“Three fifty? Are you out of your freaking skull,” the rotund, little man bellowed beneath a reddening bald pate.
“You disagree with my analysis,” Maxwell Listers surmised. He was not unaccustomed to the question, though twenty six years of patient rebuttal had him rethinking the answer some days.
“You call that an analysis,” Ollie Meanders dismissed. “Even my senile mother in law could tell you this house is worth five hundred grand, and she thinks you can still buy a ticket to a picture show for a nickel.”
“I see,” Max replied, organizing the stack of comparable sales he had spent the past half hour explaining in excruciating detail. “Your mother in law would no doubt be swayed by the thirty two hundred square feet you claim to possess.”
“Damn straight,” Ollie confirmed, puffing his hirsute chest beneath an overmatched, crumpled white undershirt.
“Why, that three thousand square foot house one block over just sold for four eighty after all, and it didn’t even have a fireplace, did it,” Max agreed, leafing through his stack to the appropriate property listing.
Ollie stared at the agent with suspicion roiling in his beady eyes. He knew he was being taken for a ride, he just didn’t know where.
“Of course,” Max continued, “that was all original square footage …”
“So,” Ollie challenged.
“So original square footage is more valuable than added square footage,” Max concluded on cue, his silver hair lending more credence to the proclamation than the dirty blonde it had crowded out a decade earlier.
“What the hell is the difference,” Ollie pressed. “Thirty two hundred feet is thirty two hundred feet!”
The cords in Ollie’s sausage forearms rearranged themselves into angry knots beneath his taut, freckled skin.
“Think so,” Max asked, his arched eyebrows issuing a direct challenge.
“Well, sure,” Ollie sputtered. “Who cares … I mean, what does it, uh, matter if it, um …”
“Remind me, how many bedrooms do you have, Ollie?”
“Four,” the homeowner boasted, jutting his chin at the listing in Max’s hand. “Same as that one!”
“And did I miss the formal dining room somewhere when you were showing me around?”
“No,” Ollie said with slightly less confidence. “That’s where I added the fourth bedroom.”
“And how many baths?”
“Well … still just the one and a half,” Ollie admitted.
“How about parking,” Max asked.
“I, um, enclosed the garage to make the game room.”
“And this kitchen,” Max continued, looking about the small galley.
“Installed the granite counter tops myself,” Ollie crowed.
“And they are stunning,” Max allowed. “But does this room strike you as the hub of a thirty two hundred square foot home, or would you agree that it more closely embodies your home’s former life as a seventeen hundred square footer?”
“It might be a bit on the small side,” Ollie acknowledged. “But I converted the laundry room to a pantry for extra storage.”
Max scribbled something on a manilla folder marked “Meanders, Ollie.”
“These low ceilings ….”
“No, I don’t have the big, fancy vaults that some of my neighbors do,” Ollie ceded. “But do you have any idea how much it costs to cool that extra space?”
“And the back patio … wait. Where is the back patio,” Max asked, craning his sinewy neck to look past the homeowner.
“I enclosed that, too,” Ollie replied, slowly being sapped of his pugnacity.
“Ah yes, I see,” Max nodded. “That would explain the step-down and the funky slope to the roof line. A shame how it darkens the family room and eats up the backyard.”
“Should I put in some skylights?”
Max shook his head.
“You’d just be throwing good money after bad,” Max advised the crestfallen homeowner. “I’m afraid you have a Frankenstein house, Ollie.”
“A Frankenstein house,” Max confirmed. “You took a perfectly good little home and created a monster – a big, sprawling octopus of a property, one incongruous addition at a time.”
“But the bigger, the better, right?”
“No, Ollie. Not necessarily,” Max corrected. “Your house doesn’t fit the needs or expectations of a larger family despite the raw square footage, nor does the new layout fit the single or couple to whom it would have originally appealed. You are stuck between buyer demographics. Homeseller Purgatory, if you will.”
Ollie buried his head in his hands.
“You just can’t juice a little house into something it isn’t,” Max added for good measure.
“All that work,” Ollie moaned. “All those trips to Lowes.”
“Wish you’d called me in sooner,” Max lamented. “Would have aborted Rosemary’s Baby here before it was ever conceived.”
“My apologies,” Max offered.
“Well,” Ollie breathed with a heavy sigh. “I need to move, but I’ve put way too much into it to sell it for three fifty. What do I do?”
Max took a moment to ponder their options.
“How’s your insurance,” he wondered.
“Insurance,” Ollie parroted with evident confusion. “Full replacement cost, why?”
“Fire bad,” Max suggested with a conspiratory wink.
The agent stood and lumbered out of the cramped kitchen with arms extended out in front of him like the monster fleeing an angry mob of torch-bearing villagers.
When immersing oneself into the home buying or selling process, a consumer will quickly find him or herself inundated with an unfamiliar vernacular:
As we in the business have a tendency to forget that not everyone readily understands our acronym-heavy lexicon, the following is the CliffsNotes version of a Scottsdale Real Estate dictionary. Of course, me being me, a few red herrings are included amongst the standard terms you will encounter in your adventure to buy or sell a house to keep you on your toes. See if you can pick them out, and leave me a comment with your guesses.
And as always, kids, we are not attorneys. DO NOT rely on my interpretations of the terms below for legal purpose.
AAR – “Arizona Association of Realtors” is the body responsible for the Standard Purchase Agreement that is typically used in residential Real Estate transactions.
Active – A property listing in the MLS that is currently for sale.
Active With Contingency – A property listing in the MLS that is under contract, but accepting backup offers.
Addendum – Document attached to a Purchase Agreement (Contract).
Agency – Fiduciary obligation of a Real Estate Agent (Broker) to represent the best interests of a client in a Real Estate transaction. May be expressed (stated in writing) or implied (through the actions of the agent).
Agent – While the term “Agent” can refer to numerous things, it is most often used in conjunction with a Real Estate transaction to refer to a REALTOR (either a Buyer’s Agent or Listing Agent). SEE ALSO: Real Estate Agent
Appraisal – Valuation of a property’s current worth by an independent professional. An appraisal is part of nearly every financed transaction.
APR – “Annual Percentage Rate” calculates the true cost of borrowing by tallying expenses associated with the loan (closing costs), spreading those costs over the life of the loan, and adding to the rate of interest.
ARM – “Adjustable Rate Mortage”
ARMLS – “Arizona Regional Multiple Listing Service”
“As Is” – Term of a transaction which indicates that the property will convey to the buyer in its present condition, with no repairs required of or agreed to by the seller.
Assessed Value – The basis for property taxes in Maricopa County, as determined by the County Assessor. Assessed Value is calculated at 10% of Full Market Value.
Asset Manager – Person employed by a bank to represent its interests in the sale of property acquired through Trustee’s Sale (Foreclosure).
Bank-Owned Home – See “Foreclosure”
BINSR – “Buyer’s Inspection Notice and Seller’s Response,” standard form used for negotiation of repairs on residential property in AZ.
Blanket Insurance Policy – Insurance coverage that protects the physical structure of a property. Coverage typically extends to the interior studs, leaving drywall, flooring, etc unprotected (unless supplemented with additional coverage).
BPO – A “Broker’s Opinion of Value” is basically a poor man’s appraisal (though we agents are not allowed to refer to our evaluations as “appraisals” as we are not licensed in that field). Primarily used by banks to determine current market value of a property on the cheap (approximately $50-75 versus $350-400). As the name suggests, BPO’s are performed by Real Estate Agents.
Buyer – The person(s) or entity purchasing Real Property.
Buyer’s Agent – Real Estate Agent who represents the Buyer in a Real Estate transaction.
Broker – A Real Estate Broker is an intermediary between a Buyer and Seller in a transaction. Often, there are two Brokers in a Real Estate transaction; one who represents the Seller, and one who represents the Buyer. More often than not, the salespersons with whom the Buyer and Seller interact directly (Buyer’s Agent and Listing Agent respectively) are not the actual Brokers, but agents of the Broker.
Chain of Title – Sequence of title transfers from the present owner back to the original owner.
Client – Principal in a Real Estate transaction (Buyer or Seller) to whom an agent owes a fiduciary obligation.
Closing Costs – Costs due a Buyer or Seller at the Close of Escrow in association with a Real Estate transaction.
CLUE Report – “Comprehensive Loss Underwriting Exchange” details past insurance claims against a property.
CMA – “Comparable Market Analysis” utilized by Real Estate Agents to derive an opinion of a property’s current market value.
COE – Or “Close of Escrow,” is the agreed upon date on which the title (ownership rights) to the property is transferred from Seller to Buyer.
Comps – Short for “Comparable Sales,” recent Comps comprise the linchpin of a property’s current market value.
Contingency – An act upon which a Real Estate transaction is subject, ie: buyer obtaining a loan, the property appraising for the purchase price, buyer selling another property, etc.
Contract – Also known as a “Purchase Agreement,” the legal instrument which states the terms of the agreement to buy/sell between the Buyer and Seller.
Contract Date – The date upon which a Purchase Agreement is fully executed by all parties.
Conventional Loan – Financing vehicle that is not insured or guaranteed by a government agency, and adheres to Fannie Mae (Federal National Mortgage Association) guidelines, with a maximum loan amount of $417,000 in AZ (at the time of this posting).
Counter Offer – A written response that alters one or more terms of an offer to purchase.
Creative Financing – Means of financing the purchase of Real Property that is most likely to result in incarceration.
Cure Notice – Written notice from one party to another during the escrow period of a breach of contract. The breaching party is granted, according to the standard terms of the AAR Purchase Agreement, 3 days to correct the breach before the non-breaching party is permitted to unilaterally cancel the transaction and pursue additional recourse.
Customer – Principal in a Real Estate transaction to whom an Agent (Broker) owes no fiduciary obligation (either represented by another Broker or unrepresented).
Deed of Trust – Legal instrument securing a lender’s interest in a property, included in the closing documents in financed (non-cash) transactions.
Discount Point(s) – Lending fee(s) which may be charged to borrowers with lower credit scores, or at the borrower’s discretion to “buy down” the interest rate. One point is typically equivalent to one percent of the total loan amount.
DOM – “Days On Market” for a listed property.
Dual Agency – The representation of both principals (Buyer and Seller) in a transaction by a single Broker.
Earnest Money / Deposit – “Good Faith” funds, typically deposited with 3rd party title company (or broker’s trust account) upon contractual agreement between Buyer and Seller.
Easement – Right to use of a property for a specific purpose by a party other than the owner, such as a utility company.
Escrow – The process in which title is transferred from the Seller to the Buyer in a Real Estate transaction via neutral third party in accordance with the terms of the Purchase Agreement (Contract).
Escrow Officer – Professional who oversees the Escrow process.
Equity – A homeowner’s financial stake in a property (determined by subtracting existing liens and encumbrances from current market value). ALTERNATE DEFINITION – Something we all once had in far greater supply.
Fair Housing – Doctrine which mandates I not advertise my listings as “FAMILY friendly,” “Within WALKING distance of the SYNAGOGUE,” or “Perfect for RETIREES and EMPTY NESTERS” because the federal government hates target marketing almost as much as it hates me.
Fair Market Value – The price a willing buyer and seller agree to in the open market.
FHA – aka the “Federal Housing Authority,” FHA financing is available for the purchase of a primary residence with a max loan amount of $346,250 (at the time of this posting) in Maricopa County. Property and borrower must meet certain eligibility requirements.
FICOs – Credit scores from the three major reporting bureaus (Experian, Equifax and TransUnion).
Fiduciary – One who is entrusted to represent the best interests of another. In a Real Estate transaction, the fiduciary is the Broker (and agent thereof) who represents a principal (Buyer or Seller).
Final Walkthrough – Buyer’s reinspection of a property immediately prior to the Close of Escrow to ensure that the premises are in substantially the same condition as when the Purchase Agreement was executed, and that any/all agreed upon repairs have been completed to satisfaction.
Financing Contingency – Under the standard AAR Purchase Agreement, a transaction is contingent upon the Buyer’s ability to obtain financing. Unless the boilerplate terms of the agreement have been altered, the Buyer is typically entitled to a full return of the earnest funds if denied for a loan (provided the good faith effort described in the Purchase Agreement has been put forth) at any point prior to the Close of Escrow.
Foreclosure – A bit of a misnomer as properties in AZ are taken back by the bank (or the highest bidder) via “Trustee’s Sale” for non-payment by the mortgagee (homeowner), a Foreclosure property is one which is now owned by the bank or its assignee.
Funding – The lender’s release of closing funds upon full loan approval to the title company.
Fustigate – To beat with a stick. Typically pertaining to Loss Mitigation Specialists and Underwriters in a Real Estate transaction.
Good Faith Estimate – Or “GFE,” is a legally-required estimate of total settlement costs to a Borrower from a Mortgage Lender or Broker.
Guarantee – Distant cousin of the unicorn, this mythical creature does not live inside a Real Estate transaction.
Hardship Letter – A letter, required in a Short Sale transaction, that details the nature of the homeowner’s hardship that necessitates a sale of the property for less than the balance owed on the loan(s).
Hazard Insurance – Required by most lenders, indemnifies against property loss due to nature (fire, storm, etc). Additional coverage may be required for properties that fall within designated disaster areas (flood plains, etc).
HELOC – “Home Equity Line of Credit”
Highest and Best – Solicitation by the Seller, usually in competitive multiple offer scenarios, for a Buyer’s best offer.
HOA – A “Homeowner’s Association” is a governing body (managed either professionally or by the homeowners themselves) that may impose additional rules and bylaws over and above local ordinances to preserve the quality of life and integrity of property values for its members. Periodic fees (monthly, quarterly, semi-annually or annually) are typically levied to support the body and maintain common area elements (community pools, guard gates, clubhouse, foliage, etc). Special assessments can be levied for specific projects over and above the standard operating budget.
Homeowner’s Insurance – Insurance policy that combines hazard coverage with personal liability protection.
Home Warranty – Annual coverage policy for the primary mechanical components of a home, often included in the negotiation between Buyer and Seller.
HUD Home – A property taken over by HUD (Department of Housing and Urban Development) after default on an FHA loan. An FHA loan foreclosure.
HUD-1 Settlement Statement – Itemized list of all costs incurred and funds disbursed at closing.
IDX – “Internet Data Exchange” program that most local Real Estate Brokers participate in, allowing for the proliferation of their ARMLS listings across publicly accessible websites.
Inspection Period – Sometimes referred to as the “Due Dilligence Period,” the Inspection Period typically extends 10 days (negotiable) from full execution of the Purchase Agreement by both parties. During this period, the Buyer is to perform any/all inspections of the property and decide whether to 1) Accept the premises, 2) Request Repairs or 3) Cancel the transaction, provided that none of these options were overridden in the Purchase Agreement.
Interest Rate – The cost of borrowing money for a home loan is based on a percentage rate of interest. While most loan programs offer a fixed rate of interest over the life of the loan, some (ARMs) adjust at specified intervals based on the behavior of a particular index. Most 30 year fixed mortgage rates are driven by ten year, five year and one year Treasury Note yields on the open market, not the fund rate you hear about the FED lowering or raising on the nightly news.
Jumanji – Finding oneself under contract on multiple properties after negotiating offers on more than one at a time.
Jumbo Loan – Financing type that exceeds Fannie Mae conforming loan limits. In AZ, that would be a loan amount in excess of $417,000 presently.
Junior Lien – A lien that is subordinate to a prior lien; ie second mortgages, lines of credit, etc. A junior lienholder is often the fly in the ointment to a successful Short Sale.
Lead-Based Paint Disclosure – Federally required disclosure on all properties built prior to 1978, the year lead was outlawed in paint.
Lease – Rental Agreement for temporary housing.
Lienholder – The financial institution or investor that holds a Deed of Trust.
Listing Agent – Real Estate Agent that represents the Seller in a transaction.
Loan – See “Mortgage”
Lockbox – Key repository used by Real Estate Agents to alternately permit and gain entry into a property.
Loss Mitigation Specialist – AKA “The Anti-Christ,” is the negotiator employed by a bank to represent their interests in a Short Sale transaction.
LSR – A “Loan Status Report” is a buyer pre-qualification form that is attached (typically) to an Offer per the terms of the standard AAR Purchase Agreement.
LTV – “Loan To Value” ratio which outlines down payment requirements for a loan program. For example, an 80/20 LTV reflects a loan for 80% of the value (purchase price), and a 20% down payment from the Buyer.
Mortgage – “Deeds of Trust” are recorded in Arizona instead of Mortgages, but essentially interchangeable terms that refer to the legal instrument used to secure the lender’s interest in the property.
Mortgage Banker – A mortgage professional who works for and sells the financing products of a specific bank.
Mortgage Broker – An intermediary who matches borrowers with financial institutions based on needs and terms. The primary difference between a Mortgage Broker and a Mortgage Banker is that a Broker is not necessarily affiliated with any particular institution.
Negotiation – The attempt to reach an accord between Buyer and Seller on the terms of a Real Estate transaction.
Offer – The initial proposal (must be in writing to be legally recognized) to purchase Real Property; the starting point of a negotiation between Buyer and Seller.
Open House – Four hour blocks of a Listing Agent’s time used to catch up on crossword puzzles.
Origination Fee – Fee which may be charged by a Mortgage Banker or Broker in affiliation with a new loan and included in the Buyer’s closing costs. Most often, an origination fee is equal to 1% of the loan amount.
Pending – An alternate option for a property that is under contract, a listing entered into “Pending” status is effectively removed from the market (not soliciting backup offers) while escrow is navigated.
Personal Property – Affects of a homeowner that are not considered Real Property, and therefore, do not transfer upon sale unless specified in the Purchase Agreement. Basic rule of thumb for Arizona holds that anything that requires a tool to remove from the home is considered a fixture of the house, and conveys unless excluded. Notably, refrigerators and washers/dryers are personal property in AZ.
PITI – “Principal, Interest, Taxes and Insurance” of which a monthly mortgage payment is comprised.
PMI – Private Mortgage Insurance, required on loans with down payments less than 20% of the purchase price.
Preliminary Title Report – Report that lists conditions of obtaining title insurance and any exceptions to the policy’s coverage.
Primary Lienholder – The lienholder in first position on a property, often the holder of the Deed of Trust.
Primary Residence – Where you hang your hat, for financing and tax purposes.
Property Taxes – Taxes levied annually and paid semi-annually in conjunction with the ownership of Real Property in AZ. Total tax liability is determined by multiplying a property’s assessed value (10% of True Market Value, as determined by the County Assessor’s Office) by a municipality’s current tax rate.
Purchase Agreement – See Contract
Quitclaim Deem – Transfer of interest in a property from one party to another without warranty.
Real Estate Agent – A person licensed to transact in the sale of Real Property.
REALTOR® – Real Estate Agent who is an active member of the National Association of Realtors. All Realtors are Real Estate Agents, but not all Real Estate Agents are necessarily Realtors.
Real Property – Land and its appurtenances plus the physical improvements (structures) made to a property.
Recording – The recordation of the warranty deed (conveying title from Seller to Buyer) at the county recorder’s office signifies the official Close of Escrow in Arizona.
REO – “Real Estate Owned” AKA Foreclosure or Bank-Owned Property.
Renter’s Insurance – Otherwise known as “Content Insurance,” this type of coverage protects personal affects.
RESPA – “Real Estate Settlement Procedures Act” that establishes consumer protections in a Real Estate transaction, including measures to ensure proper disclosure of estimated settlement fees, and prohibitions on kickbacks from service providers that may increase total settlement costs.
Riparian Rights – System for allocating water rights that AZ Realtors learn about in licensing coursework and then summarily forget. This is the desert, people. We don’t own squat.
Schedule B – List of exceptions to coverage in a Title Report
Seller – The person(s) or entity selling Real Property.
Short Sale – A Real Estate transaction in which the total lien(s) against a property exceed its current market value. Approval must be gained from the lienholder(s) to accept repayment in an amount less than owed in exchange for the lien’s release. With a host of possible legal and tax ramifications, consultation with a Real Estate attorney is strongly advised before a Seller pursue a short sale.
SPDS – “Seller Property Disclosure Statement” which outlines the Seller’s knowledge of the property’s history, and is given to the buyer within 5 days of contract acceptance under the terms of the standard AAR Purchase Agreement. Such disclosures are rarely available for bank-owned properties, thus this provision is often stricken from the agreement on REO transactions.
Subprime Loan – A financing option for borrowers who don’t qualify for traditional mortgage programs that is presently about as viable as Justin Bieber’s impending induction into the Rock and Roll Hall of Fame.
Title – Bundle of rights that accompanies ownership (either whole or partial) interest in a property.
Title Agent – Third party responsible for underwriting a title insurance policy. The term is often used interchangeably with “Escrow Agent” in AZ, but the two are not necessarily the same.
Title Insurance – Coverage supplied by a Title Agent that warrants clear title to a property (less any listed exceptions of the policy). Separate policies are available to protect the interests of homeowners and lenders.
Trustee – Third party to whom a property is entrusted for the protection of a beneficiary.
Trustee’s Sale – Sale of a property under the terms of a Deed of Trust as a remedy for default in Arizona. The artist otherwise known as “Foreclosure.”
Underwater – Slang reference for a home loan whose balance exceeds the current market value of the property.
Underwriter – The professional responsible for final review of a Buyer’s loan package and underwriting of the closing documents.
Usain Bolt – Jamaican speedster who is considerably faster than the housing recovery.
VA Loan – Financing type available to veterans.
Vacant – Terminology used to describe an undeveloped lot or an unoccupied home.
Vesting – Manner in which title to a property is taken. Standard options include “Sole and Separate Property,” “Joint Tenancy,” “Tenants In Common,” “Community Property” and “Community Property with Right of Survivorship.” As there are potential legal and tax ramifications to the option selected, seeking the advice of an attorney and/or CPA is recommended.
Zestimate – A continual source of amusement for Real Estate Agents.
To whom it may concern,
I am drafting this explanation of hardship in attempt to effect a short sale of my property located at 88 W. Tantalus Lane, Scottsdale, AZ 85258.
When I purchased the property on 1/16/2005, I was under the impression that Real Estate values never declined. That’s what the guy doing the seminar behind the Benihana on 12th said, at least. Granted, I wasn’t thinking clearly because I skipped dinner and the aroma of szechuan beef was driving me half mad with hunger, but I decided right then and there that I was going to put all sixty two of my dollars into Real Estate investing. If he could buy 764 properties for no money down, why the hell couldn’t I? Figured I could finally hang up my plunger for good.
Do you have any idea what it’s like to swab out a stall after the sponsored little league team comes through and crushes fifty happy meals in four minutes flat?
So I bought a place. And another. And another. Before long, I had both shift managers leasing houses from me. It was awesome. One time, Steve, the ball-buster who managed nights, told me I overcooked the fries. My shift ended two hours before his. I threw all his shit out in the front yard and changed the locks. Nobody complained about my fries after that.
Anywho, after my brother in law flew down from Sacramento and got his Real Estate license in like six minutes, he hooked me up with this appraiser guy. Got all the houses refi’ed for 200% of purchase price and bought this here spread for cash. I only put the mortgage on it with you guys so I could cash myself out to fund the hotel in Fiji.
Somewhere in the middle of all this, I lost my job. Got laid off right after telling the regional manager that his fat $%&^ of a wife better start watering my hibiscus or they’d be on the street faster than she could cram a number eight combo down that feed trough she called a throat.
Downsized, I couldn’t believe it. With values beginning to sag, the double whammy of losing the $5.75/hour and a solid tenant was the start of a downward spiral that I couldn’t escape.
The Internal Revenue Service started coming around about this time and asking stupid questions like, “Exactly how many primary residences do you have,” and “Did you really think you could complete a 1031 exchange into a Peruvian brothel?” They seized my liquid assets. Communists.
After I got out of prison, I spent 16 months in Tijuana clearing my head. I took some part time custodial work in the entertainment industry, but as fate would have it, the goddamn donkey got the drop on me one night. Kicked me right in the lower bicuspids as I was bending down to hose off the astroturf. As medical coverage wasn’t provided by this particular employer, I was pushed further into debt by the street vendor who fashioned my new teeth out of cardboard and chicklets. Now every time I smile, I provide free advertising for “Beto’s Baja Fish Tacos.”
Despondent, I returned home to find my brother in law (who had since given up on Real Estate and was now selling Tang on Craigslist full time) had let my properties go completely to pot. Broken windows, four foot high weeds in the yard, missing air conditioning units … all of my tenants were long gone. Except for the dead guy we found in a barcalounger at the Clarendon duplex (I think you have the loan on that one, too?). That episode put me in counseling for a year. That’s when the whole drug thing really got out of hand.
So anyway, do you really want this piece of &*%^ back or what? We smoked the drapes.
Maricopa County property tax valuation notices go out in another month or so, and the reverberation of a couple million jaws dropping will once again shake the Valley of the Sun. Whether a new homeowner’s first tax valuation experience or a case of seasonal amnesia in longer-tenured residents, many succumb to reverse sticker shock upon first glance at the meager value the county has assigned to his/her Scottsdale home.
“My house is worth WHAT?!!!“
Rest assured, values have declined in the greater Scottsdale and Phoenix area, but the paltry figure on the wadded up piece of paper in the clenched fist of an aghast homeowner seldom represents an accurate indication of current market value. I repeat, the county’s assessed value does not represent the home’s current value.
Our property valuation schedules are a convoluted mess here in Scottsdale. Rather than a simple statement of what your property is worth and the taxes associated with it, your notice will reflect myriad seemingly incongruous figures. Limited values, full values, cash values, secondary values … and a partridge in a pear tree. To simplify (somewhat), let’s just break the tax notice down to what really matters to you.
The Assessed Value of a home is derived by the following formula:
Full Cash Value x Assessed Value Ratio = Assessed Value
The Full Cash Value figure is the closest thing to a current market value determination by the county, and it represents the value of the land plus (supposedly) any and all improvements (structures) to the property. Bear in mind, however, that this figure is arrived at exclusively through public record search. No appraiser comes to your house to value recent improvements, verify square footage, etc. Unless permitted, that computerized formula for value assignment is unlikely to take into consideration your recent kitchen remodel, new hardwood flooring, plantation shutters, A/C, etc. I have encountered far too many discrepancies between the information found in the tax records and reality to take even the assessor’s rudimentary information with anything less than a periodic table-shattering grain of salt. Non-accounted for additions, wildly inaccurate square footages and omission of swimming pools are public record bugaboos that immediately come to mind as repeat offenders.
Once Full Cash Value is assigned, dubious as it may be, that figure is multiplied by the Assessed Value Ratio to arrive at the Assessed Value (the number that causes fainting spells across the Valley). For residential properties (with completed homes), the Assessed Value Ratio is 10%. For vacant parcels, it is 16%.
Once Assessed Value is determined through that formula, it is in turn multiplied by the current tax rate to determine the total taxes owed for the upcoming cycle. To further complicate matters, there is a primary and a secondary tax rate to consider, but we’ll save that stimulating bit of minutia for another day.
Maricopa County Property Tax FAQ
Confused yet? So is nearly every homeowner and buyer in Scottsdale. Let’s apply it to a real world scenario.
Take a residential property assigned a Full Cash Value of $300,000. For the sake of clarity, we’ll combine the primary and secondary tax rates at a not completely arbitrary 6.5% (roughly the combined rate for my tax district in 2010). Using the formula outlined above:
300000 x .10 = 30,000 x .065 = 1950
With total tax liability established at $1950, it is divided into semi-annual bills of $975. First half taxes are due on October 1st (delinquent on November 1), and second half taxes are due March 1st (delinquent on May 1) of the following year.
Mathematical gyrations aside, as that was not the original intent of this piece, my advice to homeowners and prospective homeowners alike is not to look to the tax rolls in pursuit of an authoritative decree of a property’s current worth. Even if you know which figures to look at, the full cash value determination is not the ultimate purpose of the assessment, and therefore renders its application to any one specific property an unreliable measure.
A system designed for county-wide revenue collection is not a great gauge of what Mr. and Mrs. Smith would be willing to pay for Mr. Jones’s house on 1/3/10.
If a specific property’s value is one needle in the market’s haystack, the assessor is using a forklift to find it.
Or, to satisfy my personal quota for no fewer than 2 gratuitous metaphors per post, the county assessor is stalking the nimble prey of current market value in a bazooka-wielding dump truck.
The tax rolls are full of good stuff that can be exploited in negotiation. Total lien encumbrances, dates and price of purchases, taxable square footage, zoning, parcel size, etc can all be utilized by a savvy consumer to secure the tactical advantage that accompanies such intelligence gathering. Just don’t look to this cumbersome evaluation method to derive your unshakable opinion of the property’s worth.
Recent comps, current competition, pending sales … this is how you triangulate current market value. Property tax assessments, online evaluation algorithms, Carnac impersonations … amusing broad stroke guesstimations, but nothing more than jumping off points.
Want to determine what a home is worth? Get an appraisal or contact a local Scottsdale Real Estate agent for an opinion of value via comparable market analysis.
Want to give yourself a stroke? Base your price expectations around the assessed value notice that hits your mailbox in February.
If only it were that simple. I’ve had this pearl lobbed across the kitchen table by a would-be Scottsdale home seller in denial more times than I can count, and I can count all the way to eleven, thank you very much. After all, it’s self-evident that the single most effective way to combat the potential deal-killing reality of a third party evaluation is not to have one. Thus, it never comes as a surprise when a homeowner objects to the recent sales data by flipping the script on my argument that there is no way on God’s green earth that the home would appraise for the lofty number in his/her head, even if some foolhardy buyer would prove willing to plunk down greenbacks well in excess of true market value.
“You need to find us a cash buyer so there won’t be an appraisal, then.”
While rummaging through my briefcase for the ready supply of cash buyers I keep on hand in case of emergency, I’m dismayed to find that there appears to be a hole in the bottom. All those investor whales who bleed money from their blowholes must have fallen out as their portfolios shrank to guppy size over the past few years.
There are cash buyers out there, but times have changed, people. This is not 2005-2006 where many “cash” buyers were actually relying on draining a HELOC to close. Or those others who have been bounced from the pool by decimated 401k’s and suddenly nonexistent pensions. The cash buyers who are still around in 2010 are genuine Daddy Warbucks types and professional investment syndicates.
Genuine. Cash. Buyers.
And you know what? Those with the coin to be players in the current market are not interested in overpaying for your, or any other, property. The only people buying homes at present, regardless of whether the property is a need or a want, are those intent on a modern day train robbery. When even the value-priced properties linger on the market as the slap-your-momma-value-priced properties are the ones being snapped up, the game plan is to grossly overprice your home in hopes of landing one of these cash buying makos? Seriously? Because they are so darned cute and cuddly, I gather?
As strategies go, I’d sooner advise trick or treating at Dick Cheney’s house as a pheasant hunter.
Happening upon a cash buyer is one of those fun eventualities that is largely determined by price point and fate. Those fortunate enough to have such a creature fall in their laps quickly learn that the cash comes with a steep price: negotiating disadvantage. If you are overpriced, your home won’t even be a blip on Mr. Moneybags’s radar. If you are priced in line with values, he will lowball you. If you are priced significantly under market, he still might attempt to haggle a little. After all, he has cash, and cash is king, right? You aren’t the only one who knows it.
While a cash offer may represent the panacea to the appraisal conundrum, the actual cash buyer is not a willing participant in the “I’m willing to spend whatever it takes, because I simply must have THIS HOUSE” game. He goes across the street and buys the ugly one for 100k less.
Don’t believe me? Let’s try a quick role-playing exercise.
You are a homebuyer in 2010. Through shrewd investment strategy, you have managed to not only hang on to your capital, but to actually amass a larger fortune during these lean economic times. Sensing that opportunities abound in Scottsdale Real Estate at present, you are in the market for a house or two. You might even live in one when you are not at the penthouse in Manhattan, the chalet in Brussels or the flat in London. You’ve studied the market, read all of the stories and spoken with your most trusted advisors. Putting to work the analytical mind that has served you so well in critical financial decision-making to this point … what are you going to buy?
Are you going to spend all day making doe eyes at some overpriced turkey playing hard to get, or are you going to fill your tag by blasting the one with a limp?