At first glance, Harford County residential building permits appear to have gone up considerably over 2012. There were 590 new permits issued in 2013 and 457 in 2012, a 29 percent increase. However, out of the 590 new permits, 188 were for apartment units, thus leaving 402 new permits for single family detached and townhouse units. This is 12 percent less than the 457 single-family detached and townhouse permits issued in 2012.
To put these numbers in perspective, Harford County went nearly 20 years in a row with building permits over 1,500. In the late 1980’s and early 1990’s, Harford County actually averaged well over 2,000 building permits per year. It was one of the fastest growing counties in the United States. 2006 was the first year of the major decline seeing 740 permits only to bottom out at 355 in 2011. To be fair, these numbers do not count any permits issued in the incorporated towns of Bel Air, Aberdeen, and Havre De Grace.
So why are these numbers so anemic? I have a few ideas:
1) The end of the housing boom. Anyone with any experience during those days new that it wouldn’t and couldn’t last forever. It was unsustainable. Easy money and speculators are not good future indicators.
2) The slowing of the emigration from Baltimore City. Much of our population growth came from folks leaving Baltimore City seeking the suburban life with better schools and lower crime. Harford County’s population was growing 3,000 to 6,000 people every year. The past five years, according to US Census statistics, we averaged approximately 1,300 per year. The student enrollment has been stagnant. Give or take a few hundred every year, it is even down from its peak in 2002. The board of ed’s own projections do not foresee any substantial growth in enrollment.
3) Harford County lost its price advantage. For many years, residential land was relatively cheap compared to other suburban counties including Baltimore County. Over the years, the price gap has closed considerably. With gasoline prices more than doubling over the past several years, home buyers start factoring in the cost to commute to work. This has especially impacted the more rural properties.
4) There is an overall economic malaise. Although Harford County is holding its own and has considerable positive economic impact from the BRAC, national trends are not giving much hope for a growing economy. Increased taxes and burdensome regulations are like a wet blanket on the economy. Many are losing their jobs or threatened by job loss. It’s difficult to sign a mortgage for 30 years when you are unsure about the future.
So what does this all mean? I believe Harford County has transitioned into a more mature cycle. Supply and demand have reached a stable equilibrium point. People are still buying and selling for various reasons, but there probably will not be that huge influx of people from outside Harford County which tends to increase demand and subsequently housing prices. This is the new reality for Harford County. At least for now, we have to recognize these facts and proceed accordingly.
Every year, the National Association of Realtors in conjunction with Remodeling Magazine publishes a list of various home improvements and the percentage of value they add. Every year it becomes increasingly frustrating to see NAR roll out the same nonsense with local and major media, not to mention real estate professionals quoting it like mindless automatons. Although the NAR survey has thousands of respondents comprised of appraisers, agents and brokers, with methods that give the appearance of being scientific, the results are unreliable and inconsistent. It’s not that they are trying to be misleading. It’s just that everyone is looking for a “ballpark” figure or a “rule of thumb” and they simply don’t exist. For instance, the survey in the past may indicate that a basic bathroom remodel in Baltimore supposedly yielded a 77 percent return on cost, but in Philadelphia the same project would only garner a 64 percent return and in L.A. 92 percent. The survey is riddled with similar wacky results leading any critically thinking person to question their reliability.
Perhaps the most common questions homeowners have before committing to a major renovation or remodeling job are: “What can I do to increase the value of my house? Will this project increase the value of my house? “Should I do this project?” Unfortunately, the NAR survey serves to confuse and perpetuate the same myths about remodeling every single year. The true answer to the aforementioned questions is simply, “It depends.” Everyone is looking for a one-size-fits-all answer, but it really comes down to each individual’s situation. One’s decision to remodel depends on location, market segment, current property condition, and timing.
There are many projects that will increase the value of your home. Unfortunately, there are few things you can do to your house that will increase the value greater than the cost. If needed, fresh paint, new carpet and general clean up almost always give the greatest return relative to the cost of doing the project. However, what about a room addition, a new kitchen/bath, finished basement, or deck/patio? Once again, it depends.
Suppose you are considering a major renovation or addition. You need to answer some questions. What does the market expect from a house in this particular neighborhood or market area? Is it in an area where buyers expect high quality materials or does the area require something a little less ostentatious? If you are a real estate agent, you need to know buyer expectations. A first time home buyer will be less demanding than a move up buyer or the dream home buyer.
You also have to consider the current condition of the existing improvements. Your old kitchen may be a little dated, but does it still function? If it still has some remaining economic value, renovation may be premature. An extreme example will help make the point. Suppose you have a new house and you immediately “gut” the kitchen and install a brand new $40,000 kitchen. Would the value of your house increase by $40,000? Clearly, the value would not increase because the original kitchen met current standards and had not physically or functionally depreciated. Now, if the kitchen was 30 years old and did not meet market expectations and it has fully depreciated, a new kitchen is warranted. The tougher question comes when the kitchen is between 15 and 20 years old. At this point you have to consider how long you plan on staying in the home.
Your time horizon is an important part of the decision making process. Are you the type who gets transferred every couple of years? If you move on a regular basis because of your career, you have to be circumspect before committing to major renovations. Investing tens of thousands of dollars in a possible over-improvement and then immediately having to sell would be a big mistake. Rapid appreciation such as we experienced over the past few years when values were rising 15 to 20 percent annually can usually erase any mistake, but if you are in a more normal market (like what we are in presently) you need to be more prudent. If you plan on staying for a long time (at least five to ten years), your decision is much easier.
Simply put, within reason, do what you want. Remember that real estate is just as much shelter as it is an investment. You should enjoy your home, but don’t be foolish either.
Dominic C. Corson has been a real estate appraiser specializing in residential properties for nearly 30 years.
It's that time of year when many of you receive your tax assessments. You have to answer a few questions: Is the assessment in line with market value, if not, How big is the discrepancy? and Is it worth appealing at all? Then, you have to figure out which process to take.
1) Is the assessment in line with market value? If you fee there may be a question, consult with your favorite real estate agent first. They would likely be able to give you a rough idea if there is a discrepancy.
2) How big is the discrepancy? The only way to know for sure is to have an agent perform a CMA, Competitive Market Analysis. Depending on the agent and your relationship with them, they may do it for free or a nominal charge. If the discrepancy is small, it's probably not worth paying for an appraisal which will cost approximately $400.
3) Is it worth appealing? If you find that there may be a large discrepancy after consulting with your agent or if you have done your own research, then it may be time to bring in an appraiser. At this point, you need to do the math. You need to figure out if the potential revised assessment will result in a low enough tax bill that it would pay for the appraisal. There is no guarantee the assessor will amend the assessment which means you may have to escalate to the next level of appeal.
The Tax Appeal Process
There is a three level process for appealing your property taxes in the State of Maryland. Below is from the state's website which clearly lays out the steps necessary. Please pay attention to the instructions on how to and how NOT to appeal your taxes. If come in with a bad attitude, you may hit a brick wall. Give the assessor a chance to "save face." Remember, they are estimating the values of thousands of properties. They are not going to get them all correct. Be respectful and make a reasoned appeal. Have your facts straight. I have helped a number of clients with the appeal process. An appraisal can go a long way in making your case for you. If you need an appraisal or just have questions on how or if you should proceed, contact at dom@corsonresidential.com Good Luck!
Property owners sometimes feel that the department's estimate of their property value is wrong. The assessment appeal process is available to allow property owners the opportunity to dispute the value determined by the department. Property values rise and fall to reflect the market. A property owner should file an appeal when they believe that their property is not valued at its current market value. Appeals may be filed on three occasions: upon receipt of an assessment notice; by a petition for review; and upon purchase of property between January 1 and June 30. APPEAL ON REASSESSMENT Property owners will normally receive a Notice of Assessment every three years that shows the old market value as well as the new market value. The new value reflects the market influence and other conditions affecting the property from the time of the last assessment. If you decide to appeal, the first step is to reply to the Notice of Assessment by signing and returning the appeal form within 45 days of the date of the notice. Following this, a personal or telephone hearing will be scheduled. Appeals can also be made in writing, eliminating the need for a hearing. PETITION FOR REVIEW You may file a petition for review by January 1 in the two years your property is not valued when events have occurred since your last regular assessment that you believe have caused your property value to decline. If you fail to respond to the Notice of Assessment within the required time frame, you may file a petition for review by January 1 for the following year. Click here to obtain a Petition form. The completed form should be mailed to your local assessment office. After filing the petition, you will be scheduled for a hearing, or, if you prefer, your written submission can be reviewed eliminating the need for a hearing. APPEAL UPON PURCHASE If you purchase a property and the property is transferred after January 1 but before July 1, you may file an appeal within 60 days of the transfer. After filing a written appeal, you will be scheduled for a hearing; or, if you prefer, your written appeal can be reviewed instead of having a hearing. FIRST STEP - SUPERVISOR'S LEVEL The first level of the appeal process, known as the Supervisor's level, is informal. You will present your case to an assessor designated by the Supervisor of Assessments. Typically, hearings at this level take approximately 15 minutes. You can obtain a copy of the worksheet for the property free of charge from your local assessment office. The information on the worksheet will be reviewed at the time of the hearing to assure its accuracy. For assistance in estimating the value of your property, you can obtain sales data from various sources, including: sales listings located in the local assessment office; commercially available sales reports and other information available at local libraries; local Real Estate offices; personal surveys of recently sold comparable properties in the area; and local listings of sales transactions in the newspaper. For a nominal fee, worksheets of comparable properties may be obtained from the assessment office. To be most effective, you should: Focus on those points that affect the value of your property. Indicate why the Total New Market Value does not reflect the market value of the property. Identify any mathematical errors on the worksheet or inaccurate information describing the characteristics of the property (such as the number of bathrooms, fireplaces, etc.). Provide examples of sales of comparable properties which support your findings as to the value of the property. Avoid the following issues since they are not relevant to the value under appeal: comparison to past values, percent of increase, additional metropolitan costs, the amount of the tax bill, properties in other taxing jurisdictions, and services rendered or not rendered. Your first level hearing should be viewed as an opportunity to present evidence which would indicate that the department's value of the property is inaccurate. SECOND STEP - PROPERTY TAX ASSESSMENT APPEAL BOARD Following the hearing, you will receive a final notice. If you disagree with the decision, you can appeal to the next step which is to theProperty Tax Assessment Appeal Board. The second step appeal must be filed within 30 days from the date of the final notice from the Supervisor of Assessments. There is an independent appeal board comprised of 3 local residents in each of the counties and Baltimore City. Property owners generally need no assistance at this step, no fees are required, and they are free to present any supporting evidence. You can obtain a list of the comparable properties that will be used by the assessment office before the Board if you file a written request to the assessment office at least 15 days before the scheduled date of the hearing. THIRD STEP - MARYLAND TAX COURT If you are dissatisfied with the decision made by the Appeal Board, you can file an appeal within 30 days of the date of the board's decision to the Maryland Tax Court. The Maryland Tax Court is an independent body appointed by the Governor. Although the proceedings are more formal than the first 2 levels, it is still considered to be an informal, administrative hearing. Property owners who are in disagreement with the Tax Court's decision can appeal further through the regular judiciary system. Here you will probably need legal counsel. RECAP The assessment appeal process is a mechanism intended to assure an accurate property valuation. If you believe that the value placed upon your property is higher than it should be and if you can provide supporting evidence (such as sales information for properties comparable to your own), then it is in your best interest to appeal.
Property owners sometimes feel that the department's estimate of their property value is wrong. The assessment appeal process is available to allow property owners the opportunity to dispute the value determined by the department. Property values rise and fall to reflect the market. A property owner should file an appeal when they believe that their property is not valued at its current market value.
Appeals may be filed on three occasions:
Property owners will normally receive a Notice of Assessment every three years that shows the old market value as well as the new market value. The new value reflects the market influence and other conditions affecting the property from the time of the last assessment.
If you decide to appeal, the first step is to reply to the Notice of Assessment by signing and returning the appeal form within 45 days of the date of the notice. Following this, a personal or telephone hearing will be scheduled. Appeals can also be made in writing, eliminating the need for a hearing.
You may file a petition for review by January 1 in the two years your property is not valued when events have occurred since your last regular assessment that you believe have caused your property value to decline. If you fail to respond to the Notice of Assessment within the required time frame, you may file a petition for review by January 1 for the following year. Click here to obtain a Petition form. The completed form should be mailed to your local assessment office. After filing the petition, you will be scheduled for a hearing, or, if you prefer, your written submission can be reviewed eliminating the need for a hearing.
If you purchase a property and the property is transferred after January 1 but before July 1, you may file an appeal within 60 days of the transfer. After filing a written appeal, you will be scheduled for a hearing; or, if you prefer, your written appeal can be reviewed instead of having a hearing.
The first level of the appeal process, known as the Supervisor's level, is informal. You will present your case to an assessor designated by the Supervisor of Assessments. Typically, hearings at this level take approximately 15 minutes.
You can obtain a copy of the worksheet for the property free of charge from your local assessment office. The information on the worksheet will be reviewed at the time of the hearing to assure its accuracy.
For assistance in estimating the value of your property, you can obtain sales data from various sources, including: sales listings located in the local assessment office; commercially available sales reports and other information available at local libraries; local Real Estate offices; personal surveys of recently sold comparable properties in the area; and local listings of sales transactions in the newspaper. For a nominal fee, worksheets of comparable properties may be obtained from the assessment office.
To be most effective, you should:
Your first level hearing should be viewed as an opportunity to present evidence which would indicate that the department's value of the property is inaccurate.
Following the hearing, you will receive a final notice. If you disagree with the decision, you can appeal to the next step which is to theProperty Tax Assessment Appeal Board. The second step appeal must be filed within 30 days from the date of the final notice from the Supervisor of Assessments.
There is an independent appeal board comprised of 3 local residents in each of the counties and Baltimore City. Property owners generally need no assistance at this step, no fees are required, and they are free to present any supporting evidence. You can obtain a list of the comparable properties that will be used by the assessment office before the Board if you file a written request to the assessment office at least 15 days before the scheduled date of the hearing.
If you are dissatisfied with the decision made by the Appeal Board, you can file an appeal within 30 days of the date of the board's decision to the Maryland Tax Court. The Maryland Tax Court is an independent body appointed by the Governor. Although the proceedings are more formal than the first 2 levels, it is still considered to be an informal, administrative hearing. Property owners who are in disagreement with the Tax Court's decision can appeal further through the regular judiciary system. Here you will probably need legal counsel.
The assessment appeal process is a mechanism intended to assure an accurate property valuation. If you believe that the value placed upon your property is higher than it should be and if you can provide supporting evidence (such as sales information for properties comparable to your own), then it is in your best interest to appeal.
I receive calls on a nearly daily basis from real estate agents who are having difficulty estimating a reasonable listing price. These calls are usually from very seasoned veterans, not the rookies. I think the newbies don’t know what they don’t know and the successful agents know their limitations. I’ve been in the appraisal business for 28 years and have performed over 10,000 appraisals. To this day, I am challenged by this market so please don’t feel bad when you are stumped. I hope I can give you some pointers which will help in the comp selection which should point you in the right direction.
Time of Sale
You want to use the most current sales available. In this changing market, using old sales can be dangerous and not truly indicative of the current market conditions.
Location
Perhaps the biggest influence on value is location. You want to start with the subject’s subdivision. If there is nothing there, move on to comparable subdivisions. If that doesn’t work, use comps from the same marketing area. The same marketing area could be same school district, same side of town. Just ask yourself, if I were to take buyers on a tour of houses to consider, would these houses fit into their parameters.
Quality of Construction/Style
Use houses which are similar in quality of construction and style. Don’t compare stick built to modular or manufactured houses. Don’t use colonials if the subject is a rancher. If you are working on a cape cod and you don’t have any comps, a two story or a rancher will suffice because it has the functional utility of either. You can use split foyer/split levels as comps for ranchers if no ranchers are available or if they are in the same subdivision or recent sales or both.
Age/Condition
Use comps with similar upgrades or lack thereof. If your subject is a fixer-upper, don’t use renovated houses and try to estimate the value of the condition. Compare to houses of similar condition.
Lot Size
This always throws agents off. The value of excess land is a lot less than homeowners believe. Use comps with similar acreage.
Should I use foreclosures/short sales?
It depends. You have to analyze the market and determine if they are predominant. If there are just a couple of sales sprinkled here and there, you probably can dismiss those as outliers and just use standard arm’s length transactions. There are some areas where most of the comps are distress sales. In that case, that is the market and they should be used as comps.
Are pending sales and active listings helpful?
Absolutely! Pending sales are a great way to measure the current market conditions. Active listings are excellent for identifying your direct competition. They set the upper end of the price range for your subject. You don’t want to be priced greater that comparable listings.
Other things to consider
Exposure time- How long does it typically take to sell a house in the subject’s sub-market based on past sales data?
Marketing time- How long will it take to sell the subject considering past history as well as number of competing listings, time of year, mortgage rate trends, etc?
List Price/Sale Price Ratio-How much less than asking price do sellers generally yield?
There are other things one can do to fine tune the value estimate, but following a few simple guidelines will go a long way towards reaching a reasonable listing price.
I think I may have gotten your attention in my last blog. Good! We need to look at the world as it is. We can’t buy the spin coming from politicians and, yes, leaders from our own industry. Please consider the facts, particularly demographic trends in our county. There is no empirical data that suggests that we are headed for something anywhere close to a recovery. Perhaps we need to define “recovery.” Is it actual sales volume/number of transactions or is it values? It would be misleading to suggest sales volume if most of your transactions are foreclosures and other distressed sales going for bargain-basement prices. Conversely, it may be misleading to suggest a recovery is here if median prices go up if the number of lower or middle income buyers can afford houses and the only folks who can are in the upper income level. This would certain skew the statisticts.
Perhaps the best way to define a housing recovery is the same way the Supreme Court defined obscenity: you know it when you see it. You’ll know you are in a housing recover when there is a healthy balance between supply and demand, when foreclosures make up less than five percent of all transactions, and when buyers aren’t afraid their investment will go down in value.
So are we there yet in Harford County? BRAC was supposed to be the big savior for the real estate market. To some extent, it did mitigate what could have been a total collapse of the market, but it never really materialized the way public officials touted. So now that the migrating of folks from New Jersey has waned, where are the buyers coming from?
During the 1980’s and 1990’s much of the in-migration came from folks exiting Baltimore City and eastern Baltimore County. In those days, Harford County had a measurable price differential with Baltimore County. We had relatively cheap land and plenty of it. New construction was booming. We were ranging from 1,500 to close to 3,000 residential building permits every year for 20 years in a row. No we are doing about 400 residential building permits per year.
The county’s population was growing 3,000 to 6,000 people every year. The past five years, according to US Census statistics, we averaged approximately 1,300 per year. The student enrollment has been stagnant. Give or take a few hundred every year, it even down from its peak in 2002. The board of ed’s own projections do not foresee any growth in enrollment. So again I ask you, where are the buyers coming from? Without buyers, willing and able, there is no market, let alone a recovery.
This is what I see happening. It is still going to take years to get rid of all of the foreclosures and short sales. And we haven’t even tapped into the “shadow inventory.” This will lie over our market like a wet blanket. During this same period of time, in a virtual parallel universe, houses will sell. If a house is in good condition and priced correctly from the outset, it will sell in a reasonable amount of time. Americans are mobile people. There is always a segment out there that is buying or selling. I don’t think that is going to change.
The next blog will be some of my concerns for the future. What could make this fragile market fall off a cliff?
I’d love to hear what you think. I am only one person with one set of experiences and perspectives. What is your opinion? I’m hoping we can use this forum to learn from one another.
Perhaps the most common question I get from folks, realtors, lenders and homeowners is about the future. "When is the market going to come back?" The answer I give is simply that I don't know. Having said that I reserve the right to speculate. Based on everything I have observed over 29 years in the real estate business, I might say it will come back soon. It always does, right? I'm not so sure this time.
What we are going through supercedes local or regional conditions. It's global. This is not a typical recession where the Fed can "prime the pump" and infuse some money into the system or the government can spend some money and things will come back. Their bag of tricks is empty. We are in the middle of something more historic. I'm not sure what replace the old world order, but things are not going to be the same or back to "normal" as we knew it.
There are so many unsettled big issues. We are awash in debt, corporate, sovereign, and personal. Do you see our current leaders really solving the debt problem? I don't. They will continue to tax and spend. The Fed will going into QE III, QE IV, QE V, etc. The current administration recently revealed it wanted an unlimited debt ceiling. At some point, this will cause inflation and devaluation of the currency. It's already happening.
In the next chapter, I will focus on Harford County and its prospects for the near term. I will explore how all these world and national events and trends will affect our local real estate market. As an appraiser, you can be sure I will present a factual synopsis. I can tell you it's not looking good. If you think we are poised for the next big real estate boom, well, you are in for a rude awakening. Stay posted.
A recent blog in the Baltimore Sun revealed some of the pitfalls of using Zillow.com to estimate the value of your home. Yes, I know it is a self-serving article, but it does not make it any less true. If accuracy does not matter and you just want a "quick and dirty" estimate of value, go right ahead. If you need an estimate to make a buying, selling, investing, lending decision, get a professional. If you need to know what the property is worth because you are the personal representative of an estate or if you are involved in some legal matter such as divorce, bankruptcy or a dissolution of a partnership, Zillow.com is not going to be satisfactory. There is no substitute for an experienced appraiser you trust to get an unbiased, supportable, and reliable estimate of value. An accurate appraisal with detailed market analysis will cost you about $400. What will an inaccurate and unreliable computer generated valuation cost?
http://weblogs.baltimoresun.com/business/realestate/blog/2010/02/zillows_homevalue_estimates_criticized.html
I am linking to an article from Bloomberg.com regarding the president's proposal to stop foreclosures, well sort of. The proposed law “prohibits referral to foreclosure until borrower is evaluated and found ineligible for HAMP or reasonable contact efforts have failed." HAMP is the Home Affordable Modification Program.
In my opinion, this is just forstalling the inevitable. With 25 percent of homes underwater, ARM's adjusting upward, and unemployment growing unabated, you can count on continued foreclosures and short sales for at least the next year or two. According to RealtyTrac, Inc., there were 2.82 million properties lost to foreclosure last year and 4.5 million filings are expected in 2010.
Even in Harford County, foreclosures are a problem. In 2008, there were 967 absentee trustee filings and in 2009 there were approximately 1,500. That is 125 per month. This expands the supply of houses for sale at a time when demand is down, a recipe for lower prices. According the MRIS, the median sale price of houses in Harford County declined approximately 8 percent over the past year.
My solution is simple: cut taxes, cut government spending, stop over regulating every aspect of our lives, and set the American people free to be the creators and innovators they are. Once we are unleased to make a profit, jobs will come back, foreclosures will subside, and real estate values will finally stablize.
http://www.bloomberg.com/apps/news?pid=20601087&sid=ahuuwBS8KYq8
Another statistic that reflects demand in the residential real estate market is new construction building permits. Over the past 20 years, Harford County has ranged anywhere from 1,500 to 2,700 units per year. As you can image the wheels started to come off the cart in 2006 with 740 permits. It slowed to 633 units in 2007 and plummetted to 396 units in 2008. Within those totals, the county includes: single family detached, townhouses, modulars, condos, mobile homes, and apartments.
Year to date, there have been 437 building permits issued in Harford County which sounds like an improvement, but you have to break the numbers down a little to get some perspective. Within the 437 permits, 84 were for apartments. If you look at the stats over the past several years, there were zero permits for apartment units. If you take out the 84, there were 353 permits for what could be described as mostly owner occupant units. So we are virtually on the same pace as last year.
I find the apartment statistics interesting. I can only speculate that there is a perceived demand for rental units as a reaction to the economic conditions. It is my understanding that many of the BRAC folks moving into the area will be renting. Perhaps that is a reason. Maybe another factor could be the large amount of people who have lost there homes because of foreclosure. Possibly the much stricter mortgage underwriting guidelines have kept many buyers, especially first timers, out of the purchase market. What do you think?
One way of measuring demand in the local maket is to look at lot sales. For most of the past decade, Harford County has averaged 10 to 15 lot sales per month. Over the past couple of years, the pace of sales has decreased by approximately 75 percent. Year to date, there have been 28 building lot sales as reported by MRIS. This is an absorption rate of 3.1 sales per month. The current active inventory is 292 as of this posting. Given the current absorption rate, there is a a 94 month supply of lots for sale. This means that if no other lots come on the market, it would take 7.8 years to sell all of the inventory. All of this inventory relative to demand has placed a downward pressure on prices. My analysis is showing anywhere from 20 to 30 percent drop in lot prices over the past couple of years.