The news media is packed with stories about the recovery of the housing market. “Prices are up 15% compared to last year”.
On the surface, this is true. This chart was pulled from Minneapolis St Paul Metro MLS on August 15, 2013 and shows Median Sales Price for three time periods: the most recent 12 months, one year ago and two years ago.

These figures include all sales: Traditional, Foreclosure and Short Sale. What accounts for the dramatic increase? Is it low interest rates? Better job market? Buyer confidence?

All three?

Stay tuned….

Determining the total value of an estate is an important part of estate administration. Real estate is often the primary asset of an estate, making its reported value a crucial variable in determining the amount of state or federal estate taxes owed, if any.  The reported value of real estate also has significant tax implications for the person or entity to whom the property passes.

While the estate administrator can use the assessed value of the real estate at the date of death, this approach has its drawbacks. First, no two pieces of real estate are identical.  Assessments do not take into account all the specifics of the property. This means that the decedent’s real estate could be overvalued. Second, every federal estate tax return (known as the form 706) is reviewed by the IRS. If the estate must file an estate tax return, comprehensive and detailed documentation of real estate valuation can help avoid hitches in the review process.

A wise approach to the stories of life from an icon in broadcasting.  Also a wise approach to the questions of real estate values.  The following chart shows median price for the Twin Cities Region, Single-Family, broken out by price range.  Seasonal variation is controlled by looking at December only for 2010, 2011 and 2012.  If you are in the upper middle price range, $200,000 to $300,000, values have changed very little.  Just a guess, but I would say this range of value has fewer distressed sales in the mix than the lower ranges, and fewer new construction properties than the upper quartile.  So the bottom of the market is showing the most improvement, and pent-up demand for new construction, combined with low interest rates, is driving the high end.  Just my $.02 worth, which is a true bargain considering it is free to my readers. 

Appraisals are a necessary evil required to close the deal, right?

Maybe you are an investor who would like to know what property to buy. I see all sorts of deals, more than most real estate agents over any given time period. Some of what I see may be of interest to you.

Don’t get me wrong, I am not licensed to represent buyers or sellers in the sale of real estate. But I can consult with you in many important ways. Like showing you what the upside is to repairing or remodeling a property. Or I could describe particular sub-markets that have the best ROI. My favorite scenario lately involves no remodeling or repair. I welcome your call.

Have you heard that house prices are up 9%?  That is what I read in the paper and hear on the news.  But if we take a closer look at the part of the market that affects the typical buyer and seller, that figure is in the 0% to 2.9% range.  The chart shows median prices of traditional sale properties in December 2012, 2011 and 2010, broken out by price range.  Traditional sale properties are the ones buyers prefer because they need a prompt response to their offer. Do buyers and sellers really care about what is going on in markets that don’t apply to them?  For an unbiased look at your particular situation, ask an appraiser.

Does it make more sense to remodel or move? Best answer…..”it depends”. If you love everything about your house except the kitchen, and you can get what you want with a remodeling budget of about 10% of your current value, it probably makes sense to stay and put the money toward a happy future, right where you are. Why 10%? I say this because the cost to move is easily 10% after real estate commissions, seller paid points, and possible repair items that need to be completed before the sale will close. This does not even include the expense and hassle of moving. Maybe your breakeven is higher than 10%, all things considered.

How do remodeling projects affect an appraisal?

This is a common question and there is only one true answer. Not a very helpful answer, I realize….. “It depends.”  But I do have a framework for you to consider that has been helpful to many.

Imagine yourself paddling a canoe in a river. If you are paddling with the current, you will make lots of progress. But if you are paddling upstream against the current, you will get more exercise than distance.  The current in the river represents the change in your local real estate market. Your paddling effort represents the expense of remodeling.

Assume you own a house in average condition worth $400,000 and decide on a $60,000 kitchen remodel. How much does the new kitchen increase the value?

One way to gauge this is to wait five years and sell the house. If the house sells for $460,000, you got your money back, right? Not so fast. That is $60,000 worth of paddling, but you need to know if you were paddling with or against the current. If you had not remodeled, it may have sold for $440,000. So maybe the true cost of remodeling is $60,000 minus the $40,000 of market increase.

The best way to know the value of remodeling is to compare houses like yours in the current market. You may find that the houses with remodeled kitchens are selling for 10% more than those without, other things being equal (they never are). Appraisers are trained and experienced in doing this. I welcome your call.

August 2012 shows a huge improvement in a bellwether statistic.  Wow.  I always thought that was spelled bellweather.  When I checked the spelling, I got a definition thrown in.

“A bellwether is any entity in a given arena that serves to create or influence trends or to presage future happenings.”

The good news is that the supply of homes for sale in August 2012 is 4.6 months.  Six months supply is generally considered the upper limit of a balanced market, so we may have entered a time of stability.  For comparison, the supply in August 2011 was 8.7 months and in August 2010 it was 9.4 months.

Buyers are competing for houses again, which is good news for sellers and anyone else who benefits from rising values.

Property tax assessments are done en masse, meaning your property taxes are based on generalities, not the specifics of your property.  If your property is over assessed, you are paying more than your fair share.  This doesn’t matter all that much if the difference is small, because the cost in time and money to appeal your assessment has little payback.  But if you own commercial property, savings could be significant.  It may be a good idea to check with a property tax consultant who knows the system.  Best of all, their services are contingency based.  They are paid a percentage of what you save, so it costs you nothing if there are no savings for you.