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.

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?

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

It’s usually good to stand out in real estate – but not for odd reasons. Here are some of the fun things I’ve seen during the business day on appraisal inspections. These are probably things to avoid doing to your house.

NFL Driveway: I am a huge sports fan and diehard sports talk radio listener, but spray painting a dozen stencils of your favorite team’s logo on your concrete driveway doesn’t make the neighborhood look good.

Blue Cabinets: Most buyers aren’t looking for blue cabinetry, so if you’re going to do some painting, stick with a color that works well for the resale market. Right now I see most owners painting their cabinets a shade of white or sometimes a darker cherry wood color.

Battle in the Front Yard: This lawn gets points for creativity, but most neighbors probably aren’t hoping to find a battle scene next door.

Car on the Lawn: I understand if there is no room on the street to park a vehicle. However, it does not foster a positive image for the community to park on the lawn in a typical suburban neighborhood. That’s just how it is. If you’re interested in improving a neighborhood experiencing signs of decay, make sure to check out my “Blight Week” series. There is always hope to see neighborhoods improve.

Religious Messages: This one might feel a bit personal and I hope to not cross a professional line, but keep in mind I’m a practicing Christian. Let your actions and words show God’s love – not your garage door. This doesn’t really help a house sell and it doesn’t promote the principle of conformity in real estate either. It’s fine to decorate with religious symbols and slogans during holidays and seasons because that shows pride and helps a neighborhood feel festive, but a permanent message is maybe a bit much.

Custom Air Vent: If you plan to convert the garage, it would be a better idea to not run the vent through the Living Room to get to the garage.

Door to Nowhere: This is a door on the second story of a building with a decent drop to the parking lot below. Maybe the interior has drywall, so the door truly cannot be opened, but generally speaking it’s a good idea to have doorways lead to stairs or balconies. I took this picture on J & 20th in Midtown Sacramento.

I hope you enjoyed the images of some of the fun things I see while doing my job. What do you think? What would you add to the list above?

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

It’s been a frenzy to get offers accepted lately in the Sacramento area since inventory has been so low. While lower inventory is good for sellers to attract offers, it’s frustrating for buyers because it’s not always easy to get into contract right now. This has led to situations with multiple offers – and even offers above asking price.

Do appraisers pay attention to multiple offers and the price level of offers? Generally speaking, in my opinion multiple offers do say something about the way the market perceives a property at a particular price level. This is basic economics – supply, demand and what a pool of buyers are willing to pay. Obviously if buyers are consistently offering over the listing price, and there are no funky concessions built in to the offer, it’s hard not to think that multiple offers at or above asking price doesn’t say something about market value. However, it’s important to realize offers above asking price are not always indicative of the worth of a property or appreciating values for that matter.

Three scenarios where higher offers might not represent market value:

1) “Offer Above” Strategy: Some buyers are offering over asking right now as a strategy to get a contract accepted. After getting beat out of other purchases for weeks or months on end, buyers inevitably get tired and offer more money to secure a contract. I’m not talking about buyers offering higher because of rising values, but rather making an offer at a higher level solely to get into contract. The rationale is that it’ll be easier to enter contract at a higher price level and then deal with a potentially lower appraisal to negotiate the price back to a reasonable amount (market value). I cannot tell you how many times I’ve seen this strategy lately. Some agents I’ve spoken with have even rejected blatantly high offers because they are clearly a desperate attempt to beat everyone else out and get into contract. At the same time, the strategy has also backfired when the appraisal actually comes in at the higher level (that’s another blog post). The irony here is that appraisers sometimes get blamed for a “low appraisal” when the value comes in below the contract price, but with a strategy like this, the appraisal probably should come in below the contract price.

2) Spending Other People’s Money: Financing can definitely influence higher offers. After all, it’s easy to pay more for something when you’re not spending your own money. For example, FHA offers dominate the market right now in Sacramento, and they commonly come in higher than conventional offers because buyers only have to put down 3.5% of their own money. Many times buyers get down payment assistance too, which means they are literally putting zero money down. Additionally, FHA buyers tend to offer higher amounts to justify the seller giving a credit of 3% to the buyer to help cover closing costs. A higher offer like this ends up being a win-win because the seller nets the same amount as an offer without concessions and the buyer gets financial assistance to get the deal done. However, the question we must ask is if the more aggressive nearly 100% financed offers represent market value. For example, if there were 10 offers on a property and the top 3 offers over asking price were all FHA, and cash and conventional offers were at lower levels, it’s worth weighing whether financing has impacted the top three offers or not.

3) Overpaying Happens: Sometimes buyers simply overpay. This happens more frequently with cash buyers when there is no appraisal or lender used - especially when the buyer is from out-of-town or less familiar with the local market. While I’m not a baseball expert by any means, the example of the recent offer to purchase the Los Angeles Dodgers is a striking picture of potentially overpaying, and thereby very relevant for real estate folks to consider. Magic Johnson and a group of businessmen are shelling out two billion dollars for the Dodgers when the previous highest sale of a baseball team was the Cubs for $845 million in 2009. Again, I’m not a baseball analyst or sports team appraiser by any wild stretch of the imagination (I wish), but unless the buyer is seeing something nobody else is, this purchase sounds like it’ll be an outlier comp rather than set the standard for all other future sales. Time will tell though of course. We shall see.

Check out the following two graphs for a greater context on housing inventory in Sacramento County over the past year and the past decade.

The Bottom Line: All things considered, it’s important for appraisers to evaluate each transaction and understand the nature of the sale for the property being appraised as well as the comps. The appraiser will use closed sales and current listings to help establish value, but information pertaining to the number of offers and the price level of offers is also worth consideration because it usually tells us something about the market. However, multiple offers and contracts above listing price are not always an indicator for how the market really views the property because there are definitely other reasons why buyers might offer more than the asking price.

NOTE: This is not to say the market hasn’t been heating up lately. I’m only saying not every multiple offer scenario is indicative of higher values.

Any thoughts? I’d love to hear your comments below.

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

I’ve written before about how to prepare for an appraisal inspection, but I wanted to revisit the topic from the other side today. Here are 10 things NOT to do when the appraiser comes over.

1. Walk around the house in your birthday suit.
2. Let the dogs run loose to lick and bite the appraiser at will.
3. Lock your doors so the appraiser doesn’t have access to each room.
4. Watch ”adult” movies (this actually happened once…. yikes).
5. Let the appraiser surprise sleeping house guests. Rise and shine.
6. Make things as messy as possible.
7. Refuse to discuss any recent updates to your home.
8. Follow the appraiser around as much as possible.
9. Buy lavish gifts in hopes of boosting value.
10. Don’t make a list of recent improvements.

You know I’m only having fun, and I’m pretty sure you can sift through what I’m saying to understand a bit more how to be ready when an appraiser comes to inspect your property. If not, please read “What should you do before the appraiser comes?” If you have any questions, let me know.

Anything you’d add to the list?

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

The Sacramento Business Journal interviewed me about using video in business as a marketing tool. The article published a few days ago and it turned out great. I am very honored to have had the opportunity. In addition to the print story, a reporter and photographer came to my office for a quick video shoot on tips for creating effective videos. The reporter also highlighted local video all-stars Heather Ostrom, Tamara Dorris and Kerry Shearer. In case you missed it, check out the article here and watch the video below (or here). Photo by Dennis McCoy of the SacBiz Journal.

Do you use video in business? Why? Why not?

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

Let’s talk about sliding glass doors for a minute. I wanted to bring up two repair issues I see frequently during FHA appraisal inspections in the Sacramento area. I notice these issues in not only foreclosure sales, but also investor flips. Why does this matter? FHA is very specific about a property needing to meet certain requirements, so having a home in “FHA shape” before it lists on the market will help eliminate re-inspection fees by the appraiser, which effectively removes one more potential delay in closing escrow.

Broken Glass: One of the things you hear constantly about FHA loans is the importance of “health and safety.” So we must ask the question: Could it be a safety issue if there is one pane of glass broken on the sliding glass door with shards of glass sticking out? The answer seems obvious, right? This could be a safety risk for occupants – particularly children. The seller will need to cure the problem by removing the shards altogether or ideally replacing the glass pane. It’s actually easy to miss things like this, so it’s important to look closely at a sliding glass door.

Broken Locks: In addition to a focus on “heath and safety”, the basic concept of meeting FHA minimum requirements is that everything must work as it is designed to work. For example, a window that is supposed to open must open, and a built-in appliance should do what that appliance is designed to do. This means if you have a sliding glass door that is supposed to lock, it should do just that. If the seller is putting a 2×4 in the sliding glass door track to keep the door shut, that’s not okay. In the case below, the lock is missing altogether, so a new working lock will need to be installed before the close of escrow.

I hope this was helpful to answer some of your questions. You can check out other FHA appraisal articles I’ve written including Top 10 Repair Issues for FHA Loans and Do the Appliances Have to be Working for an FHA loan?

Any questions, stories or insight?

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

As a teenager I don’t think I would’ve ever envisionsed me saying this, but I actually like creating graphs based on research I do for my appraisals. I think plotting data visually can often provide a helpful context for clients and users of the appraisal to be able to see or interpret what has happened in the market.

A teepee or mountain graph: As an example, let’s view the past thirteen years of sales in the Northbrook neighborhood in Antelope for a particular single-story model (1943 sq ft). If you’re not familiar with this pocket of housing, it’s a smaller subdivision located west of Watt Avenue and just north of Elverta Road on the eastern side of the golf course. At one time the 1943 model was selling easily above $400,000, but today’s market has seemed to hover between $175,000 to $200,000 over the past year for a standard property without massive upgrades (there was one incredibly updated sale at $225,000 over the past year). I know such a hefty decline is hard to grasp, but values in this neighborhood are not anything out of the ordinary for the Sacramento area since most areas tend to be selling at 2000-2001 levels right now.

What does a graph like this say to you? What do you think it shows?

By the way, I don’t always break down model match sales, but while preparing an appraisal in this neighborhood for the IRS, I thought a graph like this would really help to communicate clearly to my client since there were not too many sales around the date of the death of the owner (which is the date I used to value this property).

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

How does an appraiser value a pool? There’s really no standard dollar figure for a pool’s worth since pools come in all shapes and sizes, but pools are very commonly worth FAR LESS than the cost of installation. In the Sacramento area it’s not uncommon to see appraisers assign a mere $10,000 or so of value for a standard gunite built-in pool.

Why do appraisers give so little value to a pool? It seems silly to think a pool installation at $30,000+ would only yield $10,000 or so in an appraisal, right? Let me explain.

1) Market Interpretation: First of all, the appraiser should not be making a subjective value judgment, but is rather interpreting what the market is saying about what a pool is worth. The appraiser analyzes similar homes with and without pools to see if there is a reaction (price difference) in the market for the pool. For example, if homes with pools in a neighborhood have sold for $290,000 and homes without pools have sold for $280,000, assuming everything else is similar, the pool is worth $10,000.

2) Buyer’s Perspective: If a buyer was looking at two identical homes, but one had a pool and one had no pool, how much extra would a typical buyer pay for the pool? If the pool cost $30,000 for installation, doesn’t it seem unrealistic that the buyer would pay that much extra for the pool? (especially if the house is only worth $150,000). The same principle could be seen with a $30,000 kitchen remodel. While the remodel is very nice, a buyer might only be willing to pay $20,000 extra for that remodel.

3) Overimprovement: Pools are a classic example of an overimprovement because they cost more than the market is willing to pay for them. By the way, for the sake of your Jeopardy knowledge, the fancy real estate word for “overimprovement” is “superadequacy”.

All things considered, keep in mind a pool may be worth more or less depending on the type of pool, quality of construction, climate, neighborhood, season and particular real estate market too. There is no constant dollar figure for appraisers to use from some sort of “Appraiser Pool Cost Manual” because each real estate market is unique and may have a different perspective on a pool. For example, a pool in an active-adult HOA community that already has three pools at the clubhouse might be worth very little or nothing to prospective buyers, while a pool in a first-time buyer neighborhood ripe with families could be worth more. Lastly, while there is a loss in value when considering market value, a pool obviously has a very subjective value in use to the owner that makes the cost worth it.

I hope this has been helpful and given you some insight into how appraisers view built-in pools. Let me know if you have any questions or insight.

Did you have a pool growing up? Do you have one now? What are the positives and negatives of pool ownership?

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

Here are two examples of pools that didn’t make the cut for an FHA loan until repairs were made. The repairs helped show the pool’s equipment was working properly and eliminated a safety issue too. Moral of the story? If you have a pool that is not filled or has green water, make sure the water is clear and pool equipment is working as it should before the appraiser gets out there.

I hope this was helpful. Let me know if you have any questions. I’ve written quite a few FHA appraisal articles in case you wish to learn more about what to expect during the appraisal process in the Sacramento area.

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

I caught up with Sacramento Realtor Chris Little recently and asked him to share a few thoughts on what is going on in the real estate market. In the video interview below (or here) Chris talks about prices, affordability, low inventory and other facets of real estate. Chris knows the market well and he’s been a huge advocate for progress in the Sacramento area too.

Chris Little was appointed to the American River Parkway Advisory Committee in 2007 by the Sacramento County Board of Supervisors, and was also appointed to the 65th Street Redevelopment Advisory Committee in 2008. He received the Civic Affairs Award from the Sacramento Association of Realtors for community service, and he has been a Director through the Sacramento Association of Realtors since 2009 (and he’s the current 2012 President-Elect). I mention these things because community service is extremely important to me, and Chris is a great example. Catch up with Chris Little at 916-698-1961, www.ChrisLittleSells.com or Twitter.

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

I wanted to share some photos of five common FHA condition issues I come across during appraisal inspections. If you see something like this at a property you’re selling or buying, it’ll likely require correction before FHA will guarantee the loan.

Green Pool Water: Yes, this is deemed a health issue. The water shouldn’t be green, right? Besides, if you cannot see the bottom of the pool, you never know if there is damage at the bottom anyway.

Empty Pool: An empty pool might be a skateboarder’s paradise, but it’s an obstacle to obtain financing due to being considered a safety issue. A pool like this one (covered, but empty) typically has to be filled up before the close of escrow. The lender will most likely ask the appraiser to go back out to the property to verify the pool has been filled (not verify whether it is actually working like it should since most appraisers aren’t pool experts).

Paint Cans Hiding in the Crawl Space: There is no rule from FHA saying paint cans cannot be in a crawl space, but when I see something like this, it’s a red flag because chemicals should not have the opportunity to seep into the soil. Since calling out potential health or safety issues is sometimes a subjective decision for the appraiser to make, it’s important to contact HUD on occasion as well as reach out to fellow local appraisers to say, “would you call this out too?” In this case, all that needs to happen is for the containers to be removed from the crawl space. That’s easy enough, right? By the way, regarding the attic and crawl space, a bit of debris is fine, but anything excessive could likely be an issue requiring repair.

Security Bars without Safety Release: If there is no safety release mechanism on a set of security bars, that’s an obvious safety issue that’ll need to be corrected before FHA can guarantee the loan. Usually the bars are removed and then the appraiser will go snap a photo to show the lender the bars were removed.

Dangling Wires: Electrical wires hanging from the ceiling or walls is a big deal since even small wires can cause a huge jolt and be life-threatening too. If you see wires like this in a house heading toward FHA financing, expect to have to solve the problem by installing a new fixture (or doing electrical work if need be).

I hope this was helpful. Let me know if you have any questions. I’ve written quite a few FHA appraisal articles in case you wish to learn more about what to expect during the appraisal process.

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

I met up with Realtor Steve Ostrom today to talk about what’s been happening in the Sacramento real estate market. Steve focuses on Roseville and Rocklin, but he also lists properties all over Sacramento. He sits on the Board of Directors at the California Association of Realtors and he really knows his stuff. Steve and I talked about inventory levels, multiple offers, distressed sales, flippers and more. The main question was, “What’s happening in the real estate market?” Watch or listen to our conversation below (or here) to get a glimpse of how the market has felt lately in the Sacramento area.

What do you think? Have you seen something similar? Why do you think inventory has been down?

By the way, this video marks the debut of my beardless look for 2012. I suppose it’s a resolution of sorts, but I decided it was time for my “distinguished” beard color to go away – at least for this year. Since shaving the gray, not one person has said, “Ryan, you really shouldn’t have done that,” so I know it was the right season to let the razor win. I know you don’t come here to hear about my face, but I just wanted to put this out there publicly so there is some internet accountability in case you see a beard creep back into my life this year.  Anyone make a similar resolution?

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