Lead Based Paint

The classic cracking/scaling pattern of lead based paint. If you see this, there is a high likelihood that your home/structure has lead based paint.

Since the ongoing crisis in the Flint Michigan water supply, lead has been in the news nationwide. Lead is one of the most destructive substances to childhood development as it attacks the brain and central nervous system, and at highest levels can cause coma, convulsions, and death.

“At lower levels of exposure that cause no obvious symptoms lead is now known to produce a spectrum of injury across multiple body systems. In particular lead can affect children’s brain development resulting in reduced intelligence quotient (IQ), behavioural changes such as reduced attention span and increased antisocial behavior, and reduced educational attainment. Lead exposure also causes anaemia, hypertension, renal impairment, immunotoxicity and toxicity to the reproductive organs. The neurological and behavioural effects of lead are believed to be irreversible.”

— World Health Organization

With such horrifying effects, it is no wonder why the FHA / USDA and VA will not underwrite a loan unless Lead Based paint is properly treated. Today we will tackle some in-home investigating and treatments that you can perform to keep your family safe:

Investigating Lead Paint - excerpts taken from House Logic

The EPA has recognized the following in-home tests for discovering if your home has lead paint present:

For wood and metal surfaces: https://leadpaintepasupplies.com/lead-test-kits/

For wood, metal, drywall and plaster surfaces: https://www.esca-tech.com/ProductDetail.php?category=2700&productnum=LPTK

These tests work in a similar fashion, in which a swab of the surface is taken and a chemical reaction takes place in the presence of lead in order to reveal a color indicator.

Please note: While these tests may give you peace of mind, they will not suffice to exclude your home from needing larger remediation in the case of FHA/USDA/VA financing for a loan. The level of testing that would be required by federal guidelines is usually far higher than the cost to encapsulate any supposed lead paint.

Remediating Suspected Lead Based Paint

HUD/EPA’s policy infers that there is a high likelihood that any home built prior to 1978 has had lead-based paint at some point, and so all homes built before this date MUST have all chipping and peeling paint remediated by the following methods:

1. The surface must be scraped to remove all loose and peeling paint. Those chips can not be left on the ground however, as this is a risk to the ground and water being contaminated with lead.

2. The surface must then be painted to encapsulate the remaining surface.

Dust is the primary means that lead can enter the body, so this process should be performed carefully. HUD provides extensive guidelines for the entire process, available here.

Information

https://www.who.int/news-room/fact-sheets/detail/lead-poisoning-and-health

https://www.hud.gov/program_offices/healthy_homes/healthyhomes/lead

https://www.epa.gov/lead/protect-your-family-exposures-lead

https://www.webmd.com/women/lead-paint#1

Treatment

https://www.health.ny.gov/environmental/lead/renovation_repair_painting/encapsulants.htm

Market Data Analysis: Declining Markets

Telling someone that their house has lost value won’t make many friends, but it will distinguish you as a real estate professional if you can analyze a market and be honest. The national news has talked about housing prices increasing yearly for nearly a decade now, and some areas of greater Pittsburgh has matched those trends at some times, others have remained flat, and others have declined. Today we look at some declining markets, and how to use simple tools to visually determine if there is a decline, and at what rate.

The above is the national median sales price trend since 1990 vs. the builder cost trend. We can see the slow down in real estate around 1990, the decline of 2008 some possible trends emerging now. However, the first thing that we should note is that VERY FEW areas in the greater Pittsburgh area have seen increases this aggressive. SO, before any seller says, “I bought my house 3 years ago, and houses have gone up nationwide by 3% per year… so my house is worth 9% more?”

The above are homes that are from across Indiana County that are of a higher quality construction. This is not merely a limit of, for example $200,000 and above (limiting a data search by a hard number like that will skew the results of the analysis). In appraisal language, these properties are all Q2-3 homes (For the definition: http://www.bradfordsoftware.com/uad/UAD_Glossary.pdf)).

Over the last 3 years (after a reassessment in Indiana County that sparked a spike in selling, and reduction in property values) the above data points represent the higher quality sales across the county. Once selected, these sales (with sale date, sale price, and original sales price) were placed in an Excel Spreadsheet. The data points were then graphed and a trend line calculated for each using the tools within Excel. We observe a few things above:

1. There is a clear convergence of the scatter plot around a downward trend (with the exception of a few recent sales. Those two sales were some of the largest properties in the analysis, and one of them sold 23% below the original list price and stayed on the market for 2 years).

2. The trend line indicates a median decline of $19.45 per day. When calculated with the median sales price of $325,500 this comes out to an annual decline of 2.18% per year among these homes. This is then a starting point from which we can refine the decline - however, this is a great starting point from which to make sure we’re taking a possible declining market into consideration.

3. From other analysis of Indiana County as a whole, we’ve seen that some of the hardest-hit areas “may” be finding a bottom. There is the possibility that those recent high sales will result in a similar possible turn OR those recent lower sales would indicate that the decline continues. In six months, we’ll know for sure what is happening right now.

That is perhaps the most frustrating part of market analysis. Its always rear looking. While our “gut” might tell us that the market is “hot,” data is needed to be a professional. Look at the above graph one last time. The original list price trend is falling at 3.98%, 180% faster than sales prices. Why? Because sellers and their agents were way off 3 years ago, and are only recently starting to get to close to realistic sales prices. Our gut is susceptible to “confirmation bias,” in this case, the desire to see a stronger market than what really exists.

Do yourself a favor,

1. Run the data on your market areas on at least an annual basis to stay on top of what the markets are really doing.

2. Read our county reports that we distribute throughout the year for wider trends.

3. Stay abreast of the national market data, but don’t put too much weight on it.

CMA Toolkit: Test your list price.

When preparing your CMA, one of the best steps you can take is to test your list price. The process is pretty simple but easy to skip. Let’s go through the basics of a great CMA.

1. Look at the history of the market area of your property. This will give you an idea of the high-low range that the area can handle. Three years is a good time-frame to look at.

2. Narrow in on properties characteristics like yours. Now that you have the broad range, begin to narrow in on property characteristics that matter. If your property is a 4 bedroom home, eliminate the 2 bedroom sales. If your property has 1 bathroom, throw out everything above 2 baths. If your property has been recently updated, throw out the REO. Now you have a much smaller indicated range.

3. Get picky. Now that you’ve trimmed from possibly 100’s down to 20, select those 3-5 properties most like yours. This will give you a much tighter range within which to advise your buyer/seller.

4. Test your price. The steps so far should get you in the ballpark, but “confirmation bias” can be sneaky. Its time to see if you were truly objective. Take the price that you’ve come to and do a search in your market area of a (for starters, it may need to be tighter or wider) 10% plus/minus. Start looking at your property list and ask yourself the question, if I had $(Price) to spend, would I buy the house I’m looking at or this house.

   In appraiser speak, this is called sensitivity analysis: The ability to look at two things and determine which is superior. As you move through the list of properties you should find the space where your property falls, the sweet spot, and that should inform the price that you place on the property.

   If cheaper homes are better than yours - your price is too high. If higher-priced homes aren’t as nice as yours - your price is too low.

Home valuation is tough - that’s why appraisers have 300 hours of education and 1500 hours of experience before they can sit for their license. If you ever need advice, don’t hesitate to call. We also offer in-office training for free for real estate agents on a variety of real estate topics, including FHA/USDA/VA financing, CMA preparation, and others.

Data Coop: Can it be trusted?

WOW… look at all that information. Surely, there is something useful in there!

Summary Opinion: Data Coop is like drinking from a firehose… you will be all wet, but not very satisfied. There is a ton of data, and some of it could be useful sometime, but relying on that data “as-is” for anything close to credible would be foolhardy.

The West Penn Multi List has brought CoreLogic’s “Data Coop” live this week. So lets take it for a spin. A look at 5001 Pioneer Court (an active listing) above gives us basic information available in the typical MLS sheet, but then expands that information to other publicly available info.

When we pull up the “Neighborhood report",” we get some statistics for the Murrysville mailing address, and at first this appears that it would be a useful tool to hand to a prospective buyer, but then we get the following:

These are the three nearest schools to this property… however, none of them are in the subject property’s school district, or even in the same county. This is immediately concerning because if this information were to be relied upon to inform a buyer, we could be liable for misinformation.

As we go further into the report, we find that the Data Coop offers an AVM (Automated Valuation Model).

Here we are given a list of 5 properties, all from Franklin Regional SD, with a range of sales prices from $258,000 - $325,000, and four of those properties being in the same plan being being $273,000, $315,000, $320,000 and $325,000. So, where does the AVM come in… $362,000? It seems that the AVM is placing greatest weight on the current listing price, which would be $40,000 higher than the highest sale in the last 3 years. We’ve performed this same kind of analysis in more difficult areas to appraise, and in addition to crossing county lines, the AVM also crosses school district lines. These practices are typically only performed in the case of highly unique homes and require a great deal of analysis.

These are truly troubling. There is a lot of information here, but there doesn’t appear to be any rhyme or reason to it. This is important because CoreLogic claims to be the foremost leader in home valuation technology. Their data is actively used by government organizations, but appraisers regularly report that the information that they are deriving their data from is flawed, and the analysis they are performing is deeply flawed.

I'm sorry Chip and Joanna Gaines lied to you.

We love Chip and Joanna Gaines - they’re cute, spunky, hard working folks. They’re an adorable couple, but sometimes we cringe at the real estate statements that come out of their mouths - and they are some of the better ones on HGTV. Chip and Joanna claim to “take the worst house in the best neighborhood, and turn it into our clients dream home,” and on its face, this sounds pretty good. In home valuation language they are trying to buy under improvements for the neighborhood, which are usually a good deal, and below market value, but then there is the second half. A “dream home'“ is often code for “over improvement for the neighborhood,” and typically see lower market values compared to their costs. With that said, lets look at some of the half truths and hidden land mines that you want to avoid if you’re following Chip and Joanna’s example.

1. “Fixer-uppers” don’t usually qualify for financing.

   Its a rude awakening when you find your dream “fixer upper,” place your offer and then the bank comes back and informs you that the condition of the home won’t qualify for your loan. Lenders have minimum property requirements that a home must meet in order to secure financing. The short thing to remember here is: Is the home 1) Safe - are there obvious safety concerns that endanger inhabitants of the home, 2) Structurally Sound - is the home going to stick around for 30 years, or does it need a major structural overhaul, and 3) Can the property qualify for the particular type of loan you need (chipping and peeling paint will hold up a FHA/USDA/VA loan, etc). There are loans that can be used for fixer-uppers, but you need to know to ask for them: FHA 203k / FNMA/VA Renovation loans. These loans allow you to obtain quotes from contractors and take out a loan for the final total cost versus the final market value of the home once renovated.

2. Cost does not equal value.

   “I’m going to buy a $20,000 home in a $30,000 neighborhood and put $50,000 into it! So, Chip and Joanna taught me that will add $50,000-$100,000 dollars, right?!

   No. That’s not how any of this works.

   You’ve priced your property out of the market, and unless a very foolish person comes in with $100,000 cash, you’ve probably thrown away nearly $40,000. The mantra that every renovator needs to memorize is “Cost does not equal value.” Its a simple and silly illustration, but it works: how much does a fourth full size pool add to value. Anyone can see that cost doesn’t equal value in this case, but it holds true across the board. In any renovation, you must keep in mind a few things to see the largest return on your investment:

   1. What is the high end of our market?

      This should help you set your maximum budget. If you bought your home for $50,000 and the highest sale in the last 3 years was $70,000, spending anything more than $20,000, even in all the right areas, is probably throwing money away.

   2. What is typical for my market?

      If your market expects 2 bathrooms, and you only have 1, then its probably wise to add a 2nd from a return on investment perspective. However, in the same neighborhood, its probably foolish to add a 4th. This is true of materials to, if the market expects laminate flooring, don’t expect a large return for marble.

3. Fixing up a home is romantic - but where is the baby going to sleep?

   Drywall dust is a horrible thing for babies. Take into consideration what your life is going to be like during your dream renovation to ensure it doesn’t become a nightmare. Get a realistic plan and budget before you embark on the journey and then be prepared for adjustments. A contractor can help a great deal to tell you how much your dream project will cost - but an appraiser can tell you how much that dream will be worth, so it doesn’t become a nightmare.

4. “Fixer-uppers” can quickly become “over-improvements.”

   As noted in this Realtor’s opinion of the market area of Waco Texas, these big beautiful homes that Chip and Joanne build have a hard time being sold for what they cost to build.

   https://www.yahoo.com/lifestyle/waco-realtor-reveals-big-problem-194513387.html

   Builders don’t make markets, buyers do. If there is no one willing to buy a home in a market for more than $250,000, then it doesn’t matter if you put $2,000,000 into it - the ceiling is $250,000. Barring a cash buyer with no knowledge of the area, you’re going to be eating crow and Ramen Noodles for a while.

5. The Shotgun House

   This episode is so jam packed full of very bizarre real estate decisions/statements, that we need to comment. Lets walk down the list:

   1. They find a home that they are given… that doesn’t usually happen. Further, they are offered reclaimed materials for free… this doesn’t usually happen either.

   2. They move the home to a lot they’ve already purchased. This will make anything but a cash deal nearly impossible.

   3. The home they are given is 1 of 2 left in the city. In a city with a population of approximately 130,000, to have 1 of 2 of something is either very good, or very bad, and in the case of this one bed room home, its not looking good. In home valuation language this home “does not conform to the market” which would exclude it from some financing (even in perfect condition).

   4. At the end of the show they do some funny math, the cost of the lot + the cost of renovation = the value. We’re sure that Chip and Joanna didn’t mean to commit a violation of Texas Appraisal Procedures that could result in a fine, but when they used the word value, they did. Furthermore, this simplistic game of addition, is misleading to the buyer and the viewer. To put it simply, cost does not equal value.

   So what happened then? After a short time the owners, who were told that the house was worth approximately $140,000 attempted to sell it for $950,000, and it sat, and never sold.

   Shocker.

   However, we do want to bring in another interesting point. Zillow claims to have accurate home valuation tools (verbiage that they have been sued over), when you look at the numbers, you see is really more a shell game. In this case, they were consistent with that strategy. A look at the Zestimate history above reveals that Zillow grossly over estimated the land value by 250%. Then when the county assessed the home at approximately the cost of the purchase plus improvements, it simply mirrored the assessment (assessments are not appraisals, and are not good indicators of market value, but they have more credibility than Zillow). Then, when the house was listed for $950,000, the Zestimate shot up to $750,000, before retreating slowly over a year to a level 5-8% higher than before the listing.

   That is how Zillow claims “accuracy.” Their algorithm weights listings heavily assuming that agents have properly informed sellers, and then if the sale closes near that price, Zillow can claim accuracy. However, if the price is way off base and never closes, Zillow moves back to their old math and no comparison of accuracy can be made. So their data on their accuracy is incredibly skewed to act as if they are credible, when in fact, they are just piggy backing on agent’s accuracy (which is FAR better than Zillow).

A few closing thoughts:

1. HGTV can give you some neat ideas to spruce up your home, but get a professional opinion on the big financial decisions. Builders don’t operate in the world of “value” but rather “cost.”

2. Neither Chip or Joanna Gaines are licenced appraisers (per TALCB https://www.talcb.texas.gov/), yet they regularly offer the “market value” of the properties both before and after repairs. Per USPAP, this constitutes an appraisal. Per Texas TALCB rules, only an appraiser can perform an appraisal and performing an appraisal without a license can result in a fine of $1,500-$5,000 per time. Over 5 seasons, that brings their total potential liability to the Texas Appraiser Licensing and Certification Board to between $237,000-$790,000.

3. Never, ever trust Zillow. https://sacramentoappraisalblog.com/2019/05/01/two-things-to-understand-about-zillows-accuracy-rate/

For more on this topic, read below:

https://www.fatherly.com/play/chip-and-joanna-gaines-use-hgtv-to-lie-to-middle-class-homebuyers/

https://birminghamappraisalblog.com/appraisal-tips/an-appraisers-take-on-the-fixer-upper-craze/

https://www.realtor.com/advice/home-improvement/lessons-i-learned-fixing-up-my-outdated-fixer-upper/

Click Here to Explore Blogs by Topic

The Downsizing Trend: A Path to Wealth.

As the largest generation in 100 years comes into retirement, they are following the general trend - downsize. However, the younger generations are not following the historic trend of increasing the size of their homes. As supply rises and demand falls, there can only be one outcome, price declines.

““Big houses are a waste. People are still in a mode of thinking about houses that is kind of 19th century. As we modernize, we don’t need all this space,””

— Nobel Prize-winning economist and Yale University professor Robert Shiller

Big homes have large open to below spaces (heating empty air), larger lots (with more maintenance), exclusive neighborhoods (with HOA fees and regulations), and there appears to be a generation who isn’t interested in any of these things. What was once seen as a status symbol of success is increasingly being seen as a liability that keeps people from doing the things that they want to do.This is consistent with the data that shows that the fastest growing part of the market inventory is the $750,000 range nationwide, and that the market needs 15% more in the $100,000-340,000 range to achieve equilibrium (read here for more information). If this trend continues we expect to see increasing declines in higher end homes over the next 20 years, and there may be evidence that it has already begun in our areas. Indiana County has been experiencing property median price declines for the past 3 years, and, higher quality homes do not appear to be immune. However, the area of Monroeville has seen pockets of increase over the last 3 years, yet higher quality median home prices appear to be declining.

"The key to wealth building is to live in a home that one can easily afford," Sarah Stanley Fallaw, the director of research for the Affluent Market Institute, wrote in her book "The Next Millionaire Next Door: Enduring Strategies for Building Wealth." Stanley Fallaw studied 600 millionaires and found that most of the them had never purchased a home that cost more than triple the amount of their annual income.

While home ownership is a great possible part of building wealth, the old conventional wisdom that property values only ever go up, has been proven to be broken. THE ONE sure fire way to build wealth is to live well below your means, and that includes where you decide to live.

For more on the topic, read these articles:

Yale economist says large homes are a waste of money.

The growing trend towards downsizing.

A loan is not a right

The United States banking industry is stuck in a cycle:

1. Lend on very good homes, to very good creditors, for low interest rates

2. Lend on average homes to average creditors for average interest rates

3. Lend of bad homes to bad creditors for high interest rates

4. Watch as the financial system collapses

5. Rinse and repeat.

Right now we’re somewhere around stage 3, as lenders find fewer and fewer individuals of good and average credit scores with healthy assets to lend on. Unless we change our thinking in this regard, it is our fear that history will eventually repeat itself.

A part of breaking out of this cycle is to understand the idea that a loan is not a right. A right is a moral or legal entitlement to a thing. None of us have the moral or legal entitlement to someone else’s money- that is called theft. Rather, we do have the right to be viewed equally within the process of attempting to obtain a loan (this is why discrimination on the basis of race, religion, etc is illegal). However, it is important to understand that that equality of examination may still result in some not obtaining a loan.

1. Some will not meet income guidelines

2. Some will not meet down payment guidelines

3. Some will not meet asset guidelines - the home will fail to qualify

We might agree that individuals in the greatest country on earth should have the ability to access the dream of owning a home. We might agree that “something” needs to be done. However, reducing the qualification of the above is a direct path to cyclical financial collapse. The issues that keep some from home ownership are far deeper than a few regulations and banking policies. They stretch back 100 years to immigration laws, red lining, the antebellum south’s policies, the great migration, and others. There are very real injustices that have affected generations. Recently, in a House committee meeting a few congress persons suggested that appraisers were to blame for the injustices in the data. This is deeply disturbing. Ryan Lundquist has written an informative article on the topic that we hope you will take time to read:

Click here to read more.

In short, appraisers have a public and fiduciary trust to report the real property conditions and market value of a property - not produce reform one property at a time. This would betray the principles of the entire profession. Loan officers/Underwriters also have a trust to write good loans. Congress too has a trust, to ensure that the playing field is level for all participants and to discipline those who tip the scales. Appraisers have been inaccurately blamed in the past (our lobby in Washington is nonexistent, so we’re an easy scapegoat) but power rests in the hands of many others to produce solutions to these looming issues.

Market Data Analysis: Location Part 2

Today we turn our attention to high value homes and a factor that affects market value. For this we will take a birds eye view of an area. This is a look at two school districts’ sales over the past 10 years at the $400,000+ price range. If you had to draw a line dividing the two school districts, without any other help, where would you draw it?

Zooming in on the southern end of the map we see the density remain in the south west portion, and drastically become more spread out to the east and north.

Using the above school district maps we see that the density of $400,000+ sales over ten years highly corresponds to these maps. In the same way that you might draw a line with a pen on the maps above, for ten years buyers have been drawing the line with the wallets.

But why? Franklin Regional is closer to the metro area and its amenities, but the sharp line indicates that this is not the only story. If we look at homes of $400,000+ in the Kiski School District over that same time (32 vs. the 305 in Franklin Regional), we see a median sale price of $442,500 (vs $553,827 in Franklin Regional) and a median acreage of 8.73 acres (vs 1.55 acres in Franklin Regional).

Buyers and sellers are sending a clear message - these two markets are not comparable. If you ever represent a property on the border of a school district, before you assume that you can use sales from across the border, make sure that the market data supports that assumption.

For more on this: https://www.housingwire.com/articles/49830-half-of-homebuyers-with-kids-base-purchase-on-school-district?fbclid=IwAR33nnrqBUS-MEkKBiP8nq6lvwiEnb1RGQbyHcLwjkLZKOzQm0jdfZhe-sc

2019: 2nd Third Analysis

Why a third and not a quarter? Many of the markets that we cover in this report have limited data, which makes analysis difficult, yet we wanted to be able to provide some level of seasonal analysis. Quarter’s would be ideal, however, by extending the data to four months instead of three we gain 33% more data, and therefore more able to make reliable statements. It's odd, we know, but hopefully you find it helpful.

Before we dive into our regional analysis, we want to take a look for a moment at the national trends. While Western PA proved rather resilient to the last housing bubble (because there wasn’t a high degree of speculation, to begin with) these trends can have wide-reaching effects.

This shows the trend of the median sale price increase (orange) compared to the median increase in building costs since 1990. The past 6 quarters have shown a weakening in the housing market, and some declines. It remains to be seen whether this will be a short-lived flattening of returns (similar to the early 1990s, and displayed by the extrapolated green line above) or a pullback towards builder cost trends similar to 2008 (extrapolated by the red line above).

This is the trend line of the entire West Penn Multi List since 2006 (sadly the data available gets increasingly unreliable further back in time) compared to national builder trends. We see a similar divergence in the local data from the trend that is seen in the national data, and a similar pullback in 2008. The good news: if the national trend remains flat, our local market will likely see little impact. If the national trend moves downward, like in 2008, our declines will likely be far shorter and less deep (again, because prices have not been inflated by speculation).

As the chart above shows, our real estate market is highly seasonal, with fall and winter prices falling and spring-summer months increasing. Last third, this stayed true with increasing prices, but a year over year (YOY) decline. This third showed most markets reversing the YOY trend to increase this year, and mix of trends over the term.

Allegheny East - with 1693 sales, showed signs of increased absorption, declining days on market, YOY increase in the median sale price, and an increasing price over the past four months, all consistent with a strong seller's market and increasing home values. This is consistent with the first four months of the year (with the exception that that term showed housing prices decline YOY). The only concerning data point here is an expired listing ratio of above 25%. This could indicate that over 25% of the market is currently so overpriced as to never consummate a sale.

Allegheny North - with 1761 sales, showed signs of increased absorption, declining days on market, YOY increase in median sale price. However, over the four-month term, the median price of homes fell. Yet, the absorption rate remains firmly within the seller’s market territory.

Allegheny West/North West - with 892 sales, these regions showed signs of increased absorption, declining days on market, YOY increase in median sale price. However, over the four-month term, the median price of homes fell. This market had shown the highest median sale price increase for the first 4 months of the year by nearly 200%. This fall may be a reaction to an over appreciation in the first four months of the year. This market had the strongest absorption rate for the term of the 8 areas studied.

Allegheny South - with 1679 sales, showed signs of increased absorption, YOY increase in the median sale price, and an increasing price over the past four months. However, the market did see increasing days on market and very weak growth of .002% for the term. Still, the absorption rate falls firmly within the seller’s market territory.

Armstrong - only experienced 157 sales over the last 4 months, consistent with last year, but limiting the accuracy with which statements can be made. Over the term, YOY market price and days on market fell. However, over the term market prices rose and absorption rates stayed in the seller’s market territory. However, with over 30% of listings expiring, this is indicative that nearly one-third of the market is so overpriced as to never attract offers.

Butler - with 974 sales, showed signs of increased absorption and declining days on market. However, home prices year over year (+.002%) and over the 4-month term (+.009%) remained nearly flat. Still, absorption rates remain in the seller’s market territory.

Indiana - only experienced 192 sales over the last 4 months, consistent with last year, but limiting the accuracy with which statements can be made. For the last 8 months, Indiana county has shown an increase in median sale prices. Could this finally be the bottom for this market that has been hammered for the past 4 years? With an expired ratio of nearly 35% for the term, there are still a large number of homes that are dramatically overpriced, however, the absorption rate is far increased (from .096 to .184) and is out of buyer’s market territory and moving nearer to seller’s market territory. If Indiana can manage a strong Fall, we may be seeing the bottom.

Westmoreland - with 1442 sales, showed signs of increased absorption, declining days on market, YOY increase in the median sale price, and an increasing price over the past four months, all consistent with a strong seller's market and increasing home values. This is consistent with the first four months of the year (with the exception that that term showed housing prices decline YOY). The only concerning data point here is an expired listing ratio of 25%. This could indicate that 25% of the market is currently so overpriced as to never consummate a sale.

Blue: 30 day moving average (line) with linear regression line (dotted)
Orange: 2 order polynomial regression of median days on market

Blue: 30 day moving average (line) with linear regression line (dotted)
Orange: 2 order polynomial regression of median days on market

Blue: 30 day moving average (line) with linear regression line (dotted)
Orange: 2 order polynomial regression of median days on market

Blue: 30 day moving average (line) with linear regression line (dotted)
Orange: 2 order polynomial regression of median days on market

Blue: 30 day moving average (line) with linear regression line (dotted)
Orange: 2 order polynomial regression of median days on market

Blue: 30 day moving average (line) with linear regression line (dotted)
Orange: 2 order polynomial regression of median days on market

Blue: 30 day moving average (line) with linear regression line (dotted)
Orange: 2 order polynomial regression of median days on market

Blue: 30 day moving average (line) with linear regression line (dotted)
Orange: 2 order polynomial regression of median days on market

What analysis do you want to see included in future? Leave a comment below.

Single wide, double wide, manufactured... Oh my!

You find your dream ranch styled home, obtain financing, make an offer, and then the appraisal comes back saying the home is a double wide?! How did no one say anything! We’ve seen this scenario where a deal is progressing and then the bank pulls back because they will not lend on a “manufactured home.” In some situations, they can be hard to spot, but it can mean the difference between being able to purchase a home or not. So today we want to equip you with some tools for the field on how to spot a manufactured home, and what issues may need to be overcome.

First lets clear up some terminology:

1. Manufactured Home - refers to a home that is constructed to meet HUD guidelines, built off site, delivered to the property in portions and then connected. “Single-wides” and “Double-wides” and “Triple-wides” are manufactured homes.

2. Modular Home - refers to a home that is constructed to meet building code and it is also built off site and delivered to the property in portions and then connected.

The real difference is the quality of the craftsmanship and the minimum requirements of construction. Manufactured homes are built to HUD standards and modular homes are built to IBC (International Building Code) standards.

Here are a few easy steps to determine if the property is a manufactured home:

1. Order the county record. Most counties will note if the structure is a manufactured home and in some cases regardless of how many sections, call it a trailer.

2. Look for the HUD Tag located on the corners of the home

3. Look for the HUD data plate or certification, which is a piece of paper glued to some surface of the home (under the kitchen sink, in a closet and near the electrical panel are most common)

4. Look at the bottom of the structure. If you see a steal under carriage this is a sure sign (but some manufactured homes have wood under carriages) then this is a manufactured home not a modular.

Why is this important:

1. Manufactured homes built prior to June 30, 1976 can not obtain typical financing. This makes finding the HUD Tag and Data Plate very important. We’ve recently seen a manufactured home built in 1970 sell with conventional financing in the MLS - sadly this person (and the appraiser who signed off on it) will be in for a rude awakening when they attempt to sell.

2. Manufactured homes have a very different marketability than modular or other stick built construction. This is represented in the fact that FNMA requires these to be performed on a different forms with different analysis.

3. Remember, once a manufactured home, always a manufactured home- no matter the modifications. We’ve run across manufactured homes with extensive additions and/or remodeling rendering them very similar to a typical stick built structure. However, for lending purposes, it will always be treated as if it is a manufactured home, no matter the modifications.

Some common questions:

1. What if my home sits on a permanent foundation and/or was recently converted to real estate?
   Once a manufactured home, always a manufactured home. That’s the answer, basically. Converting your home to ‘real estate’, or placing your manufactured home on a concrete block foundation, for instance, will not change the fact that it is manufactured. It will still be appraised the same way and will have the same marketability as before.

   • But what if I changed/updated/upgraded almost everything?

     If any part of the original manufactured home remains, FNMA requires that the property be analyzed as a manufactured home.

   • But it doesn’t even look like one anymore?!

     See above.

2. My manufactured home has vinyl skirting. Will it qualify for FHA financing?
   Not without backing. FHA states that “if the perimeter enclosure is non-load bearing skirting comprised of lightweight material, there must be adequate backing (such as: concrete, masonry, or treated wood) to permanently attach and support or reinforce the skirting” This means that your vinyl skirting will need to be reinforced with backing. It’s been our experience that treated wood is the cheapest and quickest fix.

3. I can’t find my HUD Data Plate / Compliance Certificate in my house. Is that going to be a problem when I sell? It depends. Don’t you love that answer? It really comes down to the lender. When needed, your lender will be able to guide you through this process. But to get you started, you can check out this helpful link by HUD: https://www.hud.gov/program_offices/housing/rmra/mhs/mhslabels

Whether you’re buying or selling, knowing the difference between a manufactured and modular home could mean the difference between making and breaking the sale. Make sure you advertise your home for sale correctly and make sure if you are a buyer that you do your homework to make sure the home is what the seller says it is.

Market Data Analysis: Odd Properties

Odd balls: Geodesic domes, underground dwellings, and those homes that make you ask, “Why?” These are atypical for our market area, but they exist and they sell, so there is supply and demand and therefore a market. If there is a real estate market, then there is a market area. In the past 10 years there have been 11 sales of geodesic domes in the entire West Penn Multi List. So if someone wants a home of this style, where are they willing to consider - in other words, what are the boundaries of the market? An entire region. The more unique a property the wider the market boundaries and the need to expand.

For a less extreme look, lets consider log homes. These are not typical for the market, but certainly more common than domes. In the past 3 years there have been 11 log homes sold in Armstrong County. If a buyer is committed to this style of home, where will they consider? Given the relatively low supply, they would like consider the whole county. They might also consider looking in neighboring counties as well. They might also consider constructing their own. So, with such low supply why aren’t there log cabin sales people on every corner? Due to the equally low demand. Low supply and Low demand = stable markets.

Take away:

1. When a property is typical for a market, your market area can be as small as a single street.

2. However, when the property is unusual, the market area will expand quickly. Imagine for a moment being asked to sell 1600 Pennsylvania Ave NW, Washington, DC 20500. The White House. How would you determine a fair price? What would your comparables be? Aside from “priceless,” if we had to place a dollar amount, our comparable search would be global in scope, including historic homes from various countries and cultures.

When pricing a property consider the buyer motivations at work. Get in the head of the buyer pool and ask the questions they’re asking. Its the tough assignments that make you grow.

Property Inspection Waivers: Who is going to be sued?

Fannie Mae is attempting to speed up the closing process by removing measures to ensure that properties have enough value to cover their loans… what could possibly go wrong?!

In markets where regularly see Original List to Sale Price ratios of 120%+, without an appraisal, its very possible that borrowers will be underwater once they close of there isn’t an independent, third party examining the property to determine market value. And if this is the case, who will the borrower come after when they find out 6 months later that they’re underwater?

Fannie Mae - has the backing of the government and enough money to pay for lawyers.

The bank - has no legal requirement other than the FNMA requirement.

Who is the only party in the transaction who is legally required to act and advise the best interest of the borrower? Who is the softest target to get the difference of sales price and market value from? The answer is the same: the buyer’s agent.

Appraisers nationwide realize that in years to come PIW will be a source of legal fallout, and are preparing to do retrospective valuations of properties for borrowers who were injured by the negligence of this FNMA policy. Don’t put yourself in a position that could cost you tens of thousands of dollars in years to come to speed up the closing by a few days now. ALWAYS advocate for client’s interest to know the market value of their home by an independent third party.

Hypothetical houses and hypothetical markets

Appraisers evaluate hypothetical houses every day - let me explain. Here are some of the examples:

1. New construction - we appraise what the home will be worth upon completion as if it was built at the time we write our report, using the data that is given to us. Without this valuable tool, banks wouldn’t be able to make informed investment decisions and homeowners would be left at the mercy of overpriced builders.

2. Exterior-only appraisals - everyday appraisers are on the streets inspecting properties from the street, or “Drive-bys” as their called for short. These are most often used by lenders considering foreclosure. They want to know if their asset is still in good shape and worth enough to cover the remaining loan. In this instance, the appraiser assumes that the interior of the home is in similar condition/quality to the exterior. We then use public records, prior multi-list data, and other sources to determine the value of the hypothetical house that all of that information tells us.

3. Regular appraisals - even when the appraiser has all the facts, and inspects the property themselves, there are things that the appraiser has to assume. We assume that the couch in the living room or the bedroom dresser isn’t hiding a gaping hole - we never move the furniture to check. We assume that what we see is consistent with what we can’t see.

All of these have their place, and are needed - but they also have a risk. An appraiser is always evaluating some degree of a “Hypothetical House,” the house that they can see, and assuming the rest. What if the assumption is wrong? Of the above, the most likely to be incorrect as to the real value of the “Real Home” is the drive by - the more assumptions that have to be employed, the more potential error is inserted into the system.

Appraisers play a part in the overall health of the real estate system.

1. Real estate agents - help to inform and educate buyers and sellers

2. Loan officers - help to ensure that the borrower is fit to secure a loan

3. Home inspectors - help to ensure that the property is safe and secure

4. Appraisers - help to ensure that the dwelling is fit to lien for the loan

Take any cog out of this machine, and the overall health suffers. But that is exactly what we see beginning to happen, and all in the name of making more money, faster.

The current trend is towards appraisers not inspecting the property at all. They are being given a report prepared by another party, without any necessary education on how to inspect a house. Appraisers are then expected to make value determinations based on that information. Can they produce credible results? Only as credible as the inspection, but yes. If this is the move that is coming to the real estate industry, then these inspectors need to be held to high standards. An appraiser trainee must train for a minimum of 300 hours and have 75 hours of education before they can inspect a home on their own, and only with the permission of their mentor. With this new move, a dangerous step is being taken back towards the early 2000’s where appraisers only had to inspect from the street… and this had a direct contribution to the housing collapse of 2008 (along with massive mortgage fraud on the part of the banks pushing for more money, faster… does anyone hear an echo?)

The further appraisals are removed from “Real Houses” and pushed towards valuing “Hypothetical Houses” the further we will move from actual “Real Estate Markets” and further towards “Hypothetical Real Estate Markets.” When these two collide, trillions of dollars go up in smoke in an instant.

Over listing your home will cost you money.

We see it everyday- a home is listed shooting for the moon, a price that will never see a contract- but who does it hurt? In the case of Indiana County, it’s hurt 50% of sellers.

Lets look at a hypothetical situation to better understand the issue:

1. A seller sits down with an agent to list their home. During the conversation, a listing price is agreed to that is 20% above the actual market value. This could happen for a few reasons:

   1. The seller has a mortgage that is far above the current market value and they are hopeful to get a sale price that covers the mortgage

   2. The seller has an expectation that is far above market value

   3. Complexity of the property made it difficult for the agent to analyze

   4. Inexperienced agents with a focus on commission rather than educating the seller regarding market trends

   5. In the case of a For Sale By Owner, the seller may lack the experience to price their home

2. The home is on the market, and buyers begin to search:

   1. Buyers who are in the price range to shop for the subject’s market value + 20%, look at the subject and see that it is far inferior to other properties, and walk away.

   2. Buyers who can afford the subject property at the market value may never look at it, because it is listed outside of their price range.

3. The home sits on the market. In the case of Indiana County and portions of Armstrong County where these trends have been seen, they sit for a long time. The normal 3 - 6 month marketing time passes and then 9 months and then 10 months. (Crickets)

4. The seller and agent get serious as the listing contract nears expiration. They begin/continue to drive the list price down. They finally get to the market value.

   1. Buyers who can afford the property finally see it within their search parameters.

   2. Buyers/Agents see the marketing time and price decrease history and assume there is something wrong with the property OR that the seller is desperate

5. Buyers, holding all the cards in the deal, finally make an offer.

Initially listing the home well above market value, often leads to the home selling below market value. In the case of Indiana County this, among other factors, has resulted in declining home prices in rural market areas.

How to prepare a GREAT CMA

We know that pricing properties in some markets can feel like grasping at straws. The more unique the property or the area, the more difficult this task becomes. We hope these steps that appraisers follow in the course of developing value opinions will be informative and helpful to you.

1. Determine your market area. Location, location, location. Depending on the property that you are representing, your market area could be a single street or an entire county. Major differences in marketability can be found by moving from one neighborhood to another, so when expanding outside of the immediate area ensure that your buyer pool would truly consider these expanded properties as well.

2. Look at the sales in the immediate market over the last 1-3 years. This will help to give an idea of what the immediate area can bear as far as values. If your price is above the 3 year high for the area, there should be a VERY good reason.

3. Narrow in on the types of properties over 1-3 years. Now that you have a general idea of the broad market, begin to refine your search. In some markets, you will have enough sales to only consider the last 6 months. With unique properties you may need to go further back in time. Consider the main factors in the buyer pool for your property. These include:

   1. Larger than typical acreage - If your subject has a city lot, stay away from the larger parcels. Sometimes appraisers, in order to bracket other amenities and due to lack of sales, may include such a property, but this requires expertise in vacant land sales to accomplish credible adjustments.

   2. Quality of the construction - If your subject is a standard 100 year old home, stay away from the custom built house with marble floors.

   3. Condition of the property - try to stay in the general age group of your subject, and consider recent renovations that have/haven’t been performed.

   4. Lower numbers of bedrooms and baths - the buyer pool for one bedroom homes with one bathroom won’t be looking at 5 bedroom homes with 4 bathrooms, and visa versa. Homes with 1 - 2 bedrooms have a drastically different marketability from even 3 bedroom homes that should be considered.

4. Pick your top sales. Bracket the amenities of the home you’re representing, selecting properties a little superior and inferior for each major marketable component (lot size, quality, condition, bedroom/bathroom count, etc). Look at the best sales you have over the last three years and look at the range that is indicated. Begin to “squeeze” in within that range considering which are superior and inferior to your subject, coming to a informed range that you can advise your buyer/seller with.

5. Only after the above consider listings. Everyone wants their house to sell for more than its worth, which makes listings fundamentally flawed for value determination. Until a property is sold, a listing price is only a representation of what a seller would like to get for the property, not what a buyer was willing to pay.

What NOT to do:

1. Don’t go 60+ miles away unless you’re representing a highly unique property.

2. Don’t take the sales of the area, and come up with the average.

3. Don’t compare a 2 bedroom home to only 4 bedroom homes.

4. Don’t simply search properties higher than what the seller wants and try to “make it work”

5. Don’t look at only listings and do the above

6. Don’t use Zillow. Don’t EVER use Zillow. By their own admission, 50% of their Zestimates nationwide are off by more than 5%. In other words, outside of highly homogeneous recent building plans, they’re numbers are worthless.

   For example, the owner of Zillow himself sold his home for 40% less than what Zillow estimated… https://www.inman.com/2016/05/18/zillow-ceo-spencer-rascoff-sold-home-for-much-less-than-zestimate/

   1. Lets look at another example from our area:

This is 162 Glade Run Road, Kittanning PA 16201. This .624 acre property for years was “Zestimated” at $112,350. On February 28, 2019 the property sold for $8,000… an error of 93%. BUT WAIT THERE’S MORE!! Once the property transferred, Zillow adjusted the new Zestimate.

Screenshot: 06/24/2019. Despite that selling price, it is still estimated to be worth $102,602. In short, Zillow can not even be trusted where there are recent sales. A drop of just 10%, when the data shows a drop of 93%.

Avoid these poor practices that will lead to a property expiring without a sale, drastically long marketing times or a price that won’t be supported and will “kill the deal.”

Under improvements / Over improvements

How much is the 4th pool worth on a property? How about the 29th bathroom? How about the 20th garage? These are absurd examples of “over improvements” in almost any market (unless your market included royal mansions), and present examples of how over improvements diminish in return as the number/quality of amenities increasingly exceed what is normal for a market area.

How do you value a home with one bedroom where 4 is typical? What about a 600 sq ft ranch in a neighborhood of 5,000 sq ft contemporary homes? What about a home with only a wood stove as a heat source? These are examples of under improvements and during valuation a key factor must be considered - “What portion of the market would be willing to purchase such a home?”

Decades of data, nationwide support the fact that buyers gravitate towards what is typical, and the buyer pool diminishes as you deviate from the mean in any particular amenity. Diminished buyer pools result in diminished demand, and therefore diminished value per unit. This is a principle across many economic fields and applies to real estate as well.

Another way of stating this is that “The more of something you have, the less each individual thing is worth,” and one of the easiest and most consistent ways of seeing this in the market is land.

Notice that as you increase the number of acres, the return divided by the total number of acres decreases. Some properties may have a better location in Armstrong County than others, and others may have sold above/below market value, but as a general rule, the trend is clear. Other amenities will have different shaped graphs - take pools for example. In the lower end of the market, pools offer no contributory value. The buyer pool in this range may not have the resources to maintain a pool, and therefore it is seen as a negative by part of the market, positive by some, and a net neutral overall. However, in the higher end of the market, this amenity can have a return (though nearly never higher than the cost of installation). However, imagine a buyers reaction to a second pool on a half acre lot. This would be seen as a liability that needs to be fixed not as an amenity, and therefore have a negative appeal. The second pool’s value on the graph would drop below zero, and so on.

When building/remodeling a home it is vital to consider, “What is normal for my market/buyer pool?” The wider of a divergence from “normal” will result in decreasing returns and difficult sales in the future.

Can we trust regression in amenity valuation?

Big data is the buzz word of the real estate industry right now. Multi-million dollar companies are popping into existence claiming to have the “right formula” for residential valuations - only to a few years later go bankrupt, (like Xiao which claimed to have the special sauce, only to re-brand as Clarocity which claimed the same, only to re-brand back to Xiao when their stock declined 98.5%, Or Housing Canary, or others). Fannie and Freddie claim to have the special sauce in the “Collateral Underwriter” but appraisers nationwide report that the output in all but the most uniform of areas is still just short of gibberish.

At the core of all of these algorithms is math, and much like stock market prediction, the math is complex, unproven and not for the faint of heart. Dr. Jason Osborne of NCSU gives 4 fundamental assumptions that must be true for multiple regression (the system at the core of these systems and most available to appraisers) to be reliable (read his paper here: https://pareonline.net/getvn.asp?v=8&n=2). These four assumptions are:

Homoscedasticity and Variables are normally distributed

This very large word means that the distribution falls evenly around the regression line. These both have to be tested on a case by case basis. However, since appraisers receive no mandatory college level statistical analysis, its too easy for appraisers to trust the tools that they are given that claim to be doing the analysis for them.

Variables are measured without error

At this point, most appraisers are laughing. Appraisers know that the data present in their local MLS has often been “fluffed,” (the word used in the real estate industry for what agents do to make a property look more appealing without outright lying). However, “fluffing” a 2 bedroom home with a windowless den in the basement into a 3 bedroom home is misleading at best. We also know that assessors are not always the most reliable home measures, sometimes including the below grade square footage with the above grade. The data sources that the regression here relies upon cannot be pushed through with out significant cleaning. This is why multiple companies over the last 10 years have been stealing this data from each other, because the raw data is worthless.

A linear relationship between independent and dependent variables

On this point, decades of real estate education again teaches us that regression in real estate fails this test. The “Law of Diminishing Returns,” bluntly states that the relationship of amenities to value is NOT linear, but rather a diminishing curve. Land is the easiest example to showcase because vacant land sales prove it time and time again.

From here we see that the price per acre (vertical) of land decreases as the number of acres (horizontal) increases. This is the “Law of Diminishing Returns” at work. This is true of all of the amenities in real estate (Square footage, bathrooms, pools, etc). As the number of amenities increase, the contribution to the overall value decreases.

However a quick thought experiment is also helpful. Imagine a market in which there are only 3 homes. All are identical, all have identical lots, square footage, bedrooms, quality, and condition. There is only 1 difference between the 3 homes, the number of bathrooms.

House #1 - has no bathroom, at all, anywhere

House #2 - has two full bathrooms

House #3 - has 35 bathrooms

Is the difference per bathroom between House #1 and #2 the same as between house #2 and #3. If you said no, congratulations, you understand the law of diminishing returns and that multiple regression CANNOT be trusted for real estate valuation. If you said yes, please contact me, I have a house to sell you.

In 2017, Town and Country Residential Appraisals reached out to the appraiser community online and asked appraisers to volunteer data from their various areas for us to examine (not to examine their appraisals, only the data that would typically be relied upon for regression). Appraisers from 6 different regions of the country responded. Aside from all 6 data sets failing tests 3 and 4 above, 5 of the 6 data sets additionally showed low levels of confidence in the data that they generated, some offering lower than 10% confidence that the data could be relied upon EVEN IF they had passed all four assumptions above. Please understand, this is not a critique of these appraisers. They delivered to us data that would be used in multi-linear regression. We performed no review of their appraisals or their interpretation of the data delivered (or if they use it at all).

Appraisers can not be complicit in handing over valuation to big data. This has already done damage to the American people and economy, and will only continue to.

Algorithms decide who gets a loan, who gets a job interview, who gets insurance and much more -- but they don't automatically make things fair. Mathematician and data scientist Cathy O'Neil coined a term for algorithms that are secret, important and harmful: "weapons of math destruction."

There is so much more to say on this subject ie. the importance of P and R squared values, sample sizes, confidence intervals, outliers, etc. However for more reading on this subject, please refer to the following for a primer on these subjects and why linear regression isn’t everything: http://resources.esri.com/help/9.3/arcgisengine/java/GP_ToolRef/Spatial_Statistics_toolbox/regression_analysis_basics.htm

In answer to common responses:

1. “I only use the data when it gives a logical result.” - This is called confirmation bias. If the confidence interval is low, but the data rendered “makes sense” to you, all you have done is confirmed your own opinion with data that is less accurate than a coin flip in determining contribution (500% less accurate in the case of confidence intervals below 10%.)

2. “R Squared values / Sample sizes don’t matter.” - I genuinely want to meet the person teaching people this, as I’ve heard it spouted enough with confidence that someone claiming mathematical competence must be teaching it. Simply, yes they do. I have yet to meet someone who can articulate a mathematical defense of this position, however I think they have the following assumption - “Since we have 100% of the sales data for an area, we have 100% of the sample and therefore, R-squared becomes obsolete.” 1) Unless you are also including all off market sales, not even that statement is correct. 2) ML Regression is not claiming to predict amenity contribution of only sold homes in a market but rather ALL homes, of which, typically, only small percentages sell, meaning that we very much need to consider the R-squared value and its effects on homoscedasticity and normalcy of distribution (tests 1 and 2 above) as well as the sample size and corresponding P value.

Market Data Analysis: Location, Location, Location

Some market areas are easier to analyze than others. A market area can be as small and contained as a single condominium plan. Other times, they have very irregular features. Today we’ll use the Freeport School District as an example, an area that covers areas in 2 counties, and at least 3 very distinct market areas. In addition to this being an analysis of a market area, this will also serve as a short example of some of the more simple steps that appraisers use in developing opinions of market areas, differing marketability, and comparable selection pools.

First we will start with a marked map of the school district.

Here we see the outline of the Freeport SD, with an approximate border of the Butler/Armstrong County line, with Butler County being to the left and Armstrong County being to the right.

This is a map of the sales in the Freeport School District over the last 3 years (from 04/30/2019). A quick glance shows that the supply and demand dynamics. There is a dramatic increase of sales in Butler County vs. Armstrong.

When we look at sales over all time, this trend becomes even more obvious.

If we apply a price limiter ($300,000+) to evaluate the marketability difference, we see an even more exaggerated difference. This shows that of the total 223 sales in all of the recorded MLS, 199 sales have been in the Butler County Area, while only 24 have been in the Armstrong County side (830% more). These kind of findings demand that we analyze if these two markets, serviced by the same school districts, are comparable.

Med Sale Price Med Taxes Med Tax Ratio Med Lot Med Year Built

Freeport Borough $60,000 $1,540 .026 City 1932

Armstrong County $139,900 $2,204 .016 1.66 1984

Butler County $183,500 $2,316 .013 .87 2001

Why are 400 homes scheduled to be constructed in Butler County when there are still unsold lots? Why have lots sat unsold in Armstrong County for a decade? The numbers tell us that there is a dramatic marketable difference between the two areas. Why do Freeport homes sell for so little? In part, because they are much older than the competing offerings and suffer a tax ratio of double that of the competition. The areas located in Butler County has easier access to the amenities of the 28 corridor leading in to Pittsburgh and Route 356 leading to Butler, lower relative taxes, the same great school system (ranked 79th in the state, and much higher than the neighboring districts) and buyers have been willing to pay a premium for this.

In addition to these basic tools, we also use pivot chart analysis, regression analysis and moving averages to determine if competing market areas are comparable, but that is for another time.

Are similar properties across this invisible county line comparable? Yes and no. They can be comparable, however, the market appeal of living in this superior market area of Butler County has to be reflected in the analysis in attempting to compare properties. Whenever comparable sales are available within the same area, it would be misleading to go into the adjoining area. We hope that this simple breakdown helps agents understand differences in market areas and how to better select comparable sales for their clients to consider.

How do I appeal my real estate taxes?

Before we discuss how to file a property tax appeal, lets first understand why this may be necessary. What is a “Property tax/County assessment?” An assessment is NOT:

1. An appraisal - it is at best a rough estimate, and lacks all of the precision of an appraisal.

2. Equal to the properties market value - many counties in the region we cover are working off assessments from pre-1990, and have little to no relationship with the market value of the homes they have assessed.

3. Performed by certified appraisers - while counties can, and often do hire organizations/individuals with this experience, there is no requirement for this to be the case.

These facts alone should cause anyone pause before trusting that their tax assessment is accurate. Further, these facts explain why so many county assessments differ wildly from the actual market value of the home. So how is an assessment performed, and where do the errors most commonly occur?

1. Data from across the region is compiled to estimate contribution of amenities.

   • In areas where data is abundant, this can result in reliable data. However, in rural areas, where data is limited, calculations based on limited data produces errant results. In the Indiana County reassessment of 2014-2015 this was the source of a great deal of error. Land values were miscalculated using non similar land sales and resulting in land assessments in rural parts of the county being assessed as if they were in the more developed areas where more land sales were available.

2. Inspectors review the outside of the dwellings, and take notes.

   • While the exterior is an important part of the home… its certainly not all of it. In the case of Indiana County, inspectors with no real estate experience were given a few hours training and sent out to inspect. This resulted in nearly every property in Indiana County with an unfinished attic above their garage being reported as having an “apartment.” This led to additional assessment to the property for nothing more than a storage space.

3. Assessors put this general data (with all of the errors that come from limited inspection) into a one size fits all algorithm that spits out a number.

   • Garbage In - Garbage Out. If any part of the information gathering process is in error then the algorithm will produce increasingly errant results. If the data on the specific property is in error, then the results will be errant. If BOTH are in error then the results will multiply the errors.

So, how can home owners who feel that this process has produced an inaccurate result appeal their assessment and therefore the taxes based on it?

1. Get a copy of your tax card. This is a public record that you can request and ask for someone to explain. If there are factual errors (garage apartments that aren’t there, too many bedrooms/baths, basement finish that doesn’t exist, etc), you can ask that they be corrected. In these cases the assessor may ask for photographic evidence.

2. Beyond this, if you feel that the final assessment value is inaccurate, it will require an appraisal to file an official tax appeal. Annual deadlines differ from county to county, so be sure to contact your assessment office and ask about the process/timeline. This will require that a professional, specific valuation of your property be provided as evidence that the non-specific, possibly non-professional assessment is in fact wrong.

Town and Country Residential Appraisals provides services for assessment appeal purposes for Indiana, Allegheny, Westmoreland, Armstrong, Butler, Cambria County, and would be glad to serve you.