House Values as it relates to Home Appraisals

     The first step in house tax reduction is to determine the value of your home. This process is often referred to as a home appraisal and is used for determining the market value of your home. The formal name given to this process is a market analysis or fair market value comparison. Our book simplifies this process for you providing valuable information as well as supplying ideas that you probably didn't think of yet.

     An appraisal is an opinion of value, an estimate of worth. The Federal National Mortgage (FNMA) states, "Market value is the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale,(whereby) the buyer and seller, each (are) acting prudently, knowledgeable and assuming the price is not affected by undue stimulus."


Home Appraisals Basics: Determining House Values

     The value of residential real estate is estimated by comparing the subject with similar properties that have been sold recently. We start by looking at our neighborhood to find comparable sales or properties in similar neighborhoods that share similar characteristics of lifestyles, income level of residents, surroundings, average age and home values.

Neighborhoods:
    Compare apples to apples, oranges to oranges.  Neighborhoods have boundaries and barriers to the best neighborhood which may signal an abrupt change in lifestyle i.e. railroad tracks, freeways, highways, major traffic arteries, lakes, rivers, mountains, etc. There are political boundaries created for government purposes, such as school districts, assessment districts, zoning districts and city limits. In your neighborhood analysis, you may consider recreational facilities common to your situation. The focus is to find comparable home value in similar neighborhoods for your home appraisal analysis.


Comparisons:

     The best way for determining the price to set for a given property is to base that estimation on the fair market value comparison. The fair market value comparison approach uses the principle of substitution. That principle states that the maximum value of your house and property tends to be set by the sales price of an equivalent, equally desirable, similar substitute house and property, for a certain day in time.

     In order to have valid home appraisal values, all you have to do is find 3 or more homes that sold recently having amenities and characteristics similar to yours. You'll only use the best three in your analysis.

Adjusting Comparable Home Values

     Because properties are seldom alike, it will be necessary to make adjustments between the comparable properties as compared to the subject property (your property). This process equalizes the properties in the comparison. A good definition according to a leading appraiser, Ventolo and Williams, states that an adjustment is a "decrease or increase in the sales price of a comparable property to account for a feature that the property has or does not have in comparison to the subject property."

     In other words, the comparable properties are adjusted to reflect the value of the subject property. You never adjust the subject. If two houses were identical in every way except that the subject (your house) had a deck and the comparable did not, the value of the comparable would be adjusted upward.


     By this method, the subject (your house) reflects more value when compared to a comparable house with deficient items (such as no deck or no garage). Always remember: comparable sales must be adjusted and not the subject property. The Federal National Mortgage Association (FNMA) puts it this way: The subject property is the standard against which the comparable sales are evaluated and adjusted. Thus, if an item in the comparable property is superior to that in the subject property, a minus (-) adjustment is required to make that item equal to that in the subject property.

    Conversely, if an item in the comparable property is inferior to that in the subject property, a plus (+) adjustment is required to make that item equal to that in the subject property. In other words, if a comparable sale property has a major improvement that your property does not have, make a minus adjustment. On the other hand, if you enjoy a major improvement and the comparative sale property does not, make a positive adjustment. Round off adjustments to the nearest $100. Our book contains hundreds of easy to use home value examples for your house tax reduction.

Phases of a Home Appraisal

There are four basic phases involved in this approach:
  • Recording and analyzing home value data from your property and potential comparable properties
  • Selecting the appropriate comparable data
  • Developing reasonable adjustments based on market data
  • Applying your findings to the subject (your property)

     You'll concentrate on finding comparable sales that have characteristics similar to those of your own home. A variety of these parameters are listed below in descending rank of importance, the first listed being more important than the last listed.

Areas of Adjustment for Property Tax Reduction

Categories of Compatibility:

  • similar neighborhood
  • total square feet of living space
  • number of rooms, bedrooms, baths
  • sold preferably within 4 months
  • sales price within general market price of your home
  • sales or financing concessions
  • location
  • quality of construction
  • style of house
  • age of house
  • condition
  • square footage
  • property site and view
  • functional utility (deficiencies or overbuilt features)
  • number of garages
  • swimming pool, fireplace(s), remodeled kitchen, kitchen equipment, etc.
  • storm windows or replacement window or thermopane windows
  • basement i.e. finished, unfinished or none
  • deck, patio, porch, etc.
  • landscaping

 

  Finalizing Home Appraisal Values

     Once you have chosen your 3 comparables and added and/or subtracted your adjustment data against the amenities your home enjoys or lacks, you will have arrived at the market value of your home. Our book provides easy to use forms and makes this process a snap. Almost every strategy, method, secret, resource, tool and trick is explained to launch an effective house tax reduction.

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