RE Value Blog

The color of ones front door can be revealing. How about the colors of the entire exterior of the house? How does it affect the ability of the seller to market the property? The latest trend of colors to boost the value of a home is a gray exterior with a blue door. Kitchen trend is similar, with many homes being sold with both blue and gray cabinetry. For example, gray wall cabinets and a blue center isle. Bathrooms that are pale blue with white fixtures and tile are in trend right now. While everyone has their own personal tastes, if you are selling or marketing a home, including for tenant occupancy purposes, selecting the colors that are typically the most desirable at that time is something to consider.

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Posted by Joseph J Randazzo, SCRREA on January 30th, 2019 10:37 AMLeave a Comment

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February 23rd, 2018 1:31 PM

Assessed Values & Property Taxes

When you purchase a home, it is very important to find out what your property taxes will be. This is especially important if the property has been recently improved, meaning that it has been recently expanded, renovated, or if it is new construction. If the property is being purchased from a "flipper", there is a very good possibility that the taxes on the property will go up significantly after the closing. It is likely that the assessed value and taxes for the current tax year, as per municipal records, are based on the property prior to recent improvements. When next years tax bill arrives, it may be significantly more than what they had been during the year the home was purchased. For example, if the property was assessed at $250,000 prior to improvements, and the purchase price is $500,000, the taxes could double. If you are buying a home that has been recently updated, renovated or built, be sure to check with the Tax Assessors office for the town to find out what the taxes will be as a result of the improvements. If you are planning to renovate or expand you currently owned home, check with the assessor prior to proceeding.

Posted in:General and tagged: Real Estate Property Taxes
Posted by Joseph J Randazzo, SCRREA on February 23rd, 2018 1:31 PMLeave a Comment

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February 28th, 2017 7:48 PM

A Change in the Whether

No, that is not a misspelling. As Spring springs into action in the Real Estate Sales Market for 2017, many questions have been raised with regards to whether or not the growth in the markets is sustainable. Three factors threaten the sustenance of growth and market appreciation. Mortgage rates are rising, with the rise in rates overdue. Artificially low rates has led to inflation and an increase in the actual cost of living. Home prices have been increasing for quite some time now, becoming less affordable to the typical buyer. Rising property taxes have thrown more sand into the gears of affordability. This combined with income growth barely keeping up with inflation has led to fewer buyers being able to afford homes, with home affordability falling to its lowest level in seven years by the end of 2016. With mortgage rates having increased in the 4th quarter, monthly payments on 30 year mortgages were found to have increased by approximately 10%, with almost 25% of median income being required to make principal and interest payments on median priced homes. The percentage does not include property taxes, home owners insurance, cost of utilities and, for properties located in a condominium or co-operative development, home owners association fees. As per Core Logic, national sales prices of homes, from the end of 2016 to the end of 2017, were found to have increased 7.2 percent. Anticipated rise in home prices forecast for 2017 would result in home prices reaching a new peak by the end of this year. Some markets are well past their peaks reached approximately 10 years ago. New construction is less affordable than ever to the typical buyer, which has resulted in previously existing homes rising significantly in value. As supply decreases, demand has been growing by those who have been renting seeing the cost of tenant occupancy having become more costly than homeownership. Whether or not growth in the housing industry can overcome the lack of increase in median income along with increasing mortgage rates, property taxes and home owner expenses, will soon be determined in the coming months.

Posted in:General and tagged: Real Estate Market Value
Posted by Joseph J Randazzo, SCRREA on February 28th, 2017 7:48 PMLeave a Comment

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September 13th, 2016 6:57 PM

Arriving At Price Per Square Foot Adjustments 

How does an Appraiser arrive at the Price Per Square Foot of Livable Area to be utilized in adjustments made in a real estate appraisal report? Good question. First of all, there is no predetermined formula that can be broadly applied. The value is extracted from the market based on similar sales. When preparing an appraisal report, the price per square foot for each individual sale is available based on the sales price divided by the gross living area. The gross living area does not include basements, including walkout basements, garage space, enclosed porches, pool houses or other sources of square footage which do not fit the definition of livable area. No areas of the dwelling below grade, or not contiguous to the main area of the dwelling, are included. 

ANSI standards state Gross Living Area to be “an enclosed area in a house suitable for year-round use, embodying walls, floors, and ceilings that are similar to the rest of the house.” 

Upon selection of the comparable sales determined to be recent and the most similar to that of the subject, the numbers derived could be reflected in the following data;

The price per square foot reflected in the data above includes the land/site and all improvements. The improvements would be comprised of the livable area, the basement, garage and, any other amenities which could contribute to value, for example, deck, porch, patio, pool, fireplace or central air conditioning. 

The next step in the process is to determine the valuation of the land, which is done either based on similar vacant land sales, sales of properties whereby the improvements have been destroyed to make way for new construction less the cost of removal, or via extraction, based on other sources of site valuation including but not limited to tax assessors records. It is important to note that site valuation can be based on various factors, including price per front foot or depth, price per square foot, price per acre, with time proven methods of determination applied, such as the Hoffman-Davies Rule or the 4-3-2-1 Rule. Site values are influenced by externalities, beneficial or adverse, for example, busy street, dead end street, desirable or undesirable adjacencies, views etc.. These must also be considered if applicable with regards to site valuation.  

As a result of the extraction of the site values and their being applied to the comparable sales selected, a Net Value for ALL improvements can be arrived at. 

Based on a market analysis of more than just the three comparable sales utilized, it was determined that for similar sales, after site improvement cost, depreciation of improvements, contributory value of basement (finished,part finished,unfinished) and amenities typical to the subject market area for similar homes, 72% of the improvement value was determined based on average, with 68% based on median, to be Attributable to the Livable Area. As a result of the analysis, 70% of the gross value of the improvements was determined to be the percentage utilized to determine the supportable price per square foot for adjustments of livable area. 

The result of the Overall Improvement Value X the Percentage of Improvements Attributed to the Livable Area  resulted  in a Price Per Square Foot of $ 90  (rounded).
This value is supportable and not randomly selected. While the determination can be time consuming, it is the responsibility of those determining Market Valuations to adhere to this method, or a similar valid method of extraction, to arrive at supportable adjusted sales prices for comparable sales utilized in an appraisal report.

While the range of value of the comparable sales utilized was found to be 12%, with the range of livable area of those sales utilized being 18%, the applicable percentage adjustment, based on valuation of livable area based on market extraction was found to be an average of 2.12% with a median of 2.14%. This is an indication that the comparable sales utilized were truly similar. These adjustments would be considered line adjustments, included in the net and gross adjustments for each comparable sale utilized. The Lower the Net and Gross adjustments, resulting from the application of market extracted adjustments on a per factor basis, result in the most supportable Conclusion of Value determined in a Real Estate Appraisal. 




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Posted by Joseph J Randazzo, SCRREA on September 13th, 2016 6:57 PMLeave a Comment

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September 20th, 2015 2:39 PM


Explaining a Commonly Asked Question - Assessments, Taxes & Ratios

The Effective Tax Rate is based on a Ratio, which is generated on a yearly basis by the individual Counties in the State of New Jersey. The Ratios are relevant to when the town was last assessed. If the town was just assessed, the Ratio is 100%. Typically, when values are increasing, the Ratio will continue to lower, resulting in the Equalized Value of a property increasing. For example;


If a home is assessed at $100,000 in 2013, with its equalization rate at 100%, its Equalized Value is of course $100,000.

If within the following year, the County has determined that values have gone up 5% in that town, the value of the home is $ 105,000.

Of course, all towns do not increase or decline equally. As a simple example, lets say the following towns were assessed in the same year. To keep it simple, here is an example, with all the towns then becoming 100%

Town     Avg Value       Ratio    Equalized Value  Tax Rate      Effective
                                                                                        Tax Rate

  A        $ 100,000       100%        $100,000             3.00             3.00

  B        $ 100,000       100%        $100,000             2.40             2.40

  C        $ 100,000       100%        $100,000             4.00             4.00

The following year, Market A has increased by 5%, market B by 10% with market C declining by 10%. The Ratios are then affected due to their usage of keeping the County somewhat in balance. (key word - somewhat) The results would be as follows;

The equalized value is determined by the Assessed Value divided by the Ratio. eg. 100,000 / .95 = $105,263. The Tax Rate undergoes the same adjustment per se. 3.00 / .95 = 3.16. If the budget increases by 2% then the rate is multiplied by 1.02. 3.0 x 1.02 = 3.06. To calculate the Effective Tax Rate the Adjusted Rate is divided by the Ratio. 3.06 / .95 = 2.91.

As you can see, if the values in the town decline, the Effective Tax Rate increases while towns that go up in value have an effective rate that decreases. Ergo Millburn low and Newark high.

Of course budgets have a huge influence. Especially Education. Livingston, Montclair, South Orange, Verona, West Orange --> 60% or more for schools.

It is also important to note that towns that towns don't cut budgets. If they initially see a problem spending all of the taxpayers money, they will work very hard at it until they figure out how. It would be great if they worked in the other direction, but, if budgets are lowered, it is not easy to get them increased in the future.

Bottom Line - property taxes are not about ratios, effective tax rates, nor even assessed values. It is about how much the towns are spending. It would be far more effective if citizens paid more attention and attended more town council meetings. Do you think that town budgets will begin to decrease any time soon ? 

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Posted by Joseph J Randazzo, SCRREA on September 20th, 2015 2:39 PMView Comments (1)

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The Basics of “Flipping” a Real Property

The basics of flipping a real property can be made to seem quite simple in principle. Such properties are typically purchased below market value, which could be, for example, as a result of a foreclosure or an estate sale. The property could be in need of renovation, rehabilitation, repairs or remodeling. These Four R’s can vary significantly. 

In the case of Renovation, the home is to be significantly torn apart and updated, having older mechanical systems, kitchen, baths, flooring, lighting and more, replaced with new materials and components. In the case of extensive improvements being made, this is often referred to as a “gut renovation”. 

A Rehabilitation typically involves restoring the livability, as well as marketability, of a home, with it being brought back into full working order and functionality, as well as aesthetically. The need for a “rehab” may have resulted from a lack of maintenance and very little recent updating. 

Repairs, of course, is addressing those items which are no longer functional or, replacing items which have outlived their effective age, with these items often being replaced. For example, a stove with only two burners working, a leaking furnace or, an old hot water heater. This could also cover damages done to the home by the prior owner. 

Sometimes a home is well maintained, but not up to date in terms of that which is desirable in today’s market. Kitchen counters may be in good condition, but are older Formica type, typically not what current buyers are looking for, such as granite counters. Remodeling can spruce up a property to provide an appearance of it’s being a “turn key” or “move in ready”. All of these terms can be found to be interrelated as the condition of homes varies greatly, and may involve more than just one of the above. 

Some Flippers specializing in this venture are very quality oriented, knowing that to receive a good net return, they must provide the dwelling with quality craftsmanship and materials, resulting in a higher sales price. With some, it may just be a quick turn over, essentially applying band aids over areas in need of repairs or updating, to give the appearance that the home is ready to go. Can you tell the difference? The average buyer often can not, especially when first seeing the property.

 What does a buyer need to do when they have found something that appears to be what they are looking for? Whether you are buying, or selling, what is the Market Value? Both buyers and sellers need to know. Based on recent similar sales, well researched, with a report prepared that summarizes all factors, including the condition. Selling or buying, find out what a home is really worth. Hire an independent Certified Appraiser.

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Posted by Joseph J Randazzo, SCRREA on February 20th, 2015 3:39 PMLeave a Comment

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