The Minneapolis Real Estate Blog: March 2008

I get a call at least once a week from an upset home owner asking if I could let them know what their home is worth. Frightened of this upside-down real estate market, home owners this last week have been receiving their 2008 tax bills in the mail. They don't like what they see.

For many, their tax assessment is valued for more than the house could sell for if it became available for sale. Some are even $100,000 less than the assessed value. So what is to be done?

For now, nothing.

Counties like Dakota County, understand that home owners are upset, but there is little they can do right now. With budgets sky rocketing over the last five years, cities have been enjoying the financial wind fall brought to them through higher property taxes. Now that property values are declining, cities have to awaken to the fact their annual budgets are going to decrease over the next few years. Of course, they can't raise property taxes to find the revenue, right?

(Just so you know, Minnesota has recently raised the state sales tax another 25 cents, to 6.75%, and also added a new tax to gasoline sales)

We all know that once a government gets our money, they don't just give it back freely, or without a fight. Minnesota law requires that county assessors only take into account the previous 12 months of sales when looking at real estate values. So as time moves on, the declining value indicated by sales will eventually be shown though property taxes. However it could take two years before anyone sees relief.

Homeowners can appeal their local assessor and ask for a revaluation. I have known some people who have successfully got their property taxes down because they asked. So if you find yourself having a heart attack after opening up your tax bill, either call the tax assessor, or wait a year or two for the counties to get around to recalculating your bill. Either way, it won't be an easy task.

  AFTER RENOVATION

This weeks Historic Home in St Paul is 353 Summit Avenue.

Built in 1882 for William Dean, the home "only" cost $15,000 to build. Mr. Dean was a partner for the local wholesale hardware firm, Nicols, Dean, and Gregg, and also sat on the Great Northern Railroad board of directors. Little is known about the architect. A photo exists of the home taken in 1895. Designed as a Queen Anne Victorian, it is a great example of half-timbering.

Around 1900, the home was altered beyond recognition of its original Queen Anne style. Below is a photo of what the home had looked like up until 2005.

 BEFORE RENOVATION

As you can see, it looks nothing like the beautiful Queen Anne of 1882. The front gable and chimneys are the only remaining pieces visual to the eye that haven't changed.

In 2005, a very expensive renovation was begun, with the owners wanting to bring back the facade of the original home. After a complete inside/outside renovation of the main house, and an exterior renovation of the carriage house, the home recently sold for $1.7 Million with Edina Realty, and photos of the home are still available via a virtual tour. The home has over 7000 square feet, 6 bedrooms, 7 bathrooms, and for one simple word, is stunning.

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I post about Twin Cities Historic Homes and Buildings on my Luxury Blog and my Historic Home blog. Check back often for new stories about historic homes in Saint Paul and Minneapolis!

Today is the first day of Spring and mother nature thought it would be funny to play a practical joke on us Minnesotans. 

Now, I knew it was suppose to snow starting last night, but I really didn't believe it was going to happen. After all, it is officially Spring and all. But I had the pleasure of waking up this morning to six inches of snow...and it is still coming down.  Huge flakes that look like they are on loan from Colorado.

If you move to Minnesota, expect things like this to happen. While it is beautiful to see, it can be a little disappointing when you are itching to start spring plantings. But the kids LOVE it....call it a late snow day and some time out of school.

 **Note: There have been at least two more inches dropped since I took this photo**

Last evening I had the pleasure of witnessing one of the most spectacular sunsets I have seen in a long time. I had just finished an open house at my listing, when I realized how spectacular the clouds were, so I grabbed my camera and hurried outside.

I was standing on the Bluffs above the Mississippi River, on the Wisconsin side in Prescott, with the sun setting over Minnesota. There were some rain clouds to the southwest, which you can see in a few of the photos. All in all, I just had to thank God for letting me witness the splendor. How can he not exist with such beauty in the world?

I have been in the real estate business long enough to see some iffy appraisals come across my desk for my clients. No more was this so then during the housing boom. Appraisers seemed pressured to "make it happen". And needless to say, some home owners and real estate agents, not to mention the banks, placed this burden to "sell, sell, sell" fully on the backs of the appraisal industry. Fearing retribution via "blacklisting", many appraisers felt the need to push value in order just to stay in business.

Pushy Seller : Take for instance one case where I represented the buyer for a home they loved. The home was listed for $140,000 and the bank appraisal came in at $131,000. The seller was furious when he heard the news and demanded a new appraisal. We granted him one, using an appraiser of his choice, but made sure to sign an agreement that the buyer's were not bound to the new evaluation. Well, you can imagine what happened. The new appraiser was told about the situation and low and behold, the new value comes in at $160,000. Ummm, I might be mistaken but a $29,000 difference in appraisals starts to smell like a rotten apple. The comparable adjustments were obviously pushed beyond normal market and the bank refused to accept it. The sellers ended up selling at $131,000.

Pushy Builder : Or how about the builder who offers incentives if you go with their preferred mortgage lender. Many times I have seen them use in-house appraisers, who do a drive-by analysis, and give the value the builders are looking for. In the down turning market, I have seen some appraisals that appeared to have been pushed. The home we recently bought, for instance, had a fourth comparable that dated a year back. The appraisers notes mentioned this was not part of the original appraisal due to sale date, but added it at the request of the lender (who was the in-house lender for the builder). The notes stated this helped show the value. Well, any idiot can see that...but the market was still doing well a year ago, and since then, prices have come down and that home would no longer sell at the same value. So that "value" is now a false value, and should not have been used at all. That home "pushed" the value up on our home and I feel the appraiser should never allowed the builder to influence her judgement.

NEW RULES WILL CHANGE ALL OF THIS

Starting in 2009, some new rules are taking effect:

1. Lenders will no longer be allowed to use in-house staff for initial appraisals
2. Lenders are prohibited from using appraisals from companies they own or have an interest in
3. More stringent appraisal review process to weed out junk appraisals

Of course there are many people screaming that this will hurt the appraisal industry. Yes, it will...by weeding out the bad apples that plague the industry, just like is happening in the real estate industry. But it will be a good thing for consumers, who might have paid too much for a home because the appraiser didn't have the guts to stand up to the bank.

I for one would like one more little piece added to the new rules:

• appraisers should not know the purchase price of the home when they do the appraisal. I believe this gives them a mark to shoot for and unfairly influences the appraisal.

What do you think?

Over the weekend, an offer came in on one of my listings. No big surprise but it was a low-ball offer. Needless to say, the sellers were not too happy, especially because the buyers saw the home four times this last week. Now, if you are going to make an offer on a home, and have taken four days of the seller's time for showings, wouldn't you think to be a little nicer?

The sellers counter offered, but the buyers rejected it, stating the sellers were living in la-la land. Problem was, they had an agent with faulty data. Yes, that's right, faulty data. Some agents just don't know how to evaluate a home and find comparable homes. Just because a home has the same square feet, doesn't mean it is comparable. You can read all about what I am talking about on my other blog.

But my point with this post is, many times, the agent kills the deal. The agent tries to negotiate on a home or price range that they have no experience in. They "think" they "know" what they are doing, but in reality, they have no clue. Take for instance, writing an offer on a property priced above $1 Million. If you don't know how the luxury market works, don't jump into it without doing your homework. But agents are thick headed, and won't admit their limitations, so they jump in anyways, and quickly drown.

I have seen plenty of agents kill the deal. They let emotions get in the way, take personal offense to my negotiating techniques, lack experience, lack knowledge....the list can go on and on. Unfortunately, their client is the loser and doesn't realize the agent and their "negotiating" skills were the problem.

I would consider myself a blunt person, and usually tell my clients upfront that I don't believe in sugar-coating things. Some have asked me to put a few sprinkles on top, just to appease the sweet tooth, but it always comes back to honesty. I take my career seriously, and do so by educating myself as much as I can. That includes talking to vendors and asking questions on their profession. Many times, the things learned don't come from books or classes. They come from the field. Sadly, most agents never take the time to learn.

Did you know that 85% of all real estate agents have no prior sales experience before coming into the real estate industry?

Or how about the fact that only 17% of all real estate agents have earned at least one real estate designation or certification?

No wonder the drop out rate is high and the profession is bulging with terrible agents. Maybe the agent I dealt with this weekend needs to take a class on doing a proper CMA...but I highly doubt that will happen.
One thing to think about, if you are a home buyer or seller, is to ask your agent about their experience. Are they all things to all people, or do they specialize in certain areas? Don't be afraid to ask questions. If you don't, you could be losing out on a home you love through no fault of your own.

So, you are looking into buying a high-end home, most likely priced above $1 Million. You ask your buyer's agent to pull some recent sold data and find homes which to compare against the listing you love. You think this is going to be an easy process - just pull solds from the last six months with the same square footage and whalah, you're done!

Whoa there Nelly! Not so fast. This is not a $300,000 listing in which every home on the block is a good sold comparable. Most likely, this million dollar home only has a handful of homes similar to it, and of those, maybe one or two have sold in the last six months. You might even have to go back a few years and look at those sold figures.

What? Go back to over a year ago? You can't do that! Everyone knows that the most an appraiser will go back for a comparable is a year. You don't know what you are talking about!

Well, if we were talking about a home under, let's say, $800,000, then you would be correct (at least here in Minneapolis). But once you breach that million dollar mark, the "rules" go out the window. In some areas, there are so little high-end sales that finding something similar can prove difficult. One of the biggest problems with appraising a luxury home is working with an agent that doesn't understand the new rules.

I ran into one such agent this weekend. She doesn't sell luxury homes, but happens to have a "luxury" buyer. The agent presented me with some "comparables" to justify the low offer presented by her clients. Unfortunately for her and her client, these comparables didn't compare at all to this home. Here were a few mistakes made:

1. Some were built 12 years ago or more
2. Some were on much smaller lots
3. All were of lower quality construction
4. Most were in the wrong school district
5. Some had unfinished basements
6. None had any luxury amenities, and lastly,
7. she was sticking to homes sold in the last year

The problem? None of these homes are comparable. To find equivalent high end homes, you have to go back 12-22 months ago. You need to compare apples to apples, not apples to prunes. Of course I was told that this wasn't possible. When I heard this, I knew right away the agent wasn't familiar with how luxury home sales work. Sadly, she convinced her buyers to go the wrong direction with faulty data and they are losing a wonderful home because of it.

Luxury Home Appraisal 101

• Sometimes you have to go way back to find a good comp
• Don't force the CMA by using homes of lesser stature
• Stay in the same school district
• Look for homes with similar acreage and lot features
• If in doubt, hire an appraiser that has experience in high-end homes
• Market conditions don't affect the luxury market as much as it does lower priced homes
• Choose an agent that specializes in luxury homes

Note to agents: And before you claim to have sold "high-end" homes and "know" what you are talking about, make sure you know what the definition of a high-end home is. It is not a home sold at $650,000. The agent tried that on me, but I knew her stats in MLS and she has never sold a hgh-end home.