Andrew Wetzel's Musings

May 22, 2021

The Type of Market and How it Affects Searching for Price

I recently wrote a blog on “Multiple Offers” and how two different agents viewed them.  I want to explore one of their comments further.  One agent said that multiple offers are the result of pricing a property too low.  While I don’t agree, I do feel that there is something to this.  Let me explain.

Suppose an agent is working with a buyer “pre-qualified” and comfortable spending up to $300,000 on a house.  Pick any price.  What “price range” should they search?  I say “range” because no one would search for one specific price.  You can start at a certain number or go up to a certain number.  This is why pricing is different than before we had the Internet.  Agents have to “factor in” what a consumer may be thinking rather than trying to interact with the mindset of an experienced, trained and educated agent.  Let’s start with the minimum first.

For some buyers, such as investors, I do not set a minimum.  They may be open to considering whatever is in their search results and open to driving by or studying what I send them to eliminate houses that do not appeal to them.  Buyers looking for their next home, especially if they are financing the sale, may need to pick a starting point to meet their needs and abilities as well as the requirements of their financing.  Some houses simply need too much work.  How far they look below their “top number” depends.  Sometimes the areas that interest them or the features they include will provide some guidance.  Otherwise, they may evolve into “knowing” that anything below $x is a waste of time.

What about the top end?  They are “pre-qualified” and comfortable spending “up to $300,000” so why wouldn’t that be the number?  This is where it gets tricky.  The market will suggest or dictate what you should do if you want to succeed.  In a buyer’s market, if houses are getting less than full price, you can search higher than their top number.  That does not guarantee success as there may be competition even in “slower” moving markets.  A seller may still want full asking price.

In a seller’s market, when houses are getting more than full price, you may want to search lower than $300,000, expecting to have to raise your offer, if given the chance.  In a hot market every house will not sell so this is not a blanket statement but you may not succeed by offering full price.

The MLS offers data comparing the selling price to the opening and final asking prices.  However, “data integrity” may be lacking if incorrect information is entered, possibly impacting the overall report.  An agent has to look “within the numbers” to see what is really happening with pricing.

A buyer needs to know their financials, including their comfort level, and an agent needs to interpret the market so that they can properly advise their client.  How much to offer is still the buyer’s decision.  In some markets, offering “full price” will get a house “under contract”.  In other markets, the “asking price” is where the bidding starts.  The price is either a ceiling or a floor.  Ultimately, prices have to appeal to buyers, agents and appraisers.   Even cash sales have some parameters.  Sellers set the asking price and buyers determine the value.

That being said, some sellers and their agents purposely underprice a house to expose it to more people in the hope of generating multiple offers.  As I often say,  Real Estate is not retail!

There is no time for inexperience, empty promises or false expectations.

HIRE WISELY:  We are not all the same!

December 5, 2020

2020 Delaware County PA Tax Reassessment Results

The court-ordered Delaware County (PA) reassessment project is nearing its conclusion.  When  completed, the County will have a total value for all of its over 203,000 parcels of Real Estate.  Then they will determine the “millage rate” or tax due per thousand dollars of Real Estate owned needed to generate the tax revenue required to fund the different parts of government including school districts.

I served on 1 of 5 auxiliary tax reassessment appeal boards and have reported on various aspects of my experiences including the purpose of the process and suggestions on how to appeal your proposed assessment.  The purpose of this report is to provide an overview of my board’s results.  I have no way of knowing how these compare to the other boards nor do I know what happened after my board rendered its decisions.  Those whose appeals were rejected had a final opportunity to appeal our decision.  Some may have accepted our decision or decided to wait to see what happens to their taxes.  Perhaps some whose appeals were accepted decided to appeal further, seeking an additional reduction.

As far as my experience, our board remained intact for 26 days of hearings, we were scheduled to hear 1389 appeals, 329 appellants did not report for their hearing (23.7%), 59 appeals were withdrawn after being scheduled, 13 scheduled appeals were re-scheduled and we actually heard 988 appeals (71.1% of those scheduled).  493 (49.9%) of the appeals were done virtually, meaning over the phone.  18 of the appeals resulted in our not making a decision due to their complexity so we referred them to the Board of Assessment.  Few appellants used attorneys.  In a number of cases, both in-person and virtually, a school district sent an attorney to observe or listen.

In a number of our hearings it was a school district appealing the proposed assessed values, seeking to raise them which, while perhaps adversely affecting individual property owners, spread the school tax burden more uniformly.  Only a few property owners appeared to refute their school district’s argument and some of them were able to retain the County’s proposed assessment.

A significant number of appeals were accepted.  The people who came prepared, generally succeeded.  The best preparation consisted of one of two strategies:  appraisals, if based on the July 2019 time frame, substantiated the contention that the proposed assessed value overstated “market value” and pictures demonstrated that the County had an incorrect view of property condition, especially when the interior of the property was in “below average” condition since the process relied on exterior views.  Unfortunately, for a variety of reasons, too many came to their hearing unprepared to document their case, with many assuming that the new assessment would proportionately increase their tax burden.

While a few questioned the “constitutionality” and/ or purpose of the project, many seemed unaware of the basic information that had been provided by the County.  Board members are County residents so we got the same information as the appellants.  The County and the media provided a lot of information about the process as well.  Admittedly, I realize that different people interpreted the information differently but I do not know why so many did not realize that they had the burden of proving the new value incorrect, coming to the hearing expecting us to make a change based solely on what they told us.  It did appear that some of the confusion lessened as the project progressed which suggests that people heard from others who had already had their appeal.  At the very least, there was one final appeal after our involvement.

I had an opportunity to discuss how one school district’s appraiser arrived at their value and proved something that I raised with several property owners.  As I have reported before, a number of property owners attempted to appeal their proposed assessment by using an argument based on “price per square foot” which we generally denied as not being an “apples to apples” comparison of supposedly similar properties.  The school district appraiser I mentioned used that as a method to complete his assignment.  He stated that he had not visited any of the properties in question, that he relied on public records for lot size and living space and that he reduced his comparables to a “price per square foot” to arrive at what he thought was a “fair market value” for the properties in dispute.  Please keep in mind that the property owners will get a chance to refute his argument and I am not sure why so many did not attend what they were apparently advised was a hearing to raise their assessed values and therefor their tax burden.

I asked the appraiser directly about using “price per square foot”, specifically suggesting that it did not account for different “property conditions” that might influence a prospective buyer.  He agreed that it (and therefore, he) did not factor property condition into his conclusion.  A lender’s appraiser or one hired by a homeowner would have entered and viewed the “subject property” although the current pandemic has apparently resulted in some “drive-by” appraisals.  As far as the reassessment project itself, it was physically impossible for the process to include in-person visits.

Overall, I found this an interesting process and came away with several thoughts to share.

  1. While using “market value” as a way to levy taxes makes sense, there is no perfect way to analyze and categorize over 203,000 parcels of Real Estate given their having different layouts,  locations and uses.  Even if in-person visits were used, we have different opinions and there would be too much subjectivity.  Numbers are objective and provable although predicting a future buyer’s behavior is impossible;
  2. The process used to arrive as a basic assessment makes sense and, given that the property owners were provided with information to dispute as far as what the County had on record for their property and their proposed assessment/ valuation, I am not sure what else could have been done.  Many owners never reported errors until the hearing and many did not show up or canceled their hearing for whatever reason.  Owners can appeal their taxes every year and many may decide to do that next year if they are not happy with their tax rates in 2021;
  3. The process relied on the last assessment and employed a variety of tools to compare the current property to what was “known” during the last assessment in 1999/ 2000.  I believe that many properties likely remain under-assessed for a variety of reasons and do not know how to remedy that.  Computer algorithms can only do so much.  If improvements are made without “permits”, errors will occur.  Vacant land presented issues.  We had about 50 lots whose assessments were questioned but the amount in question was usually significant.  The technology used “assumed” that most of the lots were “buildable” and considered them “primary” space, assessing them as such.  However, if it was proven or obvious that land was unbuildable, we reduced its assessment.

We also saw a number of interesting anomalies that defied the algorithm.  We saw instances where a property owner owned two adjoining parcels with one being a vacant lot.  In one case there was a house that sat partially on both parcels which the system picked up as two parcels with structures on both.  The owner said he received tax bills for both parcels but that he was not over-taxed.  The reassessment could have created an issue.  We also saw cases where a property owner essentially rendered their “extra lot” unsaleable and wanted the lot’s assessment lowered even though it was their action, unintentional as it was, that essentially rendered the lot unsaleable.  In one case an owner installed a driveway on an adjoining lot to access their residence which was situated on the adjoining parcel.  In another, a property owner installed a patio enclosure that ended at the boundary between the two parcels in conflict with a “set back” requirement that would have affected both properties had they been separately developed.  When an owner owns an adjoining lot, you have to ask why they bought it.  While it may be too small to build on or have some other defect that renders it unbuildable, it does add value to their residence, even if only for privacy, so the issue is not as clear cut as some might want to suggest.

All in all, while I found this process interesting, I have to admit that I was not prepared for many of the sad stories we heard, largely centered on whether property owners could afford to remain owners after their taxes were raised.  As I mentioned earlier, many assumed that their taxes would rise in proportion to the change in their assessed values.  It was very typical to see an assessed value double simply due to the change in “target dates” between reassessments.  Regardless, it is always sad whenever a property owner fears losing their home, especially when their concerns may be unfounded.

Reassessments are rare so I wonder how long it will be before the next one.  How many of the people we met will be asked to go through the process again?  Hopefully, we prepared them for a final appeal.  The purpose of reassessment boils down to fairness and uniformity:  property taxes should be objectively levied based on relative property value and not any subjectivity.  The County is not allowed to see a windfall as a result of the process but the tax burden will be reallocated with some seeing a reduction, some seeing an increase and some remaining consistent.  I wonder how many bought or are in the process of buying without having any idea what their taxes may be let alone knowing that the County has even been undergoing a reassessment.  My personal experience with prospective sellers and buyers proves this.

Regardless of how their hearings turned out, my board attempted to make sure that everyone understood the origin of the reassessment, meaning that it was court-ordered, that they knew that the goal was to assess everyone based on the July 2019 “fair market value” of what they owned to ensure that their tax burden was “fair and uniform” and that there was another appeal if they disagreed with our decision.  We also explained what we were looking for in terms of proof that the County number was incorrect.  While some were disappointed and blamed others for their not understanding the purpose of the process or their hearing, many did seem to appreciate our explanations and thanked us for taking the time to help them better understand the overall process.

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