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Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues.

In this column, Todd makes an arcane labyrinth of taxation more understandable in a literary confusing and complex sort of way. …Jonathan Miller

I had never read anything by Franz Kafka but I was familiar with the term “Kafkaesque” and I used it when trying to explain the nature of tax assessment in most of the municipalities comprising Westchester County. I didn’t really know what it meant but somehow it seemed appropriate. Then one night just for fun I decided to read one of his stories, “The Metamorphosis” actually, I only read the first sentence “As Gregor Samsa awoke one morning from uneasy dreams he found himself transformed in his bed into a gigantic insect.” (note to self forget “The Metamorphosis”, by Franz Kafka and pick up a copy of “Charlotte’s Web”, by E.B. White)

Understanding Kafka may be difficult, but it is nothing in comparison to deciphering New York State Real Property Tax Law, particularly Tax Assessment as it is practiced in most of Westchester County. Here are just a few of the inconsistencies, contradictions and misconceptions you will find in the Tax Law.

The law states that “All property must be assessed at a uniform percentage of value”. It doesn’t have to be assessed at 100% of value, it can be assessed at 1%, but it must be “uniform” for all property. So if your property has a market value of $1,000,000 its assessment may be $1,000,000 (100%) or $10,000 (1%), or as is the case in my town presently $13,800 (1.38%). That’s easy enough to figure out, right? Your house has a value of $500,000 and the small office building around the corner has a value of $500,000, therefore, your assessments and taxes should be the same. Except that they’re not the same. While the law states they “must be assessed at a uniform percentage”, residential and commercial properties are, in fact, assessed at two different rates. Commercial property uses an Equalization Rate while residential property (except for co-ops and condos, but we’ll get to that later) uses the Residential Assessment Ratio, or RAR.

Not too long ago, in an effort to make your property tax bill easier to understand, New York State came up with the Taxpayer’s Bill of Rights. In my opinion this was done, at least in part, as a service to people living in municipalities where fractional assessments were the norm. This used to be the case in all of Westchester County but now it’s only the case in most of the county. It’s very easy to understand what the market value of your property is if it’s assessed at 100% because if it’s worth $500,000 it’s assessed for, you guessed it, $500,000. With fractional assessments your $500,000 property would have (if it’s in my town) an assessment of $6,900. Naturally, this confuses people. So New York State decided to “translate” the fractional assessed value shown on your tax bill into the “market value” so you could know, at a glance, its presumed market value. This way, if you believe the assessment is excessive you can file a grievance. Trouble is, the bill utilizes the Equalization Rate to translate the assessment and this is only appropriate for commercial property. Homeowners who look at their bill to see the “market value” are getting false information, unless the Equalization Rate and the RAR happen to be the same. Usually, they are not the RAR is lower. So in most cases the homeowner is lulled into thinking their assessment/market value is lower than it may actually be.

Let’s talk about co-ops and condos for a minute. Since “all property must be assessed at a uniform percentage of value” that must mean that the guy who paid $500,000 for his co-op is paying the same taxes as the woman with the $500,000 single family house. Well, maybe it must mean that but it doesn’t mean that. Those of us who are old enough remember a time when most apartment buildings were rentals. Very few apartment buildings were built as cooperatives, most were converted from rental buildings. Back when they were rentals, they were valued for assessment purposes using the Income Approach. This was appropriate since their value to an investor was based on their income stream. You couldn’t buy or sell one apartment, just the whole building. However, in buildings that have converted to co-op or condo, now you can buy or sell one apartment and that apartment has a far greater value than it did when it could only be sold together with the rest of the building. Is it fair that the owner of a $500,000 co-op should pay less taxes than the owner of a $500,000 single family house? No it isn’t, but he does.

Trust me when I say that we have not even begun to scratch the surface of this topic but before you leap, headlong into the world of New York State Real Property Tax Law, you just might want to brush up on your Kafka. Keep in mind however, Kafka is “assessmentesque”.

Tags: Soapbox Blog, Todd Huttunen, The Hall Monitor

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Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues.

Todd gets all architectural on us by telling us its not just about the building…its the land! …Jonathan Miller

Having recently returned from a vacation spent hiking in the Great Smoky Mountains near Asheville, North Carolina, home of George Washington Vanderbilt’s “Biltmore Estate“, I picked up today’s New York Times whose lead story is titled “The Richest of the Rich, Proud of a New Gilded Age“, and Voila! The idea for this post was born. How does today’s Gilded Age compare with that of the late 19th century, with regard to the opulence of houses for very rich people? The short answer is it doesn’t!

Consider two examples of new houses built exactly one hundred years apart. George Washington Vanderbilt (whose wealth was inherited from his grandfather, Cornelius the Commodore) constructed Biltmore between 1888 and 1895.) Bill Gates began construction on his new house in 1988 and it was completed in 1995. Keep in mind that Vanderbilt was wealthy, but not the wealthiest in the country at the time (at least not him personally, though his various family members taken together may have been). Bill Gates is clearly the wealthiest person in the country today with a net worth of $82 billion (as compared with number two, Warren Buffett at a mere $46 billion).

The Gates house has a lakefront site measuring about 5 (five) acres but the typical site in the neighborhood is much smaller. The other lakefront houses on his street have sites of about a quarter acre or less (based on a Google Earth fly by). The property is less than five miles from downtown Seattle.

Vanderbilt purchased 125,000 (one hundred twenty five thousand) acres in Asheville prior to constructing his new house (surely a lot of that was what we appraisers call excess land, but they probably called it excess mountain ranges then again, more than likely he called it his backyard). After his death his widow (ever the practical one) sold most of the land to the government, leaving a paltry 8,000 acres with the estate.

Bill Gates had Bohlin Cywinski Jackson as his architect. Vanderbilt hired Richard Morris Hunt (Breakers, Metropolitan Museum, etc) and the landscape was designed by Frederick Law Olmsted, he of Central Park fame.

As to square footage, here again the edge goes to Biltmore at 175,000 square feet, or four acres, as compared to Gates at only about one acre of living space. (“Based on the appraiser’s analysis of the market, living area in excess of two acres is considered an over-improvement” I just wanted to stick that in there)

Now I’ve never been to the Gates house but I have visited Biltmore, on two occasions. And what impresses me most is not the 250 rooms, or the 65 fireplaces, or the banquet hall that measures 3,000 square feet and seats 64 (at one really long table) with a 70 foot high ceiling. What I really like is the basement. Among other things it has a pool and a bowling alley.

But hey, as long as we’re dreaming, let’s make the “Gates house” the “Gatehouse” for Biltmore. Now we’ve got the best of the old and the best of the new all on one property.

That’s what I call the highest and best use.

Tags: Soapbox Blog, Todd Huttunen, The Hall Monitor

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Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues.

Besides showing all of us he is smart enough to read things deeper in emotion than a Stephen King novel, Todd makes the case that DELIVERING INFORMATION IS NOT JUST ABOUT CONTENT. …Jonathan Miller

Shall I compare thee to a summer’s day?
Thou art more lovely and more temperate.
Rough winds do shake the darling buds of May,
And summer’s lease hath all too short a date.
Sometimes too hot the eye of heaven shines,
And often is his gold complexion dimm’d;
And every fair from fair sometimes declines,
By chance or nature’s changing course untrimm’d;
But thy eternal summer shall not fade
Nor lose possession of that fair thou ow’st;
Nor shall Death brag thou wander’st in his shade,
When in eternal lines to time thou grow’st:
So long as men can breathe or eyes can see,
So long lives this, and this gives life to thee.

SHALL I COMPARE THEE TO A SUMMER’S DAY?
THOU ART MORE LOVELY AND MORE TEMPERATE.
ROUGH WINDS DO SHAKE THE DARLING BUDS OF MAY,
AND SUMMER’S LEASE HATH ALL TOO SHORT A DATE.
SOMETIMES TOO HOT THE EYE OF HEAVEN SHINES,
AND OFTEN IS HIS GOLD COMPLEXION DIMM’D;
AND EVERY FAIR FROM FAIR SOMETIMES DECLINES,
BY CHANCE OR NATURE’S CHANGING COURSE UNTRIMM’D;
BUT THY ETERNAL SUMMER SHALL NOT FADE
NOR LOSE POSSESSION OF THAT FAIR THOU OW’ST;
NOR SHALL DEATH BRAG THOU WANDER’ST IN HIS SHADE,
WHEN IN ETERNAL LINES TO TIME THOU GROW’ST:
SO LONG AS MEN CAN BREATHE OR EYES CAN SEE,
SO LONG LIVES THIS, AND THIS GIVES LIFE TO THEE.

We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

WE THE PEOPLE OF THE UNITED STATES, IN ORDER TO FORM A MORE PERFECT UNION, ESTABLISH JUSTICE, INSURE DOMESTIC TRANQUILITY, PROVIDE FOR THE COMMON DEFENCE, PROMOTE THE GENERAL WELFARE, AND SECURE THE BLESSINGS OF LIBERTY TO OURSELVES AND OUR POSTERITY, DO ORDAIN AND ESTABLISH THIS CONSTITUTION FOR THE UNITED STATES OF AMERICA.

The most probable price, as of a specified date, in cash, or in terms equivalent to cash, or in other precisely revealed terms, for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under undue duress.

THE MOST PROBABLE PRICE, AS OF A SPECIFIED DATE, IN CASH, OR IN TERMS EQUIVALENT TO CASH, OR IN OTHER PRECISELY REVEALED TERMS, FOR WHICH THE SPECIFIED PROPERTY RIGHTS SHOULD SELL AFTER REASONABLE EXPOSURE IN A COMPETITIVE MARKET UNDER ALL CONDITIONS REQUISITE TO A FAIR SALE, WITH THE BUYER AND SELLER EACH ACTING PRUDENTLY, KNOWLEDGEABLY, AND FOR SELF-INTEREST, AND ASSUMING THAT NEITHER IS UNDER UNDUE DURESS.

The definition of Market Value may not inspire the same emotions as Shakespeare’s Sonnet #18 or the Preamble to the Constitution. But whatever appears on the written page is far more pleasing to the eye when the majority of the letters are lower-case.

It’s harder to read text when it’s written in all capital letters. To illustrate how easy it is for our brain to read text in small letters, try to read the paragraph below. This would be almost impossible to read in capital letters:

Aoccdrnig to rscheearch at an Elingsh uinervtisy, it deosn’t mttaer in waht oredr the ltteers in a wrod are, the olny iprmoetnt tihng is taht the frist and lsat ltteers are at the rghit pclae. The rset can be a toatl mses and you can sitll raed it wouthit a porbelm. Tihs is bcuseae we do not raed ervey lteter by it slef but the wrod as a wlohe.

Another result of writing in all capital letters is that the reader feels like you’re shouting at him. Not to mention the fact that it makes the writer look careless and lazy. Why would you, a professional appraiser who wants to be taken seriously, send out reports that make it look like you don’t pay attention to details?

If enhancing the quality of your work is not reason enough to unlock the caps, then do it for a more practical reason. You’ll save money by using less paper and toner.

Tags: Soapbox Blog, Todd Huttunen, Appraisal Process, The Hall Monitor

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Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues. Grievance Day, now more popular than Thanksgiving, is fast approaching and Todd laments how incredibly accurate some appraisers manage to be. …Jonathan Miller

For property owners who believe their assessments are too high, June 19, 2007 is Grievance Day. (This is for Towns in New York State Cities and Villages have different calendars) What this means for me, as the appraiser in an assessor’s office, is I get to review a few hundred appraisals done on behalf of the allegedly aggrieved owners. This can be a difficult time because frequently the property owner has a legitimate case, even when the appraisal they’ve paid for isn’t worth the paper it’s printed on.

One of this year’s top ten was an appraisal of a typical Split Level house built in the 1950’s. All of the comparables were, likewise, built in the 1950’s. However, this appraiser was SO GOOD that he was able to deduce from the market that a house built in 1953, which sold for $710,000, required an adjustment of -$400 when compared with the subject, which was built in 1951. (In his defense, this appraiser was consistent in that the age adjustment was $200 per year for the other sales as well, since they were all a few years newer than the subject.)

One of my many pet peeves is that appraisers make too many adjustments and the adjustments they make are too small. In the case of the age adjustment alluded to previously, the $400 adjustment amounts to five one-hundredths of one percent, or 0.0005, or five ten-thousandths, or one two-thousandth whichever way you want to put it – it suggests a level of precision Pratt & Whitney would be proud of but which is well beyond the reach of a real estate appraiser. When it comes to the tolerances within which various craftsmen work, they say carpenters work to the nearest eighth of an inch, cabinet makers work to the nearest sixty-fourth of an inch, while boat builders work to the nearest boat. I’m not sure exactly where appraisers belong, but I am sure they shouldn’t be grouped with people who work in machine shops building parts for jet planes, space shuttles, and stuff like that.

Although there are FANNIE MAE guidelines as to the maximum adjustments allowed, I’m not aware of any pertaining to minimum adjustments. The realities of market dynamics today are such that it is frequently necessary to exceed those maximum recommendations in order to reconcile differences within a given neighborhood, where it is not unusual to find a range of value wherein the highest sale prices are twice as high as the lowest (if not more). And the higher up in price you go the wider the range becomes.

Consider the newly renovated, pre-war, 6,000 square foot, brick mansion in a desirable suburb near New York City which sells for $5,000,000. A similar building which has not been renovated may sell for $2,500,000 to $3,000,000, warranting a condition adjustment of 40 or even 50%. At first glance some may think this adjustment excessive. But keep in mind that a renovation on this scale typically requires a year’s work (during which time the owner is living elsewhere, and paying the cost). All the risk inherent with a job of this scale combined with the unknown aspect of just how it’s going to look when it’s all done these and other factors fully justify the need for substantial adjustments.

And yet it is rare to see an appraisal with adjustments in excess of those outdated 10% individual, 15% net, and 25% gross guidelines. No matter how necessary they may be, the appraiser has to “explain” them. But no explanation is needed when the appraiser/machinist makes five different adjustments, each of which amounts to less than 1% (sometimes much less than 1%) to the comparable sale.

How about setting a standard for the minimum allowable adjustment? I’d vote for 3% but I can live with 2%. Surely, we can at least agree on no adjustments of less than 1%. Nobody’s that good!

Tags: Soapbox Blog, Todd Huttunen, Adjustments, The Hall Monitor

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Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues. This week Todd takes a bird’s eye view which is straighter than the way a crow flies about enhancing reports with photos from sources like Google Earth as an alternative to boilerplate text. …Jonathan Miller

Appraisals that are deliberate attempts to mislead are generally effective not because of the information that is communicated in the report, but because of that which is not. The client may be in another part of the country and have no direct knowledge of the area in which the subject property is located. He is completely dependent on the appraiser in that he only “knows” what the appraiser tells him. An unscrupulous appraiser may state “the subject dwelling is part of an established residential neighborhood”, when in fact the subject is on the outside edge of the established residential neighborhood, just as it transitions to an industrial area. The client may want to know (then again, maybe not) that the subject is across the street from, say, a piggery.

If we are serious in our concern about minimizing the number of misleading, inflated and fraudulent appraisals then we should be taking greater advantage of existing technology, such as Google Earth which has the added benefit of improving the overall quality of appraisals done by reputable appraisers. Let’s face facts here and recognize that even if you don’t consider yourself a “form-filler” (as Jonathan Miller derisively refers to the lowest among us) you’ve got to admit that most of the narrative parts of any appraisal report consist of boilerplate (with only minimal deviation) starting with the Neighborhood description and going right on through to the Reconciliation, and finally – the always scintillating – Certification and Limiting Conditions. Most of the verbiage in a FANNIE MAE appraisal, even one which is well written, consists of the same insipid pabulum that few clients read even the first time they see it (and never again thereafter).

On the other hand, everybody likes to look at pictures! All Yankee fans (and a lot of other people) will recognize this one as the House that Ruth Built.

A picture is worth a thousand words. Most appraisals would benefit from fewer (meaningless) words and more (insightful) pictures. By utilizing the “layering” effects available in GIS based systems like Google Earth, the appraiser can replace his generic Neighborhood Description with a uniquely specific, Neighborhood Illustration.

Appraisals should include two aerial photographs of the subject, one from 1,000 and another from say, 10,000 feet – with the subject property displayed at the center. This is easily doable with Google Earth. By looking at these photos it’s very easy to see how the subject conforms, or doesn’t, with properties around it. There’s no better way to examine externalities, changes in land use, density, size of buildings, etc. than by looking down from above. Until recently, you had to be in an airplane on its final approach to see a neighborhood from this perspective. Thanks to Google Earth, the flyover is “virtual” and you are at the controls (I know what you’re thinking. These photos are not in “real” time and therefore not necessarily accurate representations of the landscape. True enough, but unless there’s been a recent tsunami or comparable disaster, they will be plenty accurate enough to do the job for which they are intended.)

The photo addendum should include the roof top view in addition to the usual front and rear of subject, street scene and interior rooms. The same is true for the comparable sales a view from the sky taken from the same “eye level” as is used for the subject.

The list of potential applications for GIS systems like Google Earth to the appraisal profession is nearly endless and if you’re not using it yet, you should be. Best of all, the basic version is free.

Tags: Soapbox Blog, Todd Huttunen, Appraisal Process, Mortgage Fraud, Appraisal Forms, The Hall Monitor

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Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues. This week Todd colors the green issue, well, green. …Jonathan Miller

The cover of the New York Times Magazine April 15, 2007 issue is captioned “The Greening of Geopolitics” How can America regain its international stature? By taking the lead in alternative energy and environmentalism.” The article was written by the noted Times columnist and author, Thomas L. Friedman and he begins ‘One day Iraq, our post-9/11 trauma and the divisiveness of the Bush years will all be behind us and America will need, and want, to get its groove back. We will need to find a way to reknit America at home, reconnect America abroad and restore America to its natural place in the global order as the beacon of progress, hope and inspiration. I have an idea how. It’s called “green”.’ Friedman’s motto: “Green is the new red, white and blue”.

The whole world, it seems, is going green. I’m not just talking Al Gore and an academy award for “An Inconvenient Truth”. Even Wal-Mart (who no one accuses of being a “tree-hugging liberal”), is strutting its “green” stuff. Solar energy is HOT. We’ve woken up to the fact that we’re much better off blocking the sun from our cancer prone skin and let it instead be soaked up by those funny looking collection panels up on the roof.

In the construction industry, “green” is making great strides, though much more quickly in commercial buildings than in single family houses. But this is to be expected when (costly) new technologies are emerging. Large scale projects have a better chance of achieving some economy of scale. Check out the websites for Leadership in Energy and Environmental Design, or LEED and the recently reconstructed 7 World Trade Center for examples of the latest energy saving features.

It may be happening at a slower pace with regard to single family houses, but it seems only a matter of time before the move toward “green” will be reflected in all new dwellings. There was a case in the news recently involving a newly built house in the leafy, affluent New York suburb of Scarsdale. It’s not easy being green when the neighbors are offended and they are supported by the Board of Architectural Review. Those of you who are unfamiliar with a local B.A.R. should count yourselves as lucky. The power they wield, arbitrary and capricious, is astounding. The good news for the couple who are building their house in Scarsdale is that they finally got approval for their solar panels (which, by the way, are on the back of the house and not visible from the street).

My prediction is that the next residential building boom will incorporate all the latest energy saving technology. Houses in the future will be dramatically different from those of today. They’ll be smaller and “Smarter”. Big, ugly boxes, what some call McMansions, houses with lots of space but no soul, will not age gracefully. Eventually, their owners will tire of dragging the thirty foot extension ladder into the foyer just so they can change a light bulb. The key phrase in my prediction (of such a radical change in houses) is the “next residential building boom”, because I haven’t said when I think that will occur. Real estate tends to run in cycles. The most recent boom was from 1998 2005. When will the next one start? Don’t hold your breath, but when it does it’ll be “green”, the next red, white and blue.

Tags: Soapbox Blog, Todd Huttunen, The Hall Monitor

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Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues. This week, Todd ponders the question of questionable supply, when demand is, well, demanding. …Jonathan Miller

• Front Page (above the fold) “Imus Struggling To Retain Sway As a Franchise” (with photo)
  
• Page A20 Editorial “The Rutgers Winning Team”
• Page A20 Seven letters to the Editor (concerning yesterday’s op-ed piece “Trash Talk Radio”)
• Page D1 “A First-Class Response To a Second-Class Put-Down”
• Page D3 “Women’s Team Sends Imus an Angry Message”
• Page E1 “Don Imus, Suspended, Still Talking”

The media circus surrounding this story gives me a new appreciation for the power of the free market, as expressed by the actions of buyers and sellers. Consider the product of “talk radio”, where the sellers include not only Don Imus and Howard Stern, but any number of other “shock jocks”. Judging from the reaction to the comments made by Imus with regard to the women from Rutgers, one would think that there are very few buyers for this product.

Yet, according to one of the many stories in Wednesday’s Times, “Imus in the Morning” has an average of 477,000 listeners on the New York radio station alone. What he said was offensive and degrading. But he has been saying the same kinds of things for 35 years and I don’t believe the New York Times ever printed five stories and seven letters to the Editor, concerning Don Imus, in any one issue before today.

There is a huge demand in this country for shows that provide coarse and vulgar “entertainment”. And radio is nothing as compared with television and its 500 channels. Personally, I think American Idol humiliates people and I choose not to watch, but lots of viewers disagree with me. Thanks to the remote control, everybody’s happy.

With real estate, people like to complain about how “McMansions” are ruining the neighborhood. “Those people” (developers) build them but we buy them! Whether it’s houses, radio, television, movies or music, if “we” didn’t buy it “they” wouldn’t make it.

Imus has to make amends for what he said. But we have to consider our own role in having made Imus so popular for being what he is. He is a participant in a market, as are we. Unlike the real estate market however, where demand is down, the demand for the kind of entertainment he supplies seems unending.

Tags: Soapbox Blog, Todd Huttunen, Radio, The Hall Monitor

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Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues. This week Todd sizes up the lame excuses made by appraisers who disclaim and defer to public record. So much so that Todd gets worked up into a lather. …Jonathan Miller

If you’ve been appraising residential real estate in a suburban area for more than a couple of years you’ve measured (I hope) hundreds, and maybe thousands of detached, single family houses. That, my friend, makes you an expert in estimating the gross living area of those houses you haven’t measured (most of your comps) when the primary source (MLS) for those comps state square footage numbers that are, shall we say, “Viagra-sized” and the public records are unavailable or unreliable (neither of which is an uncommon occurrence in many parts of Westchester County and probably some other places too).

Let us start with the basic Cape Cod house on a 50 x 100 lot, not unlike the one shown to the left:

The listing might read something like this. “This house is perfect for the young family or those looking to downsize. It features a first floor layout which includes a living room with a fireplace, dining room, modern eat-in kitchen, two bedrooms, and one full bathroom. The second floor has a bedroom and a full bathroom (and room for expansion). The house features a finished basement with a bedroom, rec. room and bath.”

Then comes my favorite part the total room count, which very often goes as follows:

Rooms 8
Bedrooms 4
Bathrooms 3
Square Footage 2,300

But wait a second; I say to myself, this house doesn’t have eight rooms, four bedrooms and three bathrooms (above grade). It’s identical to the house I’m appraising a block away! It’s a six room house with three bedrooms and two bathrooms. It has a finished basement. And it’s not 2,300 square feet it’s 1,500 square feet.

Why, oh why, do some appraisers simply parrot the summary room count shown on the listing when even a cursory review of the narrative part of the listing illustrates that, at best, realtors have different standards for what constitutes living area and room counts than do appraisers? When you drive by the house to take a picture, isn’t it frequently obvious that the house is in fact smaller than the listing agent claims it to be?

I know what you’re thinking. You didn’t measure the comp yourself so you don’t know how big it is. The public record card was unavailable or inconclusive. So you are relying on the MLS stated square footage. I say bullshit! YOU’RE THE EXPERT. You’ve actually measured thousands of houses.

Most realtors don’t know how to measure houses and if there isn’t a reliable public record available they don’t have a clue as to the actual size of a house. They are salespeople and their business is selling houses. They tend to exaggerate things like the size of houses. Appraisers, who do measure houses, have to know this!

Therefore, if you haven’t measured the comp yourself and if the public record is missing or not helpful, I believe it is incumbent on you to critically examine the listing before accepting its stated square footage. Read the listing and count the rooms it describes. If they add up to six or seven don’t say nine just because that’s what the listing shows as the total. Look at the house when you go to photograph it and, when required, exercise your professional judgment when it comes to reporting the size of your comparable sales.

It would be nice if you could rely on the public record data that is available to you. And I suspect that in most parts of the country, you can do just that. But if you bring that mindset to the county where I’ve worked for the better part of 20 years, you’re in for a rude awakening, and misleading appraisal reports. Put in all the disclaimers you want, but if your reports are to be meaningful, they will have to include the statement that your opinions are based, in part, on your powers of observation and your years of experience.

My experience is that six room, Cape Cod houses with three bedrooms and two bathrooms, on 50 x 100 foot lots, generally measure around 1,500 square feet, give or take.

Tags: Soapbox Blog, Todd Huttunen, Appraisal Process, The Hall Monitor

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Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues. This week Todd immigrates to the baby boomer issue in housing demand. …Jonathan Miller

During the period known as the “Baby Boom”, which began in 1946 and continued through 1964, the birthrate in the United States averaged about 4,000,000 a year. By 1965, when the population was 194,000,000, “boomers”, who were then between 1 and 19 years of age, represented 39% of the total population. We have been the driving force affecting – well – everything since we first arrived. And you can bet that for the next 40 years or so, until the last of us is dead and buried, what we do will determine, to a great extent, the kind of world we leave to those of you who are under age 45. Based on what we’ve done so far, young people have reason to worry.

President George Bush and former President Bill Clinton were both born in 1946, the inaugural class of the baby boom, which numbered 3.47 million. They were the first “boomer” presidents but there are more to come in 2008 and beyond (so hopes every candidate not named McCain). Nevertheless, they represent the beginning of the 75 million strong, class of baby boomers, which is largely responsible for where we are today, in terms both cultural and economic.

As a result of our sheer numbers, nearly every major cultural shift, social upheaval or political trend of the last half-century has been a direct result of, or a reaction to, the demographic tsunami that is the baby boom. Each decade has brought its own issues but boomers have played a starring role in each of them. Beginning in the 1950’s, when the first of us were only toddlers, new housing was constructed on a previously unimaginable scale, in the form of cookie-cutter developments like Levittown.

When Bill Clinton and George Bush were teenagers, in the 1960’s – civil rights, the “The Great Society” and Vietnam became the big issues of the day. But since most boomers were born between 1954 and 1962, it wasn’t until the 70’s that the full force of our numbers began to be felt on the popular culture. That decade brought us feminism, environmentalism, sex, drugs and rock and roll (not to mention Watergate and a general distrust of government). Partly as a reaction to the excesses of the two prior decades, the political pendulum swung back to the right starting with Reagan in the 80’s.

Something else started in earnest right around 1984. Boomers, in large numbers, started buying houses and prices exploded upward throughout most of that decade. Although there have been occasional, minor downturns in the market since then, the overall trend in real estate for the past twenty or so years has been one of steady increases, with some periods, 1998 2005 for example, of unbelievable increases.

It is not a coincidence that the boom in real estate, which by-and-large took place over a twenty year period, reflected the demand created by a generation of baby boomers, whose prime home buying years are now behind them. Is there any reason to believe that as boomers move from the “demand” to the “supply” side of the equation they will have any less of an impact on the real estate market in the years ahead than they’ve had on most every other issue in years past?

That’s why it seems to me that all the chatter about “corrections”, “bubbles”, “soft/hard landings”, “bottoms”, etc. misses the point. Even when you allow for the possibility that immigration has helped do what the birthrate in this country has not, which is to add to the number of future potential buyers, it seems to me that “demand” in the coming years has no hope of keeping pace with “supply” as boomers age and go from being buyers to sellers. To suggest that the impact of baby boomers on real estate in the next two or three decades will be any less significant than their impact on the major events in every other decade since the 1950’s is folly.

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Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues. This week Todd twists the knob and makes a line item assessment on the relevance of appraisal adjustment guidelines. …Jonathan Miller

Who came up with the insane “guidelines” for what constitutes appropriate adjustments on the sales comparison grid? What alternate universe were these people living in when they decided that the total net, gross, and individual adjustments should not exceed 15%, 25%, and 10% respectively? They certainly didn’t live anywhere in the New York area (and if they did it was more than 50 years ago).

Let’s start with the 10% individual adjustment. A friend of mine just renovated her kitchen at a cost of about $75,000. Let’s assume the value of the kitchen is the same as its cost. After the renovation the value of the house is $650,000 She has an appraisal done after the kitchen is renovated and the appraiser finds an identical house as a comparable, except it has the original kitchen. Under the above scenario therefore, the comparable would have sold for $575,000. The appropriate adjustment for the new kitchen would be $75,000, or, 13% of the sale price. Unfortunately, the appraiser will have to “explain” why this comparable sale, which is otherwise identical to the subject, requires an adjustment in excess of the 10% FANNIE MAE guideline, when in fact it is a great comp with only one adjustment needed!

What’s wrong here is the arbitrary and capricious 10% guideline and the fact that adjustments exceeding it require explanation, when in reality, such adjustments are often fully warranted and should be common in many cases. The gross and net guidelines are likewise, contrary to reality in many markets. These guidelines were once appropriate in places like Levittown when Levittown was first built, though probably not even there any longer. Like every other community, Levittown has evolved over time and its houses are no longer identical to one another.

In the world as it exists today, reconciling the sale prices in a given market frequently requires adjustments to comparable sales WELL IN EXCESS of FANNIE MAE guidelines.

The thing that got me started writing today about the size of adjustments was not the guidelines relating to the recommended maximums, but instead the incredibly small adjustments made by so many appraisers. On a regular basis, I see adjustments to sales with prices of $650,000 at increments as small as $2,000! What appraiser is so good as to know that a sale warrants an adjustment of less than one third of one percent?

A lot of times I find these adjustments under the site category. Subject is 0.11 acres and sale #1 is 0.13 acres. “Appraiser adjusts for site differences at $1,000 per hundredth of an acre”. Never mind the fact that he doesn’t address the shape or topography of the lots, the mere fact that he makes such a miniscule adjustment suggests a distinction without a difference. Why bother making an adjustment at all in such a case?

My suggestion is this. Abolish the guidelines for “maximum” gross, net, and individual adjustments and replace them with “minimum” adjustments (for the individual adjustment anyway). An appraiser who makes an adjustment for less than 2% of the selling price of a property must correctly answer the following question: Does the phrase “anal retentive” take a hyphen, or not?

Tags: Soapbox Blog, Todd Huttunen, Adjustments, The Hall Monitor

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Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues. In this post, Todd wonders why dilligent, honest and hard working appraisers don’t get the most of the tax assessment assignments and perhaps comes up with a name for a new appraisal society. …Jonathan Miller

All appraisers Most appraisers Many appraisers Some appraisers

All right, a tiny minority of appraisers are nothing more than whorish advocates for their clients. But due to some kind of statistical anomaly, a disproportionate number of the appraisals I review, for assessment grievance purposes, come from this tiny minority and it gets a little frustrating after a while. Why is it that the vast majority of appraisers – who are diligent, honest and hard-working – get so few assignments in my town?

One recent example of appraisal garbage was prepared on behalf of the owner of a newly constructed single family house which we assessed at its full value in 2006. The owner filed a grievance, as was his right, and hired an appraiser who happens to be an MAI. His appraisal included six comparable sales, but what bothered me the most was the sale, of the house next door, which was not included in his appraisal.

Back when I started work as an appraiser in 1985 I had the good fortune to work for a small, family owned company with an unusually tight-knit group of appraisers and staff. And even though we came from different religious backgrounds, we shared a common belief in one God, to whom we lovingly referred as the God of the comp next door. Every assignment whose subject is blessed by the God of the comp next door is easier than it would otherwise be, and my faith is as strong today as it ever was.

Unfortunately, the MAI was not a believer and explained his position thusly – “THE APPRAISER NOTED A LACK OF CLOSED COMPARABLE SALES WITHIN THE SUBJECT’S MORE IMMEDIATE AREA” Regular readers of The Hall Monitor already know how I feel about appraisers whose reports are written in ALL CAPITAL LETTERS. Leaving that aside, in this case the subject was a new house and the renovated house next door had sold seven months earlier. But this sale was not used in his appraisal. Interestingly enough, his appraised value for the subject (new house) was 35% below the sale price of the “effectively new” house next door, which had the same number of bedrooms and bathrooms, but was a few hundred square feet larger, better quality construction, and had superior curb appeal (my appraisal had adjustments for these differences but they didn’t amount to 35% of its selling price).

The appraiser also claimed that the “subject suffers external obsolescence because it backs up to a busy street”. Guess what folks – the house next door, which he didn’t use, backs up to the same busy street. The inclusion of the sale of that house on the grid would have illustrated that the “busy street” adjustment was bogus. I’m sure that’s one reason he didn’t use the sale.

This same appraiser considered the functional utility of the (new) subject, with its open kitchen/dining room layout, to be inferior to those of his comparable sales, two of which were 55 year old houses whose formal dining rooms are separated from the kitchens by an actual wall. I was taught that “new” houses, built to current market standards, usually represent the highest and best use while “old” houses which have not been renovated are the ones suffering from physical and/or functional obsolescence. The subject’s open, less formal floor plan reflects the design standards of today. One would think that if a functional utility adjustment is appropriate in comparing an old house with a new house, the old house should be adjusted upward, rather than downward. That’s what I believe, but then I’m not an MAI.

I don’t personally know the appraiser who represented the homeowner in this case. And although I have no way of knowing for sure, I do not believe that his honest opinion of value was the same as what he indicated at the bottom of page two. I don’t think he thought the house was over-assessed. He didn’t use the best comparables and his adjustments were inappropriate. His appraisal was, in my opinion, a deliberate attempt to mislead. I think he gave the client what the client wanted.

The fact that users of appraisals attempt to influence the work of appraisers is nothing new. There’ve been a number of stories in the media lately expressing concern about loans, particularly in the sub-prime market, that have been made as a result of pressure exerted on appraisers to make the number.

Perhaps the answer to the problem of appraisal pressure (whether upward or downward) is to have two appraisals done for every property. Tell one appraiser it’s for the mortgage and tell the other one it’s for the assessment. That way, you can average the two values reached by the two advocates and you’ll end up with something close to market value.

Tags: Soapbox Blog, Todd Huttunen, The Hall Monitor

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Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues. Today he brings back memories of the rock band, The Knack, singing Martha Stewart’s version of “[My Sharona Katonah](http://www.amazon.com/Get-Knack/dp/B000065CXQ/sr=8-2/qid=1171287723/ref=pd_bbs_2/104-0721909-9903111?ie=UTF8&s=music), a sleepy town in Westchester County, New York.” …Jonathan Miller

Some years back Martha Stewart joined the likes of Ralph Lauren, George Soros, Michael Crichton (who has since sold his house for about $19,000,000, if I’m not mistaken) and numerous other celebrities and business people who own property in a section of the lovely Town of Bedford, known as Katonah. Martha acquired her 152 acres for roughly $15,000,000 in the year 2000.

Ms. Stewart was in the news recently because she would like to [trademark the name “Katonah” [NPR]](http://www.npr.org/templates/story/story.php?storyId=7004922) which she already uses with regard to a line of her products. Why SHE wants trademark protection for “Katonah” is beyond comprehension, since Katonah was the name of the Indian Chief from whom the town’s land was originally purchased hundreds of years ago.

If you live in New York City and you’ve never done so, you owe it to yourself to take a train ride to Katonah one day. It’s only about an hour away and its restaurants and shops, within easy walking distance of the train station, make for a very pleasant excursion. Don’t forget the [Katonah Museum of Art [KMA]](http://www.katonahmuseum.org/) which is barely a mile from town.

What I find most interesting about the Hamlet of Katonah however, is the fact that its current location is not its original location. Back in 1895 the City of New York purchased land for its reservoir system, with plans to flood the area which included [Katonah](http://www.katonahny.com/). But rather than be simply washed away, the residents planned a new village and moved their buildings along with themselves. Over a period of fifteen years, a total of 55 houses, barns and stores were moved, pulled by horses over a track of timbers.

This may seem rather quaint in today’s world, where the term “teardown” is far more common than “save it” much less “move it”. But if you visit Katonah, where it’s been now for a hundred years or so, you might gain an appreciation for those old buildings and quietly utter a word of thanks to those, without whose efforts Katonah as we know it today would not exist.

Tags: Soapbox Blog, Todd Huttunen, The Hall Monitor

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