Tax Assessed Value as Yellow (or Red) Flag

List Price = $800k, Tax Value = $400k

As I've written previously, a home's tax assessed value isn't particularly relevant for establishing a home's actual, what-will-it-sell-for market value.

Rather, fair market value is determined by: a) scrutinizing the comp's, or comparable sold properties, to set a list price; then b) testing it on the market.

While in theory the tax value should approximate market value, there are all kinds of reasons why they can diverge.

So why do Realtors still consult the tax assessed value?

Speaking for myself, I always check to see if the assessed value appears too low.

Especially if the home hasn't sold recently, that can be a sign that major remodeling was performed without the requisite permits.

If the home has sold recently, it's possible that the appropriate permits were pulled, but that the new tax assessed value simply hasn't caught up yet.

"Rehab Novices"

Why Such a Big Discount For

Big Homes Needing Updating?

Want a novel -- but not at all far-fetched -- (additional) explanation for why so many nicer, bigger homes are facing significant discounts in today's market, especially ones that need significant updating?

Keep reading.

Far and away, there are three big reasons why such homes -- let's just say 4 or 5 Bedrooms, 3-4 Baths, with 3,500 to 4,500 finished square feet, in a nice part of town -- are proving tougher to sell. (Note: the price tag for such a home could be anywhere from $600k-$800k (or more) locally, depending on the particulars).

One. The economy. A rough economy shrinks the number of people who can swing a $5,000 monthly mortgage payment, $10k or so in annual property taxes, and the upkeep on a bigger home.

Oh, and since Buyers of such homes typically need a jumbo mortgage, they'll need to put down $50k or $100k instead of a fraction of that amount needed to buy a home under $500k.

Two. Demographics.

The Baby Boom generation now retiring/downsizing is being followed by a smaller generation with fewer, smaller families.

Ergo, demand is less than supply.

Three. Remodeling costs. You can finance a home purchase with a still-cheap 5%-plus mortgage.

Remodeling costs are typically straight out-of-pocket (remember that little Recession we were just in?).

Rehab Novices

That's probably all the explanation needed to explain why bigger, dated homes are taking longer to sell.

But I think there's actually a fourth reason that goes with the other three.

Namely, the resulting "market compression" makes rehab/updating projects especially daunting for the people who would naturally undertake them.

Here's the logic:

Because of the peculiarities of today's market, it's not unusual to see a completely updated, mint condition home with around 2,500 square feet fetch $500k or more, depending on where it's located.

Meanwhile, some 4,000 square foot-plus homes can be had -- especially if they need significant updating -- for $600k to $700k.

What happens when someone who's outgrown their (otherwise perfect) 2,500 square foot home looks at a 4,500 square foot home that needs "everything?"

It looks overwhelming.

That's especially the case if the biggest remodeling project they've tackled previously is a new bathroom.

Ironically, this "feedback loop" results in bigger homes sitting on the market, which results in discounting, which makes them affordable (at least on paper) to more Buyers moving up from smaller homes . . . who find a big project daunting.

No, I can't prove the foregoing -- but my gut (and my Buyer clients) tells me there's something to it . . .

Contractor Etiquette

Good vs. Not So Good Contractors

[Editor's Note: see "Giving Good Invoice" for an update to this post.]

In my various capacities as a Realtor, remodeler/rehabber, homeowner, and neighbor, I've witnessed a wide range of contractor etiquette.

At one extreme, there are contractors who show up late, leave early, and seem to spend the time in between listening to inappropriate --and very LOUD -- music. At best, their work (and prices) are so-so . . and they leave your home a mess.

At the other extreme, there are contractors who are consummate professionals from start to finish. They do excellent work at a fair price, start and finish the job on time, etc. After they're done, you'd never even know they were there, but for the completed project.

At least so far, you'd guess my neighbor's new contractor -- who I've independently heard good things about -- is in the latter camp.

I knew my neighbors were bumping out their Kitchen, because I'd shown them a few homes last Fall when they were in "buy or remodel" mode.

Still, I was pleasantly surprised to receive a "heads up" letter of introduction -- complete with ear plugs(!) -- from the contractor last week.

The letter, addressed to the immediate neighborhood, explained that the contractor's employees would be working on the block the next few months, and would do their best to minimize the disruption, debris, etc. If there were any issues or problems, we were invited to call the project manager.

It may just be smart PR with an ulterior motive (getting more business) . . . but it's pretty effective PR.

I'm sure my neighbor will let us know in a few months if the positive first impression was warranted.