House #2 Appaised at $150,000
I got a pleasant suprise this week as I got a copy of the appraisal done for our new equity line on House #2 - $150,000! I orginally paid less than $130,000 back in June 2006 and wasn't expecting any significant increase.
I still don't put alot of faith in apprasials because property is a very illiquid investment. However, when they have an upbeat number I will let myself get a little excited. The good news helps validate my thinking that this property will be a good long term investment.
However it ends there - I'll maintain the cost basis as my valuation of the property in my net worth as I have always believed that its the best way to value these illiquid assets.
Comments (9)
Hate to burst your bubble but of COURSE they're going to appraise your house higher than what it would actually sell for. It's called more PROPERTY TAX for the government. If you want a fairly honest estimate, I would check out zillow.com and I would be looking at similar size homes that have actually SOLD recently in your area. That would tell you a more realistic estimate.
Posted by Steve | August 11, 2009 7:24 PM
One more thing I forgot to post is just to think for a second. Do you honestly believe that a house bought in 2006 at the absolute HEIGHT of the bubble is going to be worth 20K more than now? I mean this is exactly why the real estate crisis is going to last for years because people think their homes are worth more than they are and because the gov't tries to convince you it IS worth more so you can give them more money. It's a vicious cycle.
Posted by Steve | August 11, 2009 7:28 PM
Steve: I assume the local tax assessing authority is not providing appraisals for HELOCs. The bank "performs" the appraisal and the bank wants to have collateral for the loans they provide. I don't see any incentive to highly overvalue an asset in the current lending situation. The higher the value the larger the loan and the more interest they can collect, but I don't think your first comment has any validity at all.
Posted by Dave | August 12, 2009 12:59 PM
Steve - It seems like you've been drinking the Armaggedon news cool-aid a little too much lately. Yes we are in a terrible economic cycle, but just because you read that real estate values have plummeted in the US, does not mean that each property has decreased. 2Million may have done some significant improvements (new driveway, siding, etc.). A new school could have been built in the neighborhood, the appraiser might have switched to the income approach in his appraisal since it is now a rental. There are hundreds of ways a property could increase in value, even during this type of market. At least in my state (and the other 49 i am sure), the appraisers have ZERO incentive to arbitrarily inflate appraised values to help "the government" and increase property taxes. The only incentive that they have, which is a shaky argument, is that they could inflate prices to ensure that the mortgage lenders continue to use their business (which is now being outlawed http://www.abc15.com/content/living/yourhome/story/Home-appraisals-now-more-accurate-but-hassle-for/7ECtz-OWYkeU_UvdptL7lA.cspx). Appraisers are being reprimanded right now for being overly cautious and bringing values that are lower than they should be.
Anyways - Congrats 2Million! It is always wise to keep your values lower on the net worth sheet than the appraisal because if you needed to move the property quickly, you would likely have to lower the price, and take the selling/broker costs into account as well which can ofter wipe out a good portion of equity.
Posted by Boston | August 12, 2009 2:08 PM
My argument is perfectly sound people! PERFECTLY sound. This is the worst economic crisis since the Great Depression. Average house values in the US have sunk 30% since their 2006 highs. Unemployment rate is rising. That's right...now over 10%. Yet you think that 2million's home is somehow bucking this trend? Hey I have nothing personal against 2million and would love his house to be worth what the latest assessment says and I love his blog. Only problem is, this is not a realistic assessment. The only way to solve this argument is to put the house up for sale today at the currently appraised price and see if anybody buys at that price. I say no. You say yes. That's the only way to know.
Posted by Steve | August 12, 2009 4:24 PM
The government and his property tax assesment had nothing to do with 2 mill's recent apprasial. I love people that have no facts yet spout like ignorant fountains...lol.
Now if he got a notice in the mail that his property from the county tax collector that his home was being reassessed at a higher value. Then your argument holds water.
Where are those breadlines...steve? not in here in the US. Trust me son, the 70's were much worse then this. All this was, was the the opportunity to load up on cheap assets (stocks and RE).
It might get worse, it might not.
Who cares...live within your means and provide value to something or some one and you can make money!
Posted by js | August 14, 2009 1:09 AM
Steve, it was not an ASSESSMENT it was an apprasial. Look up the definitions.
Posted by Js | August 14, 2009 1:11 AM
Steve, your argument is NOT PERFECTLY sound. There ARE DEFINATELY places in the US were house prices are increasing? Just because on average prices are down 30% it does NOT mean all house values are down. I think 2million house price MIGHT be bucking the trend.
2million do not worry, just to prove Steve right, you do NOT need to sell your home.
Posted by david | August 14, 2009 4:46 AM
The main question for me is: can people who live in the neighborhood afford houses at the higher value? It's when the houses become too expensive vs the occupants incomes (renters or owners), that the price will fall. The 20K difference isn't so much and might be realistic if wages haven't gone down in the area.
A few years ago, I would track unbooked equity (in a home) based on sales values on my personal balance sheet. That being said, the value of a home, be it a first or second, has less meaning for me. I mostly want to see how much cash it generates and how that augments my investment income. For example, if I have 10K in net rental income, 10K in investment income and 40K in expenses, then I only need to earn 20K to break-even. 2million seems to want to cover his monthly/annual costs so he might want to track that ratio.
Posted by Derek | August 14, 2009 5:31 AM