Appraisal Problems and Tax Valuations

One of barriers to any recovery in the upper end housing market is appraisals. I’m sure we all know people who have war stories to tell about low appraisals on their houses – for sales or refinancing purposes. This is mostly prevalent in the higher priced neighborhoods because so few houses have been sold, and of those, a large percentage are due to distress situations.

I recently learned of a former client who had their house appraised for refinancing reasons. The house apraised for 80% of the 2003 tax value, which was already less that what the owner had in the house when it was built in 2002. I’m sure this was very discouraging. The longer the inactivity in this segment of the market continues the worse it gets for appraisers.

Another obstacle to obtaining a fair market value appraisal in this market is the fact that most of the houses being built in this price range ($700K+) are being built on lots owned by the client, instead of the builder. As a consequence, there is never a formal purchase of the completed house that would ordinarily show up in the public records at the Registrar of Deeds office. These transfers are the primary comparable sales used by appraisers when valuing a similar home. Therefore, it is up to us (builders and homeowners) to educate appraisers about recently built homes in our neighborhods that used this structure. If we can produce verifiable paperwork to confirm values, then appraisers are able to utilize these houses as comparable sales.

Likewise, if you know of sales in your neighborhood that may be a result of a distress situation (short sale, foreclosure, financial hardship for the owner, transfer to another city, etc.) it is incumbent upon you to notify the appraiser so that he does not use that sale as a comparable, because it may not reflect a true fair market value.

We will be receiving updated property tax values for our homes and lots within the next 30 days. Undoubtedly, this will provide many of us with opportunities to contest these values. On one hand, we may want to see as high a figure as possible because it makes us feel like our property has not lost as much value as we thought. On the other hand, no one wants to pay more tax than absolutely necessary. Remember, we only have 30 days after receiving the new tax value to appeal the valuation. I expect the tax office will be overwhelmed this year with appeals.

That is both a bad thing and a potentially good thing. The negative is that it may take quite a while to receive a response. The positive is that the assessors may not spend as much time scrutinizing your appeal if it appears that your have done your homework and can present a well reasoned case for your proposed reduction in value. If you need help appealing your tax value, please let me know. I spend a great deal of time on the county tax web site (Polaris) and can help you find comparable values to help support your case.

On a positive note, I have experienced a definite uptick in traffic and inquiries over the past 2 months. People are out looking for lots and are trying to see if there is a way to build a house before the interest rates begin to rise further. This pent up demand is cause for cautious optimism. Other builders have shared similar observations. Although most of these prospects are very value conscious (looking for lower priced houses in higher priced communities), they are, nonetheless, very real candidates that need housing sooner, rather than later.