Real Estate Valuation Impact: Does Neat and Clean Count?

Does the Appraiser Care How Neat Your Home Is?

The short answer is: it depends, maybe or yes.
Art photo of glass candlesticks on pink to illustrate article on home condition impact on valuation

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.
Art photo of open-weave basket on red to illustrate article on home condition impact on valuation

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

digital art photograph of colorful bottles for an article on the condition of your home and how it impacts valueIf 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. :-)

Vanishing Texas | A Drive off 95 in Bastrop

When was the last time you took a drive out into the countryside?

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.

Vanishing-Texas-Tree-in-Field-Art-Painting

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.


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Home Appraisal Video Tutorial

Orlando Masis Explains the Basics of Home Appraisal in a Video

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

Cow Icon Representing the Rural Property Appraiser

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

Rural Appraiser Comparables Adjustments Grid

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.

Appraising Rural Property 1004MC Market Adendum

  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.

Willl Austin Home Buyers be Repaying Tax Credits?

Did You Take Advantage of the Home Buyers Tax Credit?

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:


(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:

TIGTA Comparison of the three economic stimulus acts

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