Love's Real Stories

You may be able to ignore the knee-high grass in your neighbor’s yard, but a home appraiser probably won’t.

When calculating the value of a property, an appraiser factors in surrounding neighborhood conditions. Neighborhood nuisances like an overgrown yard or a persistent odor could in some cases bring down the value of adjacent homes by 5 to 10 percent, said Richard L. Borges II, the president of the Appraisal Institute.

What you call a bad neighbor, the appraisal industry calls “external obsolescence.”

Some problems are not always apparent, like a nasty but quiet neighbor, and you can kind of get away with them. But the obvious stuff, like a yard full of rusty cars next door, or the old motorhome parked across the street with weeds growing around the flat tires might be enough to bring down your appraisal value.

Of course, the perception of what’s unsightly varies by neighborhood. The rusty cars are more likely to be considered a problem in residential neighborhoods than out in the country where we consider rusty cars part of the landscape. It’s possible that even a roof covered with large solar panels might be considered obtrusive in some areas, Mr. Borges said, though the impact on nearby homes would be far less negative than if the property was run-down.

“It’s very much case by case,” he added. “This is why the appraiser should be geographically competent, with knowledge of how significant the external factors are in that particular market segment and on that particular property.”

Not all nuisances noticed by an appraiser are measurable, either. “I’ve never seen a location adjustment because of barking dogs or loud teenagers,” said one certified appraiser. The appraiser has to be able to provide some sort of evidence for that adjustment. “The lender requires that we provide them with a comparable property with a similar external obsolescence.”

The external factors that appraisers deal with most frequently have to do with proximity to infrastructure — power lines, commuter rails, highways. But over the last five years, he said, “the ‘bad neighbors’ have tended to be lenders or government agencies that have foreclosed on a property but haven’t maintained it that well.”

What a neighbor thinks is a nuisance may be perfectly legal. Mr. Borges gives the example of a homeowner in a subdivision, who upset the neighbors by building an over-sized extra-long garage for his R.V., but had the necessary permits, as it turned out.

Condos are easier. Bylaws usually restrict the things that are the common neighborhood problems, and the homeowner’s association will enforce the rules so you can avoid confrontation.

Neighborhood nuisances may potentially be solved with help from the local authorities. If those rusty cars aren’t registered, or if chickens and horses are a zoning violation, a phone call might end the problem.

The question of how to deal with confrontation can only be answered case-by-case. A code enforcement officer gives this advice: “Some people aren’t worth starting a fight with. If you start it, they’ll never let it die. On the other hand, we usually do a pretty good job of mediating a situation when it’s needed. We are happy to discuss a situation privately before making it official. Sometimes it’s better if we don’t go out, and neighbors can work things out in a friendly way.”

My grandmother would say, “Make ‘em a pie, and go visit ‘em. That’s how you get a good neighbor.”

Here in California, we launched over the “Fiscal Cliff” back in 1978, according to Proposition 13 haters. Proposition 13 froze real estate property taxes with a “two percent rule”- a limit for increases of no more than two percent per year. Millions and billions of dollars were lost from tax revenue, and the state has been scrambling and scratching for cash ever since.

Real estate property owners have been happy with the law. “Hands off, Mr. Tax Man;” they say, “stay out of my pockets when it comes to my property.”

Naturally, Mr. Tax man has been frustrated with Proposition 13, because real estate was the go-to place to find money back in the day. A little tax-raise here; a little tax-raise there, and presto! – A balanced budget. But no more, thanks to Proposition 13- find your money elsewhere, Tax Man.

Property owners have another benefit when it comes to taxes. When real estate values drop, the Tax Man can lower property taxes to match. In fact, he’s obligated to lower them, particularly if property owners appeal to the Assessor’s office and prove their property values have dropped significantly.

Frank Milo, for instance, bought his house in 2004 for $350,000. Four years later the value dropped to $250,000. “Hey,” he said, “I’m sitting here paying taxes on this turkey at $4,200 a year. If my house is only worth $250,000 now, my taxes should be $3,000 a year. That’s a hundred bucks a month I’m throwing down a rat-hole! No fair!”

Frank made an appeal to the Assessor’s office, had his property’s assessed value lowered to $250,000, and his tax bill lowered to $3,000 a year- he’s saving a hundred bucks a month.

But there’s a catch. When property values go back up, as they are now……… You guessed it- Mr. Tax Man can ignore the 2 percent rule for properties he lowered, and raise those taxes right back up.

Mr. Tax Man is twirling his moustache right now, raising values he was forced to lower, and sending out new tax bills. Frank Milo got his, and he’s not a happy camper. “My pay at work sure hasn’t gone up, but now my taxes are,” he said.

Beware. The Tax Man cometh.

“Under the new health care bill, did you know all real estate transactions will be subject to a 3.8% Sales Tax? If you sell your $400,000 home, there will be a $15,200 tax……… Oh, you weren’t aware this was in the Obamacare bill? Guess what, you aren’t alone. There are more than a few members of Congress that aren’t aware of it, either (the result of clandestine midnight voting for huge bills they’ve never read)………….”

The above is from an email that has been passed around like a bad germ. It causes people afflicted by it to say things like, “Hey, what the heck is this new Real Estate Tax all about?” People afflicted tend to suffer fear and loathing, and if untreated, can display angry outbursts, such as, “These government jerks are ripping us off again?!” One man called and said “I was going to sell my house – I’ve owned it for 50 years- now that the wife is gone. But I’ll stay here and rot before I give up any new government tax. They can pry it from my cold, dead hands.”

Let’s be perfectly clear. Or read my lips (politician-speak). There is no new Real Estate Tax.

There is a new tax that was porked into the health care bill, but it is not simply a real estate tax. It’s an income tax based on “unearned income” to pay for Medicare costs. “Unearned income” means profit on investments, sometimes known as Capital Gains. Real estate could be part of that income.

If you make less than $200,000 a year single-income, or $250,000 a year double-income, you don’t need to worry about any new tax.

If you do, the tax is 3.8% of any income from investments over the $200,000 or $250,000.

The income tax exclusion for the sale of a personal residence is still in place. No change. You can still sell your house and walk tax-free with $250,000 if you are single or $500,000 if you are married.

If you receive the germy email described above, please hit “Delete.” Please resist the “Forward” button.

Thank you.