How to Assess in a Declining Market

851 views

Published on

This presentation describes techniques and issues relative to the challenges in assessing real estate in declining market.

Published in: Real Estate
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
851
On SlideShare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
7
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

How to Assess in a Declining Market

  1. 1. HOW TO ASSESS IN A DECLINING MARKETPresented by: Rob Turner, Hillsborough County Property Appraiser Tim Wilmath, MAI – Director of Valuation HCPAPresented for: IAAO 2009 Special Topics Seminar Kansas City, Missouri
  2. 2. BACKGROUND INFORMATIONHillsborough County 1,161 square miles Total county population – 1.1 million people 525,000 parcels, including real estate and TPP 3 Municipalities:--City of Tampa--Temple Terrace--Plant City
  3. 3. GOVERNING PROCEDURES AND RULES Florida Constitution Florida Statutes Florida Administrative Code Department of Revenue Court Cases Local Rules
  4. 4. FLORIDA PROPERTY TAX FORMULA Just Value (Market Value) less, CAP Amount = Assessed Value less, Exemptions = Taxable Value x Millage Rate = Property Taxes
  5. 5. FLORIDA PROPERTY TAX PROCESSProperty Appraiser Taxing Authorities Property Appraiser mailsdetermines assessed value, calculate millage rates that “TRIM” notice toapplies exemptions and will produce the desired property ownersreports taxable value to revenue from current notifying them of valuetaxing authorities. year’s taxable value. and proposed taxes.Taxpayers may appeal to Tax Bills are prepared by Tax revenue is distributedthe Value Adjustment the Tax Collector and by the Tax Collector toBoard if they disagree with mailed in November, with Taxing Authorities.value or exemption denial. payment due by the following March 30th.
  6. 6. FLORIDA ASSESSMENT CAPSAssessment increaseson Homesteadproperties are cappedat 3% per year, or theannual change in CPI,whichever is less.Assessment increaseson Non-Homesteadproperties Are cappedat 10% per year.(new for 2009).
  7. 7. 10000 12000 14000 16000 2000 4000 6000 8000 01990 57751991 61521992 59271993 52051994 39651995 36731996 29741997 29441998 28661999 2527 APPEALS2000 24922001 3768 in Hillsborough County2002 37522003 44372004 4205 Value Adjustment Board Petitions Filed2005 45052006 66282007 9035 149932008
  8. 8. FIRST – HOW DID WE GET HERE?
  9. 9. SALE COUNTSHistorically, Hillsborough County had about 25,000qualified sales a year. Beginning in 2003, sales volumebegan to skyrocket.
  10. 10. LENDINGWith lower lending standards (subprime mortgages), morepeople could buy homes than ever before whichsignificantly increased demand.
  11. 11. MEDIAN PRICESAs sales volume increased, home prices increased at a rapidpace - over 100% from 2001 to 2007. Household incomeremained mostly level during the same time period.
  12. 12. BUILDING PERMITS Source: Hillsborough County Planning CommissionAs prices increased for single family homes, builders anddevelopers constructed new homes at a record pace to keepup with this new demand.
  13. 13. ASSESSMENTSWith the run-up in property values during 2002-2006,assessors had no choice but to follow the market.
  14. 14. ASSESSMENTSDuring the height of the market, some property ownerssaw assessments increase 20%, 30%, 50% even 100%.
  15. 15. LEGISLATIONIncreases in property taxes were so dramatic, that theFlorida Legislature rushed to pass legislation to limitincreases, including a CAP on non-homestead properties.
  16. 16. POPULATIONHistorically, Florida’s population grew each year, whichhelped absorb newly built homes and existing inventory.That has now changed.
  17. 17. INVENTORY Source: Hillsborough County Planning CommissionWith significant new construction, shrinking population,and rising prices, inventory swelled.
  18. 18. MARKET VALUE Source: Hillsborough County Planning CommissionLower sales, rising inventories and falling prices resultedin Hillsborough County experiencing the first decline inmarket value in over 30 years.
  19. 19. MARKET VALUE Source: Hillsborough County Planning CommissionBack to the Future……..Residential properties are selling for about what theysold for in 2004 – a drop of 40% since the peak in 2006.
  20. 20. FORECLOSURES Source: Hillsborough County Planning CommissionAs inventory swelled and demand decreased, manyhomes fell into foreclosure. Florida consistently rankshigh in the number of foreclosed homes.
  21. 21. FORECLOSURES Source: Hillsborough County Planning CommissionAs foreclosures increased and sales volume hit recordlows, many subdivisions became scenes of vacant lots,partially constructed and abandoned homes.
  22. 22. FORECLOSURES Source: Hillsborough County Planning CommissionMany new subdivisions had significant numbers offoreclosed homes making it almost impossible for existinghomes in the same neighborhood to sell.
  23. 23. FORECLOSURESWhat exactly is a foreclosure?
  24. 24. FORECLOSURES Foreclosures take many legal formsLis Pendens – pending lawsuit on real property (usually 1ststep in all foreclosures)Deed in lieu of foreclosure – Bank takes back property andforgives note.Short Sales – Lender accepts “discount” on a mortgage andallows property to be sold at less than mtg. amount.Cerificate of Title – a legal document recorded in the publicrecords that transfers the title of the real property to thebank.Warranty Deed from Bank to private party – Often whenbanks sell to the public, they record a warranty deed.
  25. 25. FORECLOSURES Source: Hillsborough County Planning CommissionHillsborough County historically averaged around5,000 Lis Pendens filings a year…Until 2007. We areon pace to see over 30,000 filed in 2009.
  26. 26. FORECLOSURES Source: RealtyTrac.com Source: Hillsborough County Planning CommissionAlthough foreclosures represent a significant segment ofthe market, they still sell for less than other properties.This creates a challenge when valuing the population.
  27. 27. FORECLOSURES Source: Hillsborough County Planning CommissionThe number of foreclosures cause all sellers to re-considerpricing.
  28. 28. FORECLOSURESTrying to research the quantity and impact offoreclosures can be a daunting task.
  29. 29. FORECLOSURESSource: RealtyTrac.com
  30. 30. FORECLOSURES Source: RealtyTrac.comThere are approximately 370,000 housing units inHillsborough County. According to RealtyTrac.com, thereare 16,613 in foreclosure (4.5%).
  31. 31. FORECLOSURES Source: Hillsborough County Planning CommissionHillsborough County ranks 5th statewide in the number offoreclosures per month. Above are the number ofproperties that received a foreclosure filing in April, 2009
  32. 32. FORECLOSURESThe Towers ofChannelside is a257-unit condoproject built in2006. It wascompletely sold outbefore constructionwas finished.
  33. 33. FORECLOSURESDuring 2007-2008the market began asteep decline whichresulted in most ofthe condo unitsbuyers walkingaway from theirpurchase contracts. Source: Hillsborough County Planning Commission
  34. 34. FORECLOSURESIn 2008 theowners of theproject filed forbankruptcy, withhopes ofweathering thestorm.
  35. 35. FORECLOSURES In April, 2009, the owners handed the keys back to the bank, with only half of the units sold.
  36. 36. FORECLOSURES Source: Hillsborough County Planning CommissionSource: Miami Sun Sentinel, 4/16/09
  37. 37. ASSESSMENT STRATEGYWhat now?•Fewer sales• More forced sales, foreclosures & short sales•Inconsistent prices – even with valid sales•Difficult to track price trends
  38. 38. ASSESSMENT STRATEGYWeighted Mean – Comparingratios between groups & propertytypes. (Target – 76.5%) Coefficient of Dispersion – Are ratios clustered or dispersed? (Target - 95% – 105%)Price Related Differential –Measures equality betweenlow-value & high-value properties.(Target – 98-103)
  39. 39. ASSESSMENT STRATEGYHistorically, our office averaged sales from the entire yearfor valuing the population. In the current market, we aretime-adjusting our sales to reflect the monthly downturn.
  40. 40. ASSESSMENT STRATEGY“Liars, Outliers, and out and out liars” – Even in a downmarket not all foreclosures should be used.
  41. 41. ASSESSMENT STRATEGYEven when foreclosures are used, they should beinspected to check the condition. Often, the price isn’tsuch a great deal when you look at the repairs needed.
  42. 42. ASSESSMENT STRATEGYThe PRD can be especially challenging when you haveextremely different homes in the same neighborhood.
  43. 43. ASSESSMENT STRATEGY Source: RealtyTrac.comForeclosures tend to be lower priced homes, selling for“below-market” prices. This tends to skew the PRDupwards.
  44. 44. ASSESSMENT STRATEGYWe use SPSS to identify the median price in the county,then designate that neighborhood as “high-value” or“low value” depending on it’s median price.Neighborhood adjustments are then tweaked to reflectlocation AND it’s high value/low value designation.
  45. 45. ASSESSMENT STRATEGYForeclosures tend to be in poor condition as a result ofvandalism, neglect, etc. Adjusting the assessment onthese sales for deferred maintenance can improve yourCOD and PRD significantly.
  46. 46. ASSESSMENT STRATEGY Another factor in reviewing short sales and foreclosures is flipping.
  47. 47. ASSESSMENT STRATEGYThis home was flipped in the height of the market,foreclosed and is now back on the flip train.
  48. 48. COMMERCIALSource: Hillsborough County Planning Commission The commercial sector is feeling the effects of the real estate downturn also.
  49. 49. COMMERCIALThis VW dealership sold for $7,000,000 in 2008. Thatprice indicated a one-year upward trend of 25% forauto dealerships.
  50. 50. COMMERCIALMeanwhile – this dealership across the street hasremained vacant and for sale for over a year.
  51. 51. COMMERCIAL News about automobile dealerships was not encouraging….. So why such a high price for the VW Dealership?
  52. 52. COMMERCIAL Not all auto companies are suffering. How do you assess auto dealerships when some are tanking and others are prospering?
  53. 53. COMMERCIAL Not all auto companies are suffering. How do you assess auto dealerships when some are tanking and others are prospering?
  54. 54. COMMERCIALThe ability of asuccessful carmanufacturer to“cherry pick” thebest properties interms of location,condition anddesign, does notaccurately reflectthe value for thepopulation ofdealerships.
  55. 55. COMMERCIAL This is true for other property types as well. Office and retail properties are feeling the effects of the recession through higher vacancies and lower rents. However, prices have not necessarily revealed this trend (yet).
  56. 56. Pop Quiz!Which state had the highest 2008 combinedState & Local taxes paid – as a percentageof income? A: Florida B: California C: New Jersey D: Texas E: Massachusetts
  57. 57. Pop Quiz!Which state had the highest 2008 combinedState & Local taxes paid – as a percentageof income? A: Florida B: California C: New Jersey D: Texas E: Massachusetts Source: www.TaxFoundation.org
  58. 58. Pop Quiz!With 1 being the highest (N.J.) and Alaskabeing the lowest, where does Florida rankfor state & Local taxes paid as apercentage of income?  A: 11th  B: 19thth  C: 47th  D: 26th  E: 30th
  59. 59. Pop Quiz!With 1 being the highest (N.J.) and Alaskabeing the lowest, where does Florida rankfor state & Local taxes paid as apercentage of income?  A: 11th  B: 19thth  C: 47th  D: 26th  E: 30th Source: www.TaxFoundation.org
  60. 60. When will we see recovery of thereal estate market?
  61. 61. WHEN WILL WE RECOVER? Associated Press – 4/25/09
  62. 62. WHEN WILL WE RECOVER? USA Today – 5/5/2009
  63. 63. WHEN WILL WE RECOVER? Associated Press – 4/29/09
  64. 64. WHEN WILL WE RECOVER? Positive signs Negative signs• First time homebuyer • Unemployment $8,000 tax credit projected to increase – maybe 10% or• 50-year low interest worse. rates (30-year fixed < 5%). • More foreclosures coming (see Lis• Affordability Pendens) • Bloated inventory• Property tax relief
  65. 65. Conclusion Appraisers are challenged more than ever regarding accurate analysis. Market Data – Good Appraisal research and analysis of sales data is mandatory. Honest assessment of the marketplace – recessionary conditions, credit crisis, oversupply of existing inventory, short sales, unemployment and other relevant market factors. Bulk Sales, Auctions and Short Sales are so prevalent in many markets as to represent market value. Measuring External Obsolescence – discounted cash flow analysis illustrates the impact of an unplanned long term holding period. The holding/carrying cost is devastating to market value.
  66. 66. Rob Turner, Hillsborough County Property AppraiserTurnerR@hcpafl.org ThankTim Wilmath, MAIWilmatht@hcpafl.org You!

×