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Archive for the ‘Monday “Mail Bag”’ Category

Each day I receive calls and emails about various real estate, appraisal and financial topics. Occasionally, I select some of these questions and share them. Here are a few of them.

 

Broker: What are the rules for well and septic setbacks for FHA?

Jack: For FHA & USDA, private wells MUST be 50 feet from the septic tank and 100 feet (75 feet in New Hampshire) from the drainage field (leach field). In addition, the well must be 10 feet from property lines. If it does not meet these setback, it does NOT meet FHA standards.   If you try to finance a property that lacks these setbacks with either FHA or USDA, the appraiser MUST (no subjectivity involved) report this to FHA. At that point, the loan is in serious jeopardy. A few possible solutions are; 1) change the loan program to conventional 2) Move the well or septic 3) connect to public water and/or sewer or 4) apply for a waiver from FHA.   I don’t deal with the waivers, which is left for the lender to do. It is my understanding that the waivers are tedious to obtain and not guaranteed.

 

Potential Seller:   I hear the market is crazy! How long do you think it will last?

Jack: Here in New Hampshire, we have a very season driven market. Even when prices remain level from year to year, prices vary from season to season. Winter and holiday cause a slowdown in the winter and prices tend to bottom out. In the spring, there are more buyers (and more sellers too) and prices rise. Prices rise through early mid-summer then tend of level off through the fall. In the mid/late fall, values begin to drop and “bottom out” around January.   The crazy thing about the “spring market” (which extends into summer), is that when it starts, it ignites light a flash fire and when it ends, it stops like a car hit the wall. My guess is that the “fast market” will end shortly (if it hasn’t already) and we transition to stability and then to declining. Again, all seasonally.

contemp

Listing Broker: I am listing a 2,400 SF contemporary style. Do contemporary houses sell the same as colonials or other traditional two-story houses?

Jack: It really depends on the market. There is an appraisal an economic term called “conformity”. In laments term, to maximize the value of house it should “conform” to the neighborhood. Take a look at new construction? What are they building which represents what today’s buyer are seeking? If they are building all colonial style houses than the contemporary will most likely have less demand. Towns that have a strong preference for colonials (Bedford and Hollis come to mind), will discount the value of contemporary houses. Towns with a mix of different styles may not discount the style as much (if any). Note: The broker indicated the property was located in one of the two towns mentioned and I told him that it was a strong possibility that a contemporary house would sell than similar sized, quality and conditioned colonial style houses.

Pool

Pool Owner: Do inground pools add value?

Jack: Unlike many of my colleagues, I do believe than pools add significant value to the some houses. Emphasis on SOME! Whether or not it contributes value and how much depends on the neighborhood, the features/characteristics of the house in general as well as the quality of the pool and its amenities (fencing, decking etc.). Another factor is how the house is designed. If it is set up for entertaining, than a pool may be natural fit.    One “trick” I use to measure demand of pools is by looking at aerial photos. If you looks at the 20-30 houses closest to the subject and see that there are hardly any pools, then the market is probably showing you that the pool has little value. Conversely, if you see that 20+ percent of the houses have pools then it would support more value for the pool. 35+ percent would be mean more value. As for how much value, in nearly all cases, the resale contributory value of the pool is much less than cost of installation including amenities. I can’t tell you exactly how much your pool is worth, but I here are two examples of recent houses I appraised that had pools;

 

1,300 SF Ranch in Manchester: The pool was a modest 16×32 vinyl lined pool approximately 10 years old. It has a modest chain link fence and minimal concrete decking around it. The condition was good. The aerial photos showed only two inground pools in radius of 75 +/- houses.   My conclusion was that while the “replacement cost” of that pool would be $30,000+, its contributory value to THAT house and neighborhood was anywhere from Zero to $5,000.

 

3,300 SF, Colonial in Londonderry: The house was a nice quality house and the pool area was well landscaped. The layout of the house was conducive to entertaining and outdoor enjoyment. The value range of the homes were $300 to $500K. The pool most likely would cost $40,000+ to rebuild. My conclusion was that it added $10,000 to $15,000 in value.

Note: Many appraisers and brokers have relied on the “Pools don’t add value because it’s a short season and not everyone wants a pool” and therefore bank underwriters have taken this as gospel. When I completed my recent appraisal that gave $12,500 for the pool, the underwriter said the adjustment as “excessive”. After I provided my data (paired and grouped data analysis, as well as “Probability of use method”, she backed off and accepted my adjustment.

 

Jack Lavoie is an SRA designated appraiser and New Hampshire real estate expert. He can be reached at 603-644-1000 or email at jacklavoie@comcast.net

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Tax abatements, Obtaining a Divorce Appraisal, “Does recessed lighting add value” and should I wait until spring to sell”?

Home seller:   Should I wait until spring to sell my house”   (note: this person is located in Greater Manchester, NH)

Jack:  If your house is prepared to sell (cleaned, repaired, de-cluttered etc) I would NOT wait to sell.  There is currently a shortage of houses on the market in many sectors.  There are a reasonable amount of buyers out looking. Certainly more buyers will join the market in the spring, but along with many more listings (houses on the market).  Inventory is low, so you many be able to take advantage of a window of opportunity.   (Note: Before listing your house, you want to see what the inventory/competition is for your market as each market is different).

 

Homeowner going through divorce:   Do we each have to get our own appraisal?

Jack: There is no rule that says anyone needs to get an appraisal, however if you are contesting the value each side certainly ought to get one to protect their interest and make sure they have the most updated information with regards to the market value of the house. I have done many “joint” client appraisals in which the divorcing couple hires me together as an independent appraiser. In an amicable situation, I think that is a great idea. Just beware, that if you don’t like the results, your spouse can submit the appraisal into court as evidence.

 

Homeowner: Does recessed lighting, crown molding etc add value to a house? How much?.

Jack: While it is very difficult to nail down the precise difference in value attributed to one features (lets say recessed lighting versus traditional), it does go toward the overall quality of the house. It is the goal of the appraiser to compare houses of similar quality, which means your house would be compared to a better grade of house than houses that do not have similar quality features. When evaluation quality, SOME of the characteristics are; exterior ornamentation, interior refinements/detail and quality, ceiling height, quality of finish materials, efficiency of systems (heat, electrical etc) and much more.   While one item by itself may not change the value by itself, it does go to the overall quality of the house.

 

Property taxpayer: When is the deadline for to appeal my property taxes?

Jack: The deadline for all New Hampshire municipalities is March 1, 2016 for appealing your 2015 taxes. The date is a “hard date” and will not be extended. The municipality has until July 1, 2016 to either grant or deny your request. If they do not act on it, is automatically considered “denied”. Similar to presidential “desk veto”.   If your abatement application is denied, you can appeal it to either the State of New Hampshire Board of Land and Tax Appeals (BTLA) or the New Hampshire Superior Court. The following is a link to the New Hampshire tax abatement form.

http://www.nh.gov/btla/forms/documents/2015abatement.pdf

 

If you have any questions on real estate, appraisal or finance questions don’t hesitate to contact me at (603) 644-1000 or email me at: jacklavoie@comcast.net.   Check out my website at www.AppraiserNH.com

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Here are a FEW of the questions I fielded this week:

 

Homeowner (who is also a broker): We are thinking of adding an enclosed porch, but not sure if we will get a return on our investment. Do you think will get our money back?

Jack: You actually have two questions there. Should you build the porch? And will you get your money back (in increased value or resale)? With regards to the latter, it is quite possible you won’t get a dollar for dollar return. As a general rule, when you cure a problem (I.e. Fix something that’s broke) you often get more than a dollar for dollar return. When you add features that are beyond what the “typical house” has, it generally costs more than what you will get in increased value.   If you are adding a feature that is expected in the market that nearly all competing houses have, you probably will get full value back. With regards to the enclosed porch, it may only increase the value a 1/3 to 2/3 of the cost of house. So, in answering your second question, the answer is NO (you will NOT get all your $$ back). As to whether or not you will do it, it is a function of how long and how often you will use and home much enjoyment it brings you. As an example, if it costs $18,000 and you only get a $9,000 return, but you enjoy the porch for the next 10 years, than I would say “Who cares” if you don’t get your money back in resale, since you have gotten your value back in the way of enjoyment.

 

Homeowner: I have a 4.375 interest rate. Does it make sense to refinance?

Jack: first of all, I am not a mortgage expert, but I can give you this general advice. Whether or not you refi is a function of your new interest rate, the new loan costs and how long you expect to own the property. This is how you calculate savings and break even. Let’s say you are going to save 1/2 percent on your rate and you have a $200,000 mortgage. That means you will save $1,000 (1/2 of 1 percent) on annual interest. If the cost of the loan is $2,000, it would take you 2 years to break even. If you plan on owning the property for more than 2 years it probably makes sense. Many lenders with also do a no closing costs loan in which they will incur the cost themselves and build those costs into the new interest rate, which will be higher than if you paid the cost. So, if you are not sure how long you will own your house, you may pay no closing costs and just lower the rate to just 4 percent (as an example). Nothing to scoff at since even lowering 0.375 percent will save you $750 per year in interest or $63 per month. Not bad for “free money”. Lastly, I BEG you to use a LOCAL lender. Don’t get tricked into thinking these national online lenders are better.

 

Homeowner: Last year the bank appraised our house for $215,000. This year they appraised it for $210,000. How can that happen when values in town haven’t gone down.

Jack: It is possible for it to happen as each and every appraisal has a reasonable variance and at any moment of time the quality and quantity of data can vary. Here is an example. Let’s say that a house’s true value is $200,000 (The great appraiser in the sky says so. Lol). It would be reasonable to see an appraisal on the house that could vary 3 percent or $194,000 to $206,000. Let’s say your “$200k house” appraised for $205k. Fast forward to this year and let’s for example sake say that your $200k house has increased by 3 percent from the previous year and is now worth $206,000. A reasonable appraisal with a 3 percent variance could yield an Appraisal of approximately $200,000 to $212,000. Let’s assume the appraisal came in on the lower end of the range at $202,000 or $3,000 less than the appraisal last year. Different sets of data can yield different results. It is possible like my example for an appraisal to come in lower than a previous appraisal even if the overall market has not dropped.

 

Let me be your point man for information!  If you have any questions or need some assistance, don’t hesitate to call contact me at (603) 644-1000 or jacklavoie@comcast.net

 

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My first “Monday Mail Bag” post. Every week I field many questions from brokers, mortgage professionals, homeowners/buyer, attorneys and other interested parties in real estate. On Mondays I will share some of the questions and answers. Here we go:

 

Q#1 – Broker: I have buyer considering purchasing a 2-family in Manchester. It is assessed as a 2-family, but does not have a certificate of compliance. The current owner has lived in the property since 1948 and says it is “grandfathered”. Do my buyers need to get a new Certificate of compliance?

Jack: YES!!! In the late 1980s when the Certificate of compliance (COC) program came into effect for rental properties, the city grandfathered 2-4 unit properties that were owner occupied for as long as that owner lived in the building and retained ownership. Any new buyer must obtain a new COC. A buyer will have to do some due diligence as some of the items, emergency exits, electrical, smoke detectors etc. can be expensive.  There may be an issue with the financing since the buyer will being doing the work after closing. It would have been smart for the seller to obtain the COC prior to listing the property to appeal to a broader group of buyers.  (note: Link to Manchester NH housing code: https://www.manchesternh.gov/pcd/Regulations/HousingCodeOrdinance.pdf )

 

Q#2 – Mortgage Professional: Does FHA allow “Driven Point Wells” for drinking water?

Jack: Yes, they are allowed however they must meet the Private well guidelines set forth in the HUD Handbook 4000.1     The handbook does not specifically address driven point wells therefore they are acceptable providing the local municipality allows them, it is an approved well and meets the current setback and flow guidelines. If the town allows it, and it meets all the other criteria, then HUD will accept it. HUD and the mortgage investor will most likely want to see evidence (by showing comparables) that other properties have this type of well.

 

Q#3 – Homeowner/Seller:   The IRS has agreed to release a lien on my house I am selling and they have asked for an appraisal. Do I need to get my own or can I use the one the buyers are getting from the mortgage company

Jack: You really should get your own appraisal for several reasons. 1) The IRS has different definition of value called “Fair Market Value” which is different than Fannie Mae’s definition of “Market Value”. 2) The mortgage appraisal does not come with the permission to use for another use such as having the lien released by the IRS. 3) If the IRS questions the appraisal you will want to have YOUR appraiser available to back up his/her appraisal. There is not incentive for the bank appraiser to do so since you are not their client. Getting an IRS lien is a BIG deal. It is worth the money for your own appraisal.

 

If you have any real estate, appraisal, investing or financing related questions don’t hesitate to call Jack Lavoie, SRA at (603) 644-1000 or email at: appraiser@jacklavoie.com

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