Saturday, June 7, 2008
A hidden housing mess: overpriced homes
We've all heard about "mortgage crisis" this and "credit crunch" that, and it's all blamed on evil speculating lenders who bamboozled hopeful home buyers with deceptive mortgage terms.
Yes, sleazy lenders are to blame. So are stupid home buyers. But I've yet to hear anything about how overblown home prices may have also contributed to the dashing of American dreams.
What's perplexing is that towns and assessment companies perpetuate this ridiculous cycle of inflation under a clever guise of legality.
Let me give you an example.
A friend of mine bought a house last year in our hometown. I'm going to adjust the prices here to protect privacy, but the math will be the same. The original sale price of the home was $300,000. After a price reduction or two, it sold to my friend for $270,000.
Then, the official assessment came from the town. Lo and behold, the home carried a taxable value of $300,000. Now why would anyone want to kick in taxes on an additional $30,000 they didn't even pay? At first, the assessor wouldn't budge. Then, my friend took the assessment to court - and won.
The assessor later apologized for his "error" and informed my friend that it would be corrected immediately.
This scenario brings to light what I view to be a very deceptive practice in towns that take part in "rolling assessments," or property assessments conducted annually.
In the state of New York where I live, towns are "required" to have an equalization rate of 100 percent. (Equalization rates, by the way, compare a home's assessment to it's market value. The lower your town's equalization rates, the more your town's properties don't match up to fair market value). This is to ensure fairness of taxes and fairness of sale price.
But here's how "fair market value" can quickly become unfair: when I was still a fledgling reporter, I did a story on "transplants" - or downstate residents and New York City folk who move upstate to escape the bustling city and its ridiculous home prices. These people are used to paying big bucks for a house, so when they come up here, a super-nice house on a super-nice piece of property still sells for hundreds of thousands of dollars less than what their homes in the city will sell for. What a bargain!
So much of a bargain, in fact, that many will make offers on homes that well exceed the asking price - because they can. One of my future in-laws used to live in Brooklyn. One day, somebody knocked on his door and offered to buy his home. He said no. Then the guy said, "I'll give you double your asking price." SOLD! They took their equity and paid cash for a sprawling $400,000 property in the Hudson River valley. No haggling, no negotiating, no nothing.
Who's to say that property was worth $400,000? Was it assessed properly? Or did they just go by what some guy was willing to pay?
Which brings up the other issue. Towns - particularly those that perform rolling assessments, simply don't have the time, energy or manpower to go to each and every property and REALLY assess it. They try, but often fail. A true assessment should involve a full walk through both the outdoor and indoor aspects of the property. Instead, most assessment companies hired by towns perform "drive-by shootings" - that is, pulling up in front of your house, snapping a picture from the car, and driving away.
How can one capture a true, fair and balanced property assessment within the confines of a digital picture window?
You can't. Which is why that extra $100,000 some big shot offered you for your home will often automatically get tacked on to your property's value - regardless of whether or not it's worth such an increase. Awesome for you, not so awesome for whoever gets suckered into buying your home.
There's a legal term for this practice of assessing houses based on their sale value: it's called "welcome stranger." Technically, it's illegal, but as you might have guessed from my friend's situation, versions of it happen every day.
Don't get me wrong. Assessors really do try. But how can one person possibly get it right all the time, every time?
So be diligent and check your property's value on your town's assessment rolls - especially if they perform assessments annually. This information is available to the public in your town assessor's office. If you're not happy with your assessment, challenge it. Make them come to your home and take a tour. Ensure that fair market value stays fair. Because you wouldn't want to be the guy paying more than you have to either.