard-earned dollars on exotic granite if laminate counters are the most common local kitchen counter surfaces.

You may be wondering why this matters.

This matters because if you spend $5000 on upgrades that over-improve your property compared to other homes in your area, you are much less likely to see a favorable return on your investment.

On the other hand, if the most otherwise-comparable homes that have recently sold all have granite and yours doesn’t, your home’s appraisal value may be adjusted accordingly – all depending on the overall comparison of your home to the other recent sales.

Get Good Advice

Your best bet is to make sure you have a knowledgeable Realtor to help you weigh the pros and cons of your to-do list for getting your home ready to sell.

Your Realtor should have a good idea of what the homes typical for the area have with regards to upgrades and improvements, and can share information from recent comparable sales (and homes currently for sale), including interior photos that can help you scope out the competition.

Get Moving

If this sounds like a big job, just remember that the work you do getting ready to sell will make getting ready to move THAT much easier, and we all know there is value in that.

We did that this past weekend. Although we’re out in the rural areas frequently for appraisals, we don’t often take the time to just LOOK – at the trees! The cows! The fences! The fields!

Normally, the articles we write are specifically about appraisal issues or home valuation practices and principles.

Vanishing Texas

Today, we’re going to share a little more than that. We’re going to share our weekend adventure into what would most aptly be described as Vanishing Texas, named after a Flickr group that I joined to share some of the rural photos I’ve been taking lately.

I’m finding it impossible to resist the pull of the rural areas, especially the ones that have ample examples of the days gone by in Central Texas.

As more and more people move into the urban areas, rural areas are hard hit with abandoned homes, falling-down buildings, and lots and lots of rusty vehicles piled about, some in junk yards, but many other in fields. As some of this stuff ages, it crosses over some invisible divide between abandoned-old-junk and historical-and-interesting. Rust and falling-down buildings in particular draw my eye.

More City Dwellers, Fewer Farmers

We have far fewer working farms, ranches and dairies than in the past, although the “Locavore” movement may help bring some of them back. Locavores try to source the bulk of their foods locally, eschewing the imported, trucked-in, out-of-season, chemically washed produce that normally fills the bins in the grocery stores during the winter.

We support this movement in our own household by visiting the farmer’s market and buying locally-sourced products as often as we can.

One Long and Winding Road

We drove out into Bastrop, along Sayers Road, off 95, maybe 45 minutes south of Austin. Here are images of what we would consider to be threatened in Texas – images of places and animals that may or may not be around for future generations to enjoy.

View Larger Map

In this appraisal inspection video, Texas State Certified Residential Real Estate Appraiser Orlando Masis demonstrates how a house is measured with the traditional appraiser tools of a measuring tape and graphing paper to draw the sketch of the home.

Take a few minutes while you sip your coffee and learn about the measuring, data gathering and analysis of value for a real estate appraisal in this video tutorial.

Rural Appraisers: a Long Drive Home

In this post, we discuss, in detail, the appraisal of a fictitious rural property near Austin, Texas. If you know you need the rural property value of a home or acreage you or a client owns, you can read about some of the details involved in this type of property appraisal, or you can just order an appraisal now.

The Texas Countryside: A Rural Appraisers Tale

Want to take a drive to the Texas countryside?

When living in Austin that’s not so hard to do. I remember when I first moved out here just over 9 years ago, that used to be one of my favorite weekend pastimes: grab the family and go out for a drive and just see where the road would take us. Little did I know then that I would eventually be appraising some of these country homes and large acreage properties.

Appraising rural property is definitely a different animal. We see little 600 square foot homes that sit on 30 plus acres, or enormous 9000 square foot homes that sit on 80 plus acres with additional features such as large barns, horse facilities, workshops, pools and sometimes even landing strips. Appraising these types of homes is not anything like appraising your typical subdivision home.

Data collection tends to be more hectic and finding comparable sales can be tedious. In some cases you might end up driving over twenty miles away just to get a picture for one of your comparable sales and repeat that at least another three times to get all the comparable sales needed to complete your report.

Rural Property Valuation: A Step-by-Step Example

So let me take you through the process of completing one of these assignments.

For this particular case study, we’re going to be appraising a fictitious property in the Texas Hill Country, outside of the city of Austin. The property in question is a 3580 square foot home situated on 5 acres with a 2 garages – one attached 3 car garage and an additional 2 car detached garage. This property also has a pool with a spa and a cabana with an outdoor kitchen.

Due to the spread-out nature of the area and lack of public utilities, it is on a septic system and a well system for water and there haven’t been many recent sales. The subject is mostly surrounded by vacant land with some similar subdivisions scattered throughout the whole county. So far this is all the information that we’ve been able to gather from the client. Research, investigation and data gathering starts before we take our drive out to the property.

Data Gathering Habits of the Rural Appraiser

The rural appraiser has a lot of data to gather.

First, we gather as much data as possible by running as wide of a search as possible or necessary in the MLS. Once we have a nice collection with which to start, we take our drive to the subject property to be appraised. Once we get there we’re able to see additional features, such as a panoramic hill country view, a storage room above the detached garage, extensive landscaping, perimeter fencing, gated entrance, extra fireplaces and fire pit. We’re also able to determine the quality of construction materials such as stone exterior walls, granite counter tops throughout all wet areas, hardwood floors, upgraded lighting/plumbing fixtures and so on.

Next, we gather more specific data about the subject property for our analysis. Once we’ve gathered all this data we head out to visit and photograph our selected comparable sales. In this particular case we got lucky and found one closed sale in the subdivision that sold within the last twelve months. However, we weren’t so lucky on the other sales since we had to drive over 3 miles for one, and over 7 miles for the other ones. Fortunately, these proved to be excellent comparable sales due to similar amenities and pretty much the same lot size.

Finally, back at the office we enter all the specific data for the subject, and enter all the data for the comparable sales. In the figure below we show a sample market grid we use to analyze and make adjustments for differences for each comparable sale for rural property valuation.

Please remember, although this is for demonstration only, we’re trying to make it as real as possible to a typical rural appraisal.

Sorting, Ordering and Analyzing the Rural Property Data

So, let’s start from the top. The very first line allows us to show a short analysis of the activity taking place over the twelve month period prior to the effective date of the appraisal. Line 1 above specifically asks for the number of comparable active listings currently available in the market. In this case we have specifically entered a total of 18 active listings ranging from $399,000 to $530,000.

On line 2 we’re asked to enter the number of closed comparable sales in the same twelve-month period. In this instance we have entered a total of 26 sales ranging from $348,000 to $523,300. By entering these figures we’re able to provide the Lender’s underwriter a clear image of what’s taking place in this particular submarket.

Going down the form, as you can see we’re asked to enter all the pertinent data for the subject property as well as for the comparable sales such as:

1. Sale price
2. Data sources
3. Verification source
4. Sales and financing concessions
5. Date of sale/time
6. Location
7. Property rights
8. Site size
9. Type of view
10. Design/Style
11. Quality of construction
12. Actual Age
13. Condition
14. Room count
15. Basement/Finished rooms below grade
16. Functional utility
17. Heating/Cooling
18. Energy efficient items
19. Parking facilities
20. Porches/Patios/Decks
21. And other items such as pools/spas/cabanas/sprinkler systems

As you can see all these line items are placed side by side. The first column to the left is the subject property and all its features and amenities are listed down the line. The other three columns represent the first three comparable sales being utilized in the analysis with all their features and amenities listed down the line as well.

Adjustment for Comparable Sales of Rural Property

In this particular scenario, the adjustments go as follows. I will also offer some simple explanations on how we typically arrive to these numbers.

1. The first adjustment on the grid, is as you can see on column 3 (comparable sale 3), for $3,000. This adjustment was made to reflect the seller-paid closing costs on behalf of the buyer (aka sale concessions).
2. The second adjustment on the grid is also on column 3 for $10,000 for quality of construction. In this particular case the subject property has granite countertops and hardwood floors. The comparable sale lacks these features – it has tile countertops and carpeting. This particular adjustment is derived from the market, also known as matched pair analysis which helps us determine how much more buyers are willing to pay for these items. Another way we also look at these items is from experience and knowledge of the costs associated with bringing the other property to a similar standard minus estimated depreciation (cost does not equal value).
3. The third adjustment on the grid is on column 2, an upward adjustment of $10,000 for inferior condition. In this particular case MLS data indicated that this particular comparable sale sold in need of repairs. This adjustment is based on the typical costs associated with bringing this property to the same standards and condition as the subject property.
4. The fourth adjustment as we go down the line is for bathroom count, in this case upward adjustments of $2,000 for sales 1 and 3 were made for the additional ½ bathroom the subject property has.
5. The fifth adjustment is for square footage differences. Guidelines tell us the following: when possible, line adjustments should not exceed 10% of the comparable’s sale price, size differences between the subject and comparable sales should not exceed 25% and net adjustments and gross adjustments should not exceed 15% and 25% respectively. In this case after utilizing certain widely used formulas we have utilized a $35 per square foot adjustment for living area differences.
6. The sixth adjustment is for parking facilities, in this particular scenario the subject has 5 garage spaces, the typical difference for the additional garage can be $8,000 to $10,000 depending on location and submarket (demand for this feature), however, in this case we were not able to find any comparable sales with the same feature and therefore we can conclude this to be an over-improvement, therefore, a lower adjustment would be made.
7. The last adjustments down the line are for fireplaces, sprinkler systems and finally pools and spas. In this particular case comparable sale 1 is considered to be the most similar to the subject and sale 2 is right behind, as you would guess, primary weight would be given to these two sales as they are considered to be the most similar in all aspects.

The 1004MC Market Conditions Report or Addendum

One form that came out in 2009 is the 1004MC, also known as the Market Conditions Report.

Some appraisers hate it, because it just makes extra work for them. When this form is used properly, however, it can be a great aid in determining the state of the specific submarket you’re working in (i.e., comparable homes, comparable sites, comparable locations, comparable amenities). Below I’ve included a snapshot of what the 1004MC grid looks like. This one came from the same fictitious property above and was also included as part of this specific analysis.

1. The first column shows the inventory analysis with the next three columns indicating the first six month period and the second 6 month period split into two (a little confusing I know) and the last column is to show the overall trend.
2. Line 1 asks for the total # of closed sales for each period: in this particular case there were 13 comparable homes that closed in the first 6 month period, followed by 4 closed homes in the first half of the second period and 8 closed homes in the second half of the second period. This shows that this particular has remained somewhat stable; 13 homes in the first period and 12 homes in the second period.
3. Line 2 shows us the absorption rate. The absorption rate is calculated as follows: the number of homes divided by the number of months in the period for example: column 1 shows us an absorption rate of 2.17 which was arrived at by taking the 13 homes sold and dividing it by 6 (the number of months in this period) which means that homes in the first period were selling at a rate of 2.17 per month during the first 6 month period. Now if you do the same thing for the second period by combining both 3 month periods you would arrive at an absorption rate of 2 which means homes for the second 6 month period were selling at a rate of 2 homes per month.

The beauty of this form is that it gives us a glimpse at what has taken place during the previous twelve months, it gives us the median comparable sale price, it tells us whether there’s an oversupply of comparable homes in the market, it tells us the median days on the market (how long it is taking to sell these homes) and so on.

The Rural Appraiser: Not an Armadillo

Only those brave enough to read this far get that little bit of rural appraiser humor. After all, we’re not actually known for being a barrel of laughs at the neighborhood holiday party.

We hope this analysis has been informative for you and that you have a little better understanding of the detail of work, and the expertise required to determine rural property values.

If you have any questions and want to talk about an appraisal for your rural property, please call (512) 541-2107.

Many Austin homeowners did, and many may end up repaying tax credits on property purchases that didn’t qualify. Others will have to fight the IRS to have their purchase records corrected in the IRS databases.

Three Instances of the Home Buyers Tax Credit

In 2008 and 2009, three acts of Congress defined three different strategies to stimulate the housing economy, each of which contained provisions referred to as the Home Buyer Tax Credit:

• The Housing and Economic Recovery Act in 2008
• The American Recovery and Reinvestment Act of 2009 – (Complete Text of the Enacted ARRA)
• Worker, Homeownership and Business Assistance Act of 2009

(Complete copies of The Housing and Economic Recovery Acts and the Worker, Homeownership and Business Assistance Act are included in PDF format at the bottom of this article)

Quick Summaries of the Home Buyers Tax Credit Acts

In the beginning, the Tax Credit was actually an interest-free loan, instituted by the Housing and Economic Recovery Act (HERA) in 2008. First time home owners, defined to be those that had not owned a home in the previous three years, could qualify for a tax credit of up to $7500 if they purchased a home between April 8, 2008 and July 1, 2009. This loan, received in the form of a tax credit, would be paid back over 15 years by slightly increasing the taxpayer’s taxes beginning in the second year after the home was purchased.

When the original bill failed to provide sufficient boost to the housing recovery (yeah, which recovery was that?), Congress passed another bill, the American Recovery and Reinvestment Act (ARRA) of 2009. This new legislative action included another home buyer tax credit, although this time the tax credit was an actual cash rebate of ten percent of the purchase price, up to $8,000. The effective dates for purchases eligible under this act were set for January 1, 2009 through November 30, 2009.

(If you’re interested, you can track where the money for the ARRA has gone (and is going) on the Recovery.gov Track the Money website.)

Note the 5 month overlap between the dates for the Housing and Economic Recovery Act (4/8/08 – 7/1/09) and the American Recovery and Reinvestment Act (1/1/09 – 11/30/09).

Soon after, when the second bill had also failed to sufficiently stimulate an economic recovery, Congress passed a third bill, called the Worker, Homeownership and Business Assistance Act of 2009. This third attempt to address the myriad economic problems facing our country extended the dates of the $8,000 tax credit through 2010, applicable to homes under contract by the end of April of 2010, set to close by June 30th, 2010. This bill also added a smaller credit for repeat buyers which was worth up to $6500 and provided generous limits for income before the credit eligibility began to phase out.

Do you have a headache yet? I know I do.

When it became clear that hundreds of thousands of purchase transactions under contract by the April 30th deadline of the third bill weren’t going to be able to close by the June 30th deadline, Congress extended the closing deadline to September 30th, 2010.

All three of these bills contained nearly identical provisions for recapturing the credit (returning the money to the government) if the house was sold within three years of purchase and for waiving the recapture if the owner were to die or sell the home without a gain.

Tax Credit Repayment: Why Home Owners Might Have to Cough Up Some Cash

When taxpayers returns were filed for 2009, the IRS ran into trouble identifying and properly processing returns under the three different sets of rules established by the three stimulus acts. The IRS has incorrectly identified thousands of taxpayers as being required to repay the home buyer tax credit and others that filed for the credit but didn’t qualify. In response, the Treasury Inspector General of Tax Administration (TIGTA) studied the problem and published a report. This report doesn’t seem to have an actual name, so we will refer to it as the TIGTA Tax Credit Repayment Study.

Quoting from the report about the Impact on Taxpayers:

Approximately 1.8 million taxpayers claimed a total of almost $12.5 billion in First-Time Homebuyer Credits in Calendar Year 2009. More than 950,000 taxpayers will be required to repay the Credits because their homes were purchased in 2008.

In particular, this section jumped out from the TIGTA Tax Credit Repayment Study report:

However, our analysis identified an estimated 73,119 (4.1 percent) of the 1,774,718 individuals receiving the Credit had incorrect purchase dates recorded on the IRS’ system; 59,802 of these taxpayers purchased their homes in 2009, but the IRS incorrectly recorded the purchases as 2008 or the years were not recorded. These taxpayers could incorrectly receive notices requiring repayment.

Will First Time Home Buyers in Austin be caught in this mess?

Some will and some won’t. Hopefully those that might will seek the services of a good CPA to make sure their tax forms are in order for 2009 and 2010. If you are one of these home owners, dig out your purchase transaction records, or request copies from your Realtor.

TIGTA’s recommendations are summarized as follows:

TIGTA recommended that the Commissioner, Wage and Investment Division, 1) correct the purchase dates for the 68,924 accounts TIGTA identified as having incorrect purchase dates and 2) ensure the 798 individuals who TIGTA identified as being deceased prior to the purchase of the home are entitled to claim the Credit.

In their response to the report, IRS officials agreed the claims for the Credit for the 68,924 accounts were processed early in the program and some purchase dates were incorrectly recorded in IRS systems. The IRS plans to use third-party property records to verify home purchase or disposition information and to refer discrepancies for appropriate resolution. In addition, it plans to audit the 798 accounts and recapture the claims paid out, if necessary.

For reference, here is a chart, taken directly from the TIGTA study, that compares some terms of each act:

Full Texts of the Economic Recovery Acts

HERA

The Housing and Economic Recovery Act of 2008

WHBAA

The Worker Homeownership and Business Assistance Act of 2009

Can You Order an Appraisal on this home? If it's your home, you can order an appraisal to determine the market value of the property.

In short, no. In reality, sometimes. Depending on what you need the appraisal for, you may be able to order an appraisal for your property.

Lenders Order Appraisals For Loans, But You Can, Too

The basic rules of appraisal ordering:

• Anyone can order an appraisal on their own home for any reason, from a licensed appraiser.
• If the appraisal is for the purposes of re-financing, or purchasing a home, the appraisal needs to be ordered by the lender, to be accepted by the lender. You may never even get a copy.
• Realtors can order appraisals, with their client’s consent, to help properly list the property at a price that is close to market value (to help it sell faster!).
• Attorneys can order appraisals for clients. This often happens for an estate appraisal, or when the attorney’s client is getting divorced, and an appraisal needs to be ordered to determine the market value for the divorce paperwork.
• For PMI removal, check with your lender to see if they have any sticky rules about appraisal ordering (they shouldn’t, but better to know for sure!). You may need to get your home appraised to see if it qualifies for removing the PMI.
• You can order an appraisal on your own when you want to protest your property taxes and need solid information about the value of your home.
• And so on.

Things to Remember When Ordering an Appraisal

• Make sure the appraiser knows the area well. You do not want to order an appraisal from someone who doesn’t do a lot of appraisals in your area because they won’t understand the local market as well as someone with more experience.
• Make sure that everyone that will need to receive a copy is listed as as an intended audience so that they can get a copy of the completed appraisal.
• Make sure you know what to expect, and how to prepare for the appraisal inspection.
• Read our page about Appraisal IQ so you know what to expect from our service.
• Read our FAQ.
• Ask, Ask, Ask.

How Are Stairs Measured for an Appraisal?

I’ve noticed a bunch of keyword queries leading folks to our site wondering about how the square footage of stairs is calculated for an appraisal.

Stairs Are Measured Twice, But Included Once

When a house is measured for an appraisal, it is measured from the outside (if at all possible, and it almost always is possible for at least the first story). For detailed information, please read our series on measuring houses, starting with Determining the Square Footage of a House, Part 1 of 3.

This means that the square footage of the stairs is already included in the measurements for the first story of the home. When the second story is measured, frequently from the inside, the air space above the stairs is not included in the square footage of the second story.

You can imagine it this way: if the first floor was pancaked down to two dimensions, the stairs would (generally, usually) take up a rectangle, just like you see on builder diagrams for a new home. If the second story were pancaked down on top of the first, the staircase would occupy the same space, so it doesn’t get counted again.

Clear as mud?

When Measuring a House, What Counts?

Not all of the space under your roof counts as living space from an appraiser’s perspective. Some spaces don’t count towards the measured square footage of a home.

What Do Appraisers INCLUDE in the Square Footage of a House?

• Interior spaces that are conditioned spaces (heated, and cooled, if necessary) such as bedrooms, bathroom and living rooms.
• Enclosed patios that are heated and (if the rest of the house is) air-conditioned and are similar in workmanship (quality) as the rest of the home.
• Finished attic space as long as it also conforms to the original structure (can’t just add carpet and call it a bedroom).
• Below grade rooms only when typical for the market (for example: a home built on a sloping lot).
• All of the interior closets, entries, utility rooms, unless they meet the exclusion descriptions, below.

What do Appraisers EXCLUDE in the Square Footage of a House?

Some common spaces are not considered to be living space and are therefore not included when calculating the square footage of a house:

• Screened patios (and open ones as well).
• Garages, unless they have been converted to living space. Read The Value of a Garage Conversion.
• Unfinished areas, regardless of the level in the home.
• 2nd floor airspace (for example: open space, above an entry, or a vaulted room)
• The open area above a stairway on the second floor.
• Basements.
• Detached living space such as an office in a extra building on the property – these spaces are measured separately.
• Spaces that are accessed only by traversing non-living space, like an enclosed storage area of a garage.

These spaces may be determined to add value to the property upon analysis of the comparable properties in an area, but they are not included in the square footage.

Some spaces, such as a finished basement, may add value, but at a lesser rate than other finished (above-grade) spaces. This is determined on a case-by-case basis, based on the quality of the space and how the market has recently responded to similar homes.

More Articles on Square Footage of a Home

Read our 3-part series on measuring a home, starting with Determining the Square Footage of a Home for more information.

Is the property tax assessment on this home accurate? Probably not.

Your tax bill arrives and you have a heart attack. If your property is worth the property tax assessment the taxing district thinks it is worth, it’s time to SELL and retire to Aruba! If only.

Tax Assessment and Market Value Differences

Property tax assessments fall into three categories:

• Low
• Plausible (somewhat close)
• High

If you’re in the first two categories, pay your taxes, file the paperwork and go fishing. If you’re in the last one (high), gear up to protest your property taxes, armed with real data that can help your cause. You should read, How Do I Appeal My Property Tax Assessment?

How Do Taxing Districts Determine Value?

If tax values aren’t the same as market value, how do taxing districts such as the Travis County Appraisal District (TCAD) come up with their numbers?

Tax districts use massive software programs with sophisticated algorithms to assess property values in an area. Although these values are supposed to assess property at actual market value, they frequently don’t.

The reasons for this are many, and include:

• These programs use data available in public and governmental databases. This data may be accurate (number of bedrooms, size of the lot), or it may be wrong (3 bedrooms when a home has four because the game room was converted when the addition was added and the addition isn’t in the property records yet).
• The software does not know about the actual condition of each property. Condition matters. In Travis and Williamson Counties, the programs use something called percent good, which is a marker of how nice your home is. Low percent good means the property isn’t in good condition, average condition (from my personal observation) seems to be in the 70s. High percent good ratings trigger the assessing program to give a higher value to your home as compared to a home that is otherwise completely comparable in size, location and condition that has a lower percent good rating. Although the taxing district is supposed to come out and verify these ratings in each neighborhood, that doesn’t always happen.
• The application is frequently unaware of the market boundaries that define where values change, and sometimes they change by quite a lot. You may already recognize these boundaries, such as a major road where the subdivisions on either side map to a different elementary school or where one is much closer to noisy or yucky stuff (a stone quarry).

All of those things (or any of those things) will make your property tax assessment differ from what it should be.

How Do Appraisers Determine Value?

Appraisers determine fair market value differently than taxing districts. Some key differences:

• Appraisers do not use automated valuation programs when appraising individual properties.
• The appraiser will visit your property, measure it, and assess the actual condition of the property. Read Appraisal Steps: Determining the Market Value of Property.
• After he or she has inspected your property (the appraisal inspection), he or she will carefully analyze your property vs. the most comparable (similar) properties that recently sold in your area, which is the Sales Comparison Approach, one of the three approaches to value used by professional appraisers.
• When the analysis is complete, the appraiser will reconcile all of the information and arrive at an opinion of value which will be the appraiser’s opinion of the Fair Market Value of your property.
• A good appraiser will understand the boundaries of market areas and other factors that influence the value of your own property and your report will reflect this expertise.

Protesting Your Property Tax Assessment: a Personal Tale

The actual market value of this home was less than the property tax assessment on it. The taxing district agreed at the formal hearing and lowered the tax value.

I pointed out a few things: the homes were much newer (built after 1994, vs built before 1982), the homes were on bigger lots (on average), the homes mapped to a better school. Of these three points, the hearing panel was interested in the first two (age and lot size) because these are more concrete data points. They weren’t particularly interested in my third point (the school). I also pointed out that my own area had an ample number of homes (thousands) that were arguably comparable in age and lot size to my own, with lower assessments, and questioned why they would skip those comps and use homes that were several miles away. I also quibbled with the percent good number assigned to my home (90%) when almost all of the others on my own street were marked in the 70s, including ones that I personally knew had expensive new updates that made them far superior in quality to my vintage 1982, seriously ugly house.

The formal hearing panel agreed with my assertions and lowered my tax assessment by about $25,000, which saved me about $700 that year alone.

Another year, I used a similar argument and saved even more. The next year, though, my property tax assessment was close to market value, so I let it slide.

Protesting Your Tax Assessment: Your Own Story

Have you received your tax bill in years past, heaved a big sigh and paid it? Why?

If you’re one of the folks whose property value is higher than the likely fair market value, fight it. What have you got to lose? What have you got to gain?

Facing the formal hearing panel the first time can be intimidating, but don’t let it get to you. Arm your self with concrete data, and if you’re really uncomfortable arguing your case, hire a tax protest company to argue for you.

One excellent piece of evidence you can (and should) use to protest your taxes is a professional real estate appraisal, from a certified residential appraiser.

Hire us to perform your appraisal, and either you will discover that the property tax assessment is low, close, or high. A typical appraisal will cost $350 to $425, depending on the size and complexity of the property, and this is money well spent. If we were to receive another tax bill for our own home that felt out of bounds, we would hire another appraisal firm to appraise our own property, to provide the evidence we needed to protest. (We can’t appraise our own property because that would be a conflict of interest.)

To get started, read our more specific tax protest, How do I Appeal my Property Tax Assessment?

Another good read is, Appraisal Steps: Determining the Market Value of Property.

At the most basic level, the value of property, including waterfront property, is the price the market will bear. If you are considering purchasing (or selling) waterfront property, you need to read this article.

When neither the buyer nor the seller are distressed (facing foreclosure or other undue financial pressure), and the property has received normal market exposure, the price they agree on should be a reasonable reflection of Fair Market Value of the property.

If Only Finding the Right Price Were That Simple

Before this event can happen (buyer and seller coming together under contract), someone has to determine the listing price of the home, i.e. the price at which the home will be offered for sale.

For waterfront property (lake front property, beach front property), some of the factors that influence pricing are:

• View
• Waterfront footage
• Access to the water (for people, for boats)
• Storage, docks/slips for boats
• Location on the body of water (for example, in a cove where the water might dry up in a drought)
• Acreage
• Guest accommodations
• Condition of the septic system, or access to city sewer

In addition to someone figuring out a reasonable listing price for the property, the buyer side of the transaction also has to come up with what they think is a fair price, or the price they are willing to pay for the property. The seller side of the transaction is usually a Realtor working with the owners to determine pricing, or a Realtor using their own analysis (Competitive Market Analysis, or CMA) along with a certified residential appraisal.

Appraising Lakefront and Waterfront Properties

Over the years I have appraised many types of properties including vacant land, large acreage, ranches, subdivision homes, condominiums, small income properties and others.

However to this day I believe that lakefront or water front properties tend to be some of the most challenging assignments.

The challenge however lays mostly in the location. The farther out and the more undeveloped the submarket is, the more challenging the assignment. Take Point Venture for instance. This community is very far out there in the northern shore of Lake Travis, approximately 22 miles northwest of downtown Austin (which could also turn into a long commute). This particular submarket tends to bring more of the vacationer types, therefore, the market tends to be a little slower and marketing times tend to be longer, thus, making the availability of comparable sales pretty limited.

Appraisers rely heavily on comparable sales to determine the value of property, as part of the Sales Comparison Approach. Comparable sales are properties that share similar characteristics with the subject property that have recently sold. (“Recently” should be 6 months or less, but sometime it is necessary to look further back in time).

Finding and Analyzing Comparable Properties

This is where the challenge begins and it’s where you (or the appraiser!) really need to put your thinking hat on.

Early steps in the appraisal:

• Determine the availability of comparable sales over six months, twelve months and sometimes a little longer.
• Analyze the active listings and any pending sales.
• Look for the best ones, the ones that are actually the most similar to the subject.
• Consider the subject’s view.
• Determine the actual lake frontage and whether or not it is in a cove where the dry season would really affect value (believe it or not).
• Assess the availability of floating docks, lifts and so on.

These are things to consider – there are good reasons why people pay top dollar for these type of dwellings (the boating enthusiasts, the entertainers).

Do you think you could figure the value of these items?

A Quick Peek at a Matched Pair Analysis

One of the widely taught appraisal theories, the matched pair analysis works something like this (in the perfect world of course).

See the example below:

At this point, you’ve guessed it right if you guessed that the view adjustment would most likely be $20,000. Only if it were that easy.

You get the idea, but, of course in the real world it gets a lot more complicated than this.

Consider this example of three (theoretical) waterfront properties that recently sold:

So now, we’re getting a little closer to the reality of the complexity of appraising lakefront property.

In this particular example you can see that there are many factors to consider such as: the lakefront location, whether the property is in a cove or not, the actual size of the dwelling, whether there’s a dock or boat slip or not, pool or no pool, guest house or not, and last but not least, the lot size. Now try and guess the adjustments.

This time it gets a lot more complicated, now we get to do a more in depth analysis, so we start looking for other properties that are similar to the ones above and try to extract the dollar figures for those differences and come up with the adjustments.

This is only the beginning. Other things that we must consider include condition, quality, design, upgrades, updates, construction materials and the list goes on.

If you’re considering selling or buying lakefront property, consider getting a professional appraisal (from us, if you’re in Central Texas – the Greater Austin Area) so that you understand the factors that contribute to the value of the property, from the open market standpoint, which is also what a lender’s appraisal will consider as well.

The Best Appraisal Tools

This year we have focused on integrating the newest and the best appraisal software and appraisal tools into our property appraisals business.

Before we talk about modern appraisal tools, let’s take a trip down memory lane.

Quick Clicks For Article Sections:

• Appraisal Tools: 1990s
• Appraisal Tools: 2010
• The Appraisal Tools We Use Everyday
• Our Favorite Toys

Appraisal Tools: 1990s

I remember when I first started appraising, way back in 1991 or so: the days of 386s, DOS and Windows 3.1.

We used Total (now called WinTotal) from a la mode, took 35mm (film!) pictures and waited for them to get developed. We used microfiche to look up comp data and were so excited when the comp data became available on CD ROMs!

Appraisal assignments back then certainly took longer to complete and to deliver – we hand delivered or sent them by postal service or messenger services! Appraisal practice has definitely come a long way since the 1990s.

Appraisal Tools: 2010

Now use high-resolution digital cameras and on-line systems such as the MLS, tax records, and mapping and zoning information databases.

And, of course, we have Google. What did we do before we could Google everything? We are far, far more efficient than we used to be, but the art of appraising has become more complicated at the same time. Clients demand (and rightfully so) more data, the analysis of comparables has become more sophisticated and lenders require more substantial information about market areas.

Now, we get an appraisal orders through email or from appraisal management portals. Surprisingly, we still get most of our confirmations by fax.After hours of patient and methodical research and adjustments, aided by the fantastic new tools of the trade, reports are uploaded and delivered to clients online, in the blink of an eye.

The Appraisal Tools We Use Every Day

Our office looks like the office of people that love love love computer equipment: wide-screen monitors (two per desk), cables hanging out everywhere, little gadgets plugged in to charge or upload or download data.

Our Favorite Toys (aka Tools):

We use an Apple iPad with the DaVinci sketching app. I can sketch a house with the software as I am measuring on site, as opposed to sketching it out by hand and then entering it into the computer later when I’m back at the office.



With the Disto D5 Digital Laser Rangefinder from Leica, I can measure accurately and efficiently at the property, enter the pertinent measurement and property condition data into my iPad and then sync it with my desktop later.

A Canon Digital Point and Shoot Camera (the latest being a pair of PowerShot SD1200 cameras with Image Stabilization) make taking photos a snap and the quality is outstanding.

Why does this matter to you? You ask? We can provide you with more accurate data (the rare mis-measurement is readily apparent on the software sketch) and the use of these tools improves the turn times on appraisal reports.

Better, faster reports from us, means better client relationships for you.