I co-own a rowhouse in the hot U Street area with my ex-partner. He wants to “buy me out” of the property which has appreciated quite a bit since we purchased it in 2001. My ex has proposed a “selling price.” When I ask how he determined it, the response was, “I’ve been watching the market.”
With his new mortgage, there will be an appraisal but that doesn’t give me much comfort. I’ve been told that in a hot, fast-paced real estate market like D.C., appraisers can’t keep up with the value because of the lag in available comparables. It was suggested that a real estate agent who knows the area would have a better idea of the house value. I shared that suggestion with my ex but he didn’t think it was necessary. Any suggestions?
Pricing a home in today’s market is a challenge. Pricing is part science, part art. It sounds like you intend to sell your interest for its fair market value. Fair market value is often defined as the price that a willing buyer, under no compulsion to buy, is willing to pay to a willing seller, under no compulsion to sell.
An experienced real estate agent in your neighborhood will be an essential resource for you and your ex-partner. The real estate agent will provide you with a “comparative market analysis” (CMA) which will tell you what the other comparable homes sold for over the past several months. They can determine if prices are trending up or down, and by how much.
Agents can tell you how long those comparables remained on the market. They can determine if those prices were affected by unusual external factors, such as: extreme weather, or government sequestration. Active real estate agents will know how contract terms and conditions impact their sellers’ bottom line.
In the current market, buyers often ask for, and receive, up to 3 percent purchase price concession from sellers at settlement. Finally, the savvy agent will be able to provide you with his “gut feeling” about the steps you need to take to maximize your sale price and minimize your days on the market.
If you are more the science type, I highly recommend you consult the District of Columbia’s Real Property Assessment Division’s Appraiser’s Reference Materials 2016 (“ARM”). This 148-page report is a valuation data treasure trove.
The report is broken down into sub-neighborhoods and provides guidance to the District’s appraisers on how to value literally all the factors which determine the assessed value. Assessed value is determined by the District on an annual basis in order to assess and collect real property taxes.
This approach takes vast amounts of data into account and assigns values to all major housing elements. For example, it values the second full bath at $12,500; each additional half bath at $8,125; a fireplace at $8,000; a finished basement will be valued at $55 per square foot; an open porch increases your home’s value by $22 per square foot, whereas a fully enclosed porch fetches $55 per square foot in additional assessed value.
Even floor coverings can cause your assessed value to vary widely. Carpet adds $2.17 per square foot to your home’s base value, whereas ceramic tile adds a whopping $8.53 per square foot, even more than hardwood, which the District values at $7.17 per square foot.
The main drawback to relying on assessed value to determine fair market value is that the data used by assessors for taxation purposes can be somewhat dated. The 2016 ARM data is based on closed sales through year-end 2014. The other drawback is the fact that District assessors do not field inspect every property every year.
If the scientific approach appeals to you, but you do not want to do your own number crunching, you can always hire an independent appraiser to do that for you. The costs are nominal at about $450. Most appraisals can be completed in a week or so. Your independent appraiser will have the market data, and your cooperation in allowing him to carefully inspect all the interior improvements that you have made over the years.
No home pricing discussion is complete without addressing online valuation Web sites such as Trulia or Zillow. These sites historically have had an abysmal error rate (between 18 and 32 percent) for their online, computer-generated valuation.
Recently, they have taken steps to increase their accuracy by entering into agreements which allow them to get near real-time data directly from the various multiple listing services.
As recently as June 10, they were still reporting an overall 8.3 percent median error rate nationwide. As Zillow’s own site says “the Zestimate isn’t intended to replace a real estate professional’s opinion of value.”
Harvey S. Jacobs is a real estate lawyer with Jacobs & Associates-Attorneys At Law, LLC in Rockville. He is an active real estate investor, developer, landlord, settlement attorney, lender and Realtor. This column is not legal advice and should not be acted upon without obtaining your own legal counsel. Contact Harvey at 301-300-6252 Jacobs@Jacobs-Associates.com or Ask@thehouselawyer.com.