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Are you using the “5 foot rule” when calculating square footage?

July 3, 2012 By Ryan Lundquist 2 Comments

Did you know any portion of a wall below five feet in height is NOT considered to be living area? This is called the “5-foot rule” for calculating square footage, and the image below will help illustrate the rule.

A-frame house square footage rule demonstration - by Sacramento Appraisal Blog

As you can see, both sides of the A-frame unit above are below 5 feet in height, which means the portions outlined in red are NOT considered to be living area. This extra space is best considered “building area” and not “living area” due to ANSI guidelines. This means the appraiser would not include the “building area” as a part of the square footage.

When does the 5-foot rule apply in Sacramento? While we might not have many A-frame houses in the Sacramento area, the 5 foot rule is especially relevant when considering converted attics and second stories in classic neighborhoods like East Sacramento, Curtis Park, Land Park and Midtown. Newly constructed houses usually have 90 degree angles for walls, but that’s not the case in older areas where the upstairs can often look like the images below.

Upstairs 5 foot rule square footage demonstration - by Sacramento Appraisal Blog

Upstairs 5 foot rule square footage demonstration - by Sacramento Appraisal Blog - 2

Why does this matter? There can be a huge square footage discrepancy when the 5 foot rule is not considered. If the GLA (gross living area) is off by 200 square feet, for example, that could make a big difference in value – especially in high dollar neighborhoods where extra space makes a huge difference. Moreover, if you are selling or marketing a home, it’s probably a good idea to advertise the correct GLA so as not to be misleading.

When do you run into needing to use the “5 foot rule”? How have you seen this rule make a difference in price, marketing strategy or value?

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Filed Under: Appraisal Stuff, Photos from the Field, Resources Tagged With: 5 foot rule, A-frame house photo, appraisal service sacramento, appraiser in Sacramento, classic neighborhoods, GLA, Home Appraiser, House Appraiser, how to calculate square footage, photo of attic, photo of second story, slanted ceiling square footage, traditional neighborhood design and square footage

Is Zillow accurate? You be the judge.

June 6, 2012 By Ryan Lundquist 8 Comments

After completing an appraisal recently on Ambassador Drive in Rancho Cordova, I wanted to see what Zillow said about values in the neighborhood (for kicks). While Zillow is sometimes not too far off in typical tract neighborhoods like this, I was very surprised in this case to see Zillow had not given more weight to recent sales prices in MLS to establish their Zestimates. See three examples below with my commentary. I did not appraise any of these properties, but I do know them well since I used them as comps in an appraisal report.

Example 1  –  10703 Ambassador Drive: This property sold at $220,000 on MLS and is really the top sale in the immediate neighborhood. But to its credit it has recent upgrades, a larger than typical square footage and it backs to the American River Parkway. Zillow recognizes the sale in MLS at $220,000, but still assigns a value of $178,000 for their Zestimate, which is 19% less than the MLS sale. For reference, there were six offers on this property in 14 days when priced at $220,000.

Zillow Sale 1 by Sacramento Appraisal Blog

Example 2  –  10625 Ambassador Drive: This renovated property sold at $194,000 in MLS, but Zillow assigns a Zestimate of $160,500, which is 17% less than the sales price in MLS. For reference, there were six offers on this property when priced at $189,800 in only four days of market exposure.

Zillow Sale 2 by Sacramento Appraisal Blog

Example 3  –  10504 Ambassador Drive: This house sold in only 9 days of market exposure and had 9 offers total. This property sold at $187,000 in MLS, which Zillow acknowledges, yet they still assign their Zestimate as $160,500, which is 14% less than the sales price in MLS. For reference, this property sold previously as a bank-owned fixer in the past six months, and was since rehabbed throughout.

Zillow Sale 3 by Sacramento Appraisal Blog

What can we learn from this situation?

  1. A machine can only do so much to value properties. The humans win in this case.
  2. Zillow doesn’t always do so great when the market is segmented like this neighborhood. There is a huge value difference between foreclosures needing fixing and renovated arms-length sales.
  3. Kudos to Zillow for recognizing that there is a difference between sales price and value. While their values are unfortunately way off in this instance, many in the real estate community confuse sales price with value. A sales price may or may not be the same as value.
  4. Real estate markets are complex and not easy to interpret – even for humans. The market has been changing quite a bit over the past few months as inventory has decreased in the Sacramento area. Zillow is not capturing this change for these properties at least.
  5. Find local real estate specialists you can trust. So many people sincerely rely on online valuation websites. “But Zillow says….” is a very frequent response to hear from home owners because they had a level of trust in the accuracy of data found there. I’d simply say to take the online sites with a grain of salt.
  6. Look up Zillow accuracy tables on their website and you be the judge if the margin of error is reliable enough for you. I recommend reading the definition of “median error” at the bottom of the accuracy page.

As an appraiser, I don’t have a beef with Zillow at all, and it’s not my mission in life to get others to not use them either. In fact, one of the things I like about their website is the historic graphs they provide in the data section. This was simply an FYI post for consumers.

What do you think?

If you have any questions or Sacramento area real estate appraisal or property tax appeal needs, contact me by phone 916-595-3735, email, Twitter, subscribe to posts by email or “like” my page on Facebook

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Filed Under: Appraisal Stuff, Internet, Resources Tagged With: analysis of Zillow, appraisal service sacramento, appraiser vs Zillow, Humans vs. Machines, is zillow accurate, is zillow reliable, online appraisals, Rancho Cordova Appraiser, Zestimate vs Appraisal, Zillow 2012, Zillow accuracy

How long can you appeal your “base year” property value if you overpaid?

May 7, 2012 By Ryan Lundquist Leave a Comment

Have you ever overpaid for something? None of us like to admit when we spend too much money on something, but occasionally it happens – whether it’s a hyped-up gadget, hot toy during Christmas or even a piece of real estate.

latte_is_french_postcard from www.zazzle.com

Overpayment Conversations: I get phone calls periodically from property owners who think they overpaid for a house or parcel. After all, purchasing real estate often involves a combination of logic and emotion, and it’s usually the emotion part that drives us to pay too much.

Scenario 1: Most home owners I speak with about overpayment tend to say they overpaid by $5,000 or so to get the deal done. Honestly, even if there was an overpayment of $5,000, that’s an extremely minimal tax savings (about $50) that probably isn’t worth the time to pursue. In truth, don’t waste your time. Moreover, when a sale was on MLS and exposed on the open market for a reasonable time period, and there were other sales at a very similar level, the overpayment argument doesn’t have much support.

Scenario 2: However, there are cases where owners really do overpay by quite a bit. This tends to happen more frequently with unique properties, parcels, custom homes and all cash private sales off MLS that are not subject to an appraisal or strict lending guidelines to evaluate risk. Sometimes buyers and investors will overpay by tens of thousands or even hundreds of thousands of dollars. It happens and there are huge tax consequences too (overpayment).

How long can you appeal your “base year” value? In the case of legitimate overpayment, there can be tax relief for the property owner, but the owner can only appeal the “base year” value within four years of the date of purchase. After four years, there is nothing the owner can do to correct the base year value. In California the “base-year” or “Proposition 13” value is the assessment level the Assessor assigns to a property when it is first purchased. All other years of taxation are “based” on this original assessment, so it’s definitely an important number. For example, if you bought a property for $500,000, and the Assessor determined market value was indeed $500,000 at the time, then your property taxes should not exceed that level in the future beyond an allowable 2% increase for inflation each year. Of course if property values decline, then your property should receive a temporary “Prop 8” assessed value where your assessment is temporarily lowered each year to reflect the current market instead of the $500,000 market in the past when you purchased.

Money leaving your wallet: All things considered, if a property owner overpaid by $100,000 and the Assessor did not catch the overpayment, the property owner would basically be overpaying by $1,000 each year. Imagine doing that for 25 years in a row (that would equal 25-30K in overpayment). That’s why it’s important to act within four years in case there was a significant overpayment. All you would need to do is fill out the proper appeal form and supply support for a lower opinion of value for the base year between July 2 to November 30 of the calendar year (if relevant, this is what I can help you with).

I hope this was helpful. Please let me know if you have any questions, stories or scenarios to share with me (in comments below or feel free to call or email me).

When have you seen people overpay in real estate or retail? Are there are specific retail examples you can think of?

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Filed Under: Property Taxes, Resources Tagged With: appeal base year value, Appeal property taxes, appraier blog, appraisal service sacramento, Home Appraiser in Sacramento, Lower Property Taxes, overpaying in real estate, Prop 13 value, Prop 8 value, property tax tips, Proposition 13 value, Proposition 8 value, Sacramento County Property Taxes, what to do if you overpaid

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First off, thank you for being here. Now let's get into the fine print. The material and information contained on this website is the copyrighted property of Ryan Lundquist and Lundquist Appraisal Company. Content on this website may not be reproduced or republished without prior written permission from Ryan Lundquist.

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