Which Value Do You Want?

Which Value Do You Want?

What your home is worth depends on why you ask the question. It could be one value based on a purchase or sale and an entirely different value for insurance purposes.Values-250.png

Fair market value is the price a buyer and seller can agree upon assuming both are knowledgeable, willing and unpressured by extraordinary events. This value is generally indicated by a comparable market analysis done by real estate professionals.

Insured value is determined for insurance coverage. Homeowner policies typically have replacement clauses in them and the cost of demolition, new construction and the added complexities of matching existing construction could exceed the cost of new construction.

Investment value is based on the income it can generate during its useful life. This value is dependent on what kind of yield an investor requires to capitalize the value over time. The formula for this is to divide net operating income by the capitalization rate required by the investor.

The assessed value of a home is used to determine the property taxes the owner must pay. This value is determined by the responsible state government agency.

Homeowners are generally more familiar with their home’s market value. Since it can be lower than the replacement cost, owners should review the insured value with their property insurance agent periodically.

There can be a surprising difference in each of these separate values. It is important to know the purpose that it is going to be used for the value.

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The Multiple Listing Service – Then and Now

In 1975 (just like today), real estate brokers in the Ukiah Valley belonged to a local association called the Multiple Listing Service (MLS) to share information about properties they were trying to sell. This is back when houses in Oak Manor sold for about $30,000 and today’s Ukiah High School on Low Gap Road wasn’t built yet.

When a Realtor secured a new listing, he or she would type up the pertinent information about the property (location, number of bedrooms and bathrooms, square footage, etc.) and then share that information with the MLS office. There, the information was reduced to a half-sheet of paper using what would now be considered an antique device—a mimeograph. Those of you who have been around awhile may remember mimeographs from your elementary school days.

Information was carefully typed onto a master copy, of which there was only one. To create the master copy, you punched letter-shaped holes into the paper. Once completed, it was put on a drum saturated with ink. When the drum turned, the ink came through the holes and created copies of the original form. Mimeograph copies of each listing were created for every Realtor. The mimeograph required a whole room of its own in the MLS office. The room was about 15-feet square and everything in it was coated with varying amounts of ink dust.

Each week every Realtor received a packet of all the new listings—typos and all. To keep track of the properties for sale, Realtors filed each mimeograph copy in their 18-ring binders. Then, as now, the housing market changed constantly. Listing agents would have price changes. Sellers would decide to take their properties off the market. Houses would go into escrow and fall out of escrow. All that information was reported to MLS to be distributed the following week. Then Realtors (or their assistants) updated their MLS binders, pulling out sold properties and keeping them in a shoebox to use when determining pricing for future listings. They manually crossed out the old price and wrote the new one on the MLS listing form for that property. They noted any status changes by painstakingly going through the binder, finding the listing form, and handwriting the change.

Believe it or not, as I’m working on this column, I’m looking at my MLS binder from 1975. There was a property for sale on Pomo Drive in Oak Manor—a four-bedroom, two-bath house with a two-car garage—for a whopping $36,000. It would probably go for $375,000-$400,000 today.

In 1976, I was able to convince the MLS finance committee and board of directors to discard the mimeograph in favor of a photocopier. It was incredibly expensive, costing $5,000 at a time when houses were selling for $30,000. In today’s dollars, that photocopier would be about $25,000. Ultimately it paid for itself by requiring far less office space and fewer hours of staff time. It took ten minutes instead of all day to prepare the MLS listing information for all the agents. The binder was replaced by a bound book shortly thereafter.

Fast-forward to the mid-1980s and computers arrived, revolutionizing real estate. We could take “dumb terminals” to a client’s house and upload information about the new listing directly to the MLS database and a printer using a landline telephone hooked up to a coupler as a modem for the lowest-speed connection you can imagine.

In today’s world, we upload detailed information with pictures and sometimes video for listings, and within moments, other Realtors have instant access to it. If I want details about a listing I happen to drive by, I can park my car and pull out my phone—and say “Hey, Google.”

If you have questions about real estate or property management, please contact me at rselzer@selzerrealty.com or visit www.realtyworldselzer.com. If I use your suggestion in a column, I’ll send you a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 40 years.

 

Disclosures – What Happens if You Don’t Mention Those Pesky Details

Last week, I shared the importance of disclosing what are called “material facts,” information a seller knows or should have known that could influence a buyer’s decision to buy—or the amount they’d be willing to pay. Disclosures cover everything from natural hazards to underground utilities, storage tanks, septic systems, short sales, mother-in-law units, proximity to agriculture or industry, naturally occurring asbestos, and more.

Disclosures cover such a wide range of topics and can be so detailed and complex that there are whole companies that do nothing but deal with them. They’re called Natural Hazard Disclosure Companies (NHDs), and even they don’t deal with all the disclosures legally required by some real estate transactions. Because there are literally hundreds of potential disclosures, many may seem inconsequential to the seller. After all, you’ve gotten used to the noise that the neighbor’s dog makes. And since you and your neighbor (who happens to own a liquor store) are friends who often enjoy a glass of wine together, you’re not likely to complain about Fido the yappy schnauzer.

Since the prospective buyer is a teetotaler who is unlikely to socialize with the wine-drinking neighbor, he may not find Fido’s quirky but constant yapping so endearing. The point of all this is, as a seller, you need to think of disclosures through the eyes of prospective buyers. It is critical that even seemingly irrelevant issues are disclosed. As I indicated last week, if it changes the buyer’s mind regarding the sale, it was “material.” If it doesn’t affect the buyer’s decision to purchase the property, it doesn’t hurt to make the disclosure.

So what happens if the sellers do not disclose a material fact (in writing!) they should have? Nothing good, I can assure you. You may wonder why it is so essential to note every pesky detail. After all, the prospective buyer tours the property and hears the schnauzer for himself. Let’s fast-forward eight months. Your buyer just found out he has been transferred to New Mexico and it’s mid-2007. The property value just dropped 10 percent and the buyer is now looking for a way to undo the sale. He’s looking for a plausible way out. For example, he wouldn’t have purchased the property if he had known that the neighbor had an obnoxious dog who barks incessantly.

Will you, the seller, win this lawsuit? Maybe yes, maybe no. Will you spend some sleepless nights and help fund your attorney’s child’s college education? Almost certainly, yes. Just the letter from your attorney telling the buyer he has no case (which may or may not be true) will probably cost $300-$500. If a lawsuit is filed and the case never even gets to court, add at least one zero ($3,000-$5,000). If the case goes to court, add another zero. And that is assuming you win. Losing may mean damages or a rescission. You get the house back and the buyer gets the purchase price back plus and money he spent on taxes, improvements, and interest minus the fair market rental value while he lived there. The buyer may also be entitled to damages for the pain and suffering of listening to Fido’s yapping.

So, the rule is this: when it comes to making disclosures, mention every pesky detail, no matter how small or seemingly insignificant.

If you have questions about real estate or property management, please contact me at rselzer@selzerrealty.com or visit www.realtyworldselzer.com. If I use your suggestion in a column, I’ll send you a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 40 years.

 

Disclosures – Might as Well Tell the Truth

In the dictionary, “disclosure” is defined as the action of making new or secret information known. Having recently written a column about selling properties as-is, I thought I’d elaborate on the disclosures sellers are required to make in Mendocino County. Selling a property in its current condition isn’t the same as hiding information about its faults.

The state requires sellers to disclose any “material facts” that would affect a buyer’s decision to purchase the property or the price they would pay. It’s a bit vague, but since any material facts the seller doesn’t mention prior to the close of escrow can become the basis of lawsuits after the escrow closes, I always tell sellers to disclose anything they think might possibly be of interest to the buyers. If the information changes the price the buyers agree to pay, or if the buyers back out of the sale completely, the information was material. If not, no harm was done in disclosing the information.

To help define the information sellers should disclose, Mendocino County Realtors have collaborated with our state professional association to create an 11-page document outlining everything from whether the property is within 300 feet of an industrial or agricultural site, to whether a property is in foreclosure (and therefore a huge pain to deal with). If you’re thinking of buying or selling a house, here are a few issues to consider. For a comprehensive list, talk to your Realtor.

The Mendocino County disclosure starts with an acknowledgement that buyers receive booklets about toxic mold, lead, earthquake safety, and energy ratings. And it only gets more exciting after that. As dull as some of this information may seem, it is essential to carefully review it.

Be sure to pay attention to the disclosure about proximity to industrial or agricultural properties. Be aware that your dream of a quiet, peaceful homestead could be shattered by the clanking of a harvester at 6:00 am or bright lights flooding your bedroom in the middle of the night from a factory’s 24-hour work cycle. If your property is near an agricultural site, the standard disclosure says you may be “subject to inconvenience or discomfort arising from use of agricultural chemicals, and from the pursuit of agricultural operations including, but not limited to, cultivation, plowing, spraying, pruning, harvesting, crop protection, which occasionally generate dust, smoke, noise and odor, and protecting animal husbandry from depredation.”

Being close to an industrial site has similar downsides. The disclosure says you may be “subject to inconvenience or discomfort arising from the use of machinery, and from the pursuit of industrial operations including, but not limited to, assembly, manufacturing, cutting, drilling, machining, metalworking, milling, punching, “tapping”, soldering, transportation of materials and goods, and welding. All of these activities, and others not mentioned in the non-exclusive preceding list, may generate light, glare, dust, smoke, noise and odor, all of which may occur 24 hours a day, 7 days a week.”

If your property is in the middle of nowhere, far from farming or industry, it may be harboring endangered species or include dead or diseased trees, both of which can lead to significant costs. The disclosure says, “The presence of a listed [endangered] plant or animal on the property can have serious consequences…including but not limited to prohibition or limitations on building, remodeling, grading, landscaping, and agricultural, livestock, and equestrian activities, and costs relating to governmental requirements for environmental mitigation of the effects of buyer’s plans or activities.”

You can see, there’s a lot to think about and I’ve barely scratched the surface. I haven’t even begun to talk about issues related to sewer laterals, underground utilities, storage tanks, septic systems, short sales, mother-in-law units or naturally occurring asbestos. As I said, talk to your Realtor for details.

If you have questions about real estate or property management, please contact me at rselzer@selzerrealty.com or visit www.realtyworldselzer.com. If I use your suggestion in a column, I’ll send you a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 40 years.

 

Home Safe Home

Home Safe Home

Home is a place you should feel safe and secure. Sometimes, we take it for granted and unfortunately, we do need to remain vigilant about things we do that could compromise our safety. Here are a few tips to consider:Home Safe Home.png

  • Everyone loves an inviting home including burglars. Make sure it looks occupied and is difficult to break in.

    • Always lock outside doors and windows even if you’re only gone for a brief time.
    • Lock gates and fences.
    • Leave lights on when you leave; consider timers to automatically control the lights.
    • Keep your garage door closed even when you’re home; don’t tempt thieves with what you have in your garage.
    • Suspend your mail and newspaper delivery when you’re out of town or get a neighbor to pick it up for you.
  • Posting that you’re out of town or away from home on social networks is like advertising your home is unprotected.
  • Equally dangerous could be allowing certain social network sites to track your location.
  • Don’t leave keys under doormats, in flowerpots or the plastic rocks; thieves know about those hiding places and even more than you can think.
  • Trim the shrubs from around your home; don’t give criminals a place to hide.
  • Use exterior motion detectors and yard lighting.
  • Have an alarm system and use it when you leave home and go to bed.
  • Put 3 ½” deck screws in door plates and door hinges.
  • Have good deadbolts on all exterior doors.
  • Exterior doors should be solid core.

Til next time… May all your deals be easy ones!
Follow me on Twitter @yourmendorealty

Clint Hanks                                   707-391-6000

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