Summer 2011

Why Real Estate Assessments Matter
Realtors Fighting for Affordable, Accessible Mortgages
More Renters Than Ever Aspire to Home Ownership
Reverse Mortgage Defaults Threaten Seniors
Digital Video Recorders Use More Energy Than Flat Screen TVs

Why Real Estate Assessments Matter

The real estate assessment letter you filed away unopened is the driving force behind how much you pay in property taxes, says (Local Board spokesperson).

If you’re suspicious that your property taxes are too high, you can check for errors by calculating the value of your property tax. Image: CertainTeed

You might not think too hard about your real estate assessment, the dollar value the local government puts on your house and land. You should. The assessment determines how much you shell out on property taxes.

If you have a mortgage, your home lender is probably paying your property taxes out of an escrow account. Odds are you don’t even know how much gets collected. Devote an hour of your time to becoming better informed. Once you understand your real estate assessment, you’ll understand your property tax bill–and, more importantly, whether you’re paying the right amount.

Homeowners and property taxes
Your local government needs every dime it can collect to pay for all of the services you expect as a resident: schools, libraries, hospitals, and so on. A healthy chunk of that revenue is raised from homeowners via property taxes. In normal times real estate values climb steadily, allowing local governments to take in a little more every year to keep up with inflation and perhaps even add a few services. Property tax bills usually come due once or twice a year.

The situation gets stickier when real estate values are in decline. If that occurs, local governments generate less revenue from property taxes, meaning the tax rate needs to go up, the money needs to come from somewhere else, or spending on services needs to go down. According to a 2009 survey conducted by the National Association of Counties, 62% of counties polled say declining property taxes are a major source of revenue shortfalls. Forty-two percent of counties have cut services, and 11% have raised property taxes.

Assess your real estate assessment
No matter if property values are rising, falling, or stagnant, you need to understand how you’re being taxed. Everything starts with your real estate assessment letter, which reveals what your property is judged by the local government to be worth. The letter will differ, depending where you live, but most will have a legal description of your house and separate values for the land and the structure. Add those two numbers together to get your home’s assessed value.

Some local governments will appraise your home every year, others every two or more years. Tax assessors generally use one of two methods to come up with an assessment value for your home. The most common relies on looking at recent sales of comparable homes. Keep in mind that “recent” is a relative term. To come up with a real estate assessment, assessors may be looking at sales that occurred as long as 18 months prior. Alternatively, especially in the absence of recent sales data, assessors will calculate the cost to rebuild your home, and add that to the estimated worth of your land to come up with a dollar amount.

Break out the calculator
How much you pay in property taxes is based on your real estate assessment. Put simply, your home’s assessed value is multiplied by the local tax rate to come up with a figure. However, it can become more complicated if there are multiple taxing authorities where you live–a city and a county, for example–or if there are special one-time assessments. Qualifying for property tax exemptions, perhaps due to age or disability, will also alter the formula. Some local governments offer online calculators on their websites, or call the tax assessor’s office for help.

Knowledge is power–and savings
Assessors have a lot of ground to cover. Many rely on valuation formulas that assess whole streets or neighborhoods. Most haven’t seen your house in person, so don’t wait for a knock on your door from an assessor hoping to take a look around. That’s why you need to read your real estate assessment letter carefully, look for errors, and challenge your assessment if it seems too high.

If you find a way to reduce your real estate assessment, whether by contesting it or qualifying for an exemption, the savings can add up. The median annual property tax paid in the U.S. in 2008 was $1,897, or 0.96% of the median home value of $197,600. Trimming just 15% off the median value would result in savings of about $285. Of course, if your home value and local tax rate are higher, then you’re looking at even greater savings.

If you’re in the market for a new home…or thinking about selling your current home, contact a REALTOR. Their value and expertise will ensure a professional home buying/selling experience.

Realtors Fighting for Affordable, Accessible Mortgages

Congress is discussing changes to the Federal Housing Administration that could have a significant impact on home buyers, sellers, and the future of the real estate market here in [name of your city]. Some of these proposed changes would raise the minimum down payment for FHA-insured mortgages to 5 percent, as well as allow FHA loan limits to revert to 115 percent of a county’s median home price.

“Since its inception in 1934 FHA has provided safe, affordable mortgage financing to millions of home buyers,” said [full name and title of your local spokesperson]. “FHA plays a critical role in the nation’s housing finance system. Realtors believe changes should not be made at consumers’ expense by reducing the availability and increasing the cost of mortgage capital, especially when the market is still recovering.”

Many first-time home buyers rely on FHA-insured loans to purchase a home, which only require a 3.5% down payment in most cases. According to the National Association of Realtors, one-third of recent buyers purchased their homes with an FHA-insured mortgage.

“FHA is a leader in insuring safe, low down payment mortgages to responsible, qualified borrowers,” said [last name of your local spokesperson]. “Realtors oppose any increases to the down payment requirements, which would put home ownership out of reach for many families. The principal barrier to home ownership is accumulating the money needed for down payment and closing costs. Increased down payments will make it difficult for both first-time and repeat buyers.”

Twenty-one percent of recent buyers made less than a 3 percent down payment on their home purchase, according to NAR research. NAR estimates that it would take the average American family, living frugally and saving at the current national rate, nearly seven years for a 5 percent down payment on a $200,000 home and more than 10 years to save for 10 percent down.

Realtors are also urging Congress to make the current FHA loan limits permanent. Current limits range from $271,050 to $729,750, based on 125 percent of the local area median home price. These limits are set to expire on September 30, 2011, and revert to formulas based on 115 percent of the area’s median home price, but some public policy makers have proposed allowing those limits to fall even further.

NAR estimates that reverting to lower loan limits will impact 612 counties in 40 states and the District of Columbia, with an average loan limit reduction of more than $50,000.

“Reducing the current loan limits would restrict availability of mortgage loans all over the country, as well as increase cost of capital to consumers,” said [last name of your local spokesperson]. “These proposals will have an even greater dramatic impact on liquidity and could halt the housing market recovery.”

FHA is the only government agency that operates entirely from self-generated income, costing taxpayers nothing.

“FHA serves the needs of millions of hardworking Americans and has taken critical steps in the housing finance system to ensure long-term financial soundness. It is imperative that we maintain the current down payment requirements and loan limits to safeguard home ownership,” said (last name of your local spokesperson).

If you’re in the market for a new home…or thinking about selling your current home, contact a REALTOR. Their value and expertise will ensure a professional home buying/selling experience.

More Renters Than Ever Aspire to Home Ownership

Seven in 10 renters believe owning a home is a priority for their future. This is according to the 2011 National Housing Pulse Survey recently released by the National Association of Realtors, which said more renters than ever (72 percent) aspire to home ownership, up from 63 percent in 2010.

“It’s no surprise that most renters eventually want to become home owners,” said [full name and title of your local spokesperson]. “They realize the long-term value of owning a home, as well as the safety and stability that go along with that.”

Similar to previous years, the survey also found an overwhelming majority (72 percent) of Americans said buying a home is a good financial decision. In addition, almost two-thirds (64 percent) thought that now is a good time to buy a home. When asked why home ownership matters to them, respondents cited stability and safety as the top reason. Long-term economic reasons such as building equity followed closely behind.

“Home ownership strengthens communities by preventing crime, improving education and supporting neighborhood upkeep,” said (last name of your local spokesperson). “Owning a home is also one of the best ways to build long-term wealth and it also offers home owners savings during tax time.”

One of those savings is the mortgage interest deduction. The [full name of your association] believes the MID is vital to the stability of the housing market and economy. And so do a majority of Americans. The Pulse Survey found respondents were adamantly against eliminating the MID. Two-thirds of Americans oppose eliminating the tax benefit, while 73 percent believe eliminating the MID will have a negative impact on the housing market as well as the overall economy.

“The MID facilitates home ownership by reducing the carrying costs of owning a home, and can mean significant savings for home owners,” said (last name of your local spokesperson). “Realtors are working hard to make sure that any changes to current programs or incentives don’t jeopardize our collective futures.”

Closer to home, survey respondents identified people falling behind on their mortgages and the drop in home values as critical concerns in local housing markets. Foreclosures also continue to be a large concern. However, the survey also found that respondents were less concerned about the number of homes and condos for sale than in previous years.

The 2011 National Housing Pulse Survey is conducted by American Strategies and Myers Research & Strategic Services for NAR’s Housing Opportunity Program. The telephone survey was among 1,250 adults nationwide, with an oversample of interviews of those living in the 25 most populous metropolitan statistical areas. The study has a margin of error of plus or minus 3.1 percentage points.

If you’re in the market for a new home…or thinking about selling your current home, contact a REALTOR. Their value and expertise will ensure a professional home buying/selling experience.

Reverse Mortgage Defaults Threaten Seniors

Reverse mortgages, which allow older adults to convert some of the equity in their homes into cash, have been a life line for many house-rich, cash-poor seniors struggling to get by, according to (Board spokesperson)

But now, with a growing number of reverse mortgages falling into default, these retirees could end up losing their homes.

As the name implies, reverse mortgages work the opposite of traditional mortgages. Instead of the home owner making monthly payments to the lender, the lender pays the home owner, in a lump sum or a set amount each month.

Available to people age 62 and older, none of the money–which might be used for medical bills, home repairs, or day-to-day living expenses–has to be repaid as long as the borrower remains in the home. Still, the loan can end up in default if the borrower doesn’t pay property taxes and home owners insurance.

The U.S. Department of Housing and Urban Development, which insures virtually all reverse mortgages under its Home Equity Conversion Mortgage program, says it’s in the process of compiling official statistics and can’t say for sure how many reverse mortgages are in default.

But the industry estimates there are about 30,000 such loans, representing 5% of the some 550,000 outstanding reverse mortgages nationwide. Although the number of defaults is still relatively small, a government study suggests they are on the rise.

HUD’s inspector general’s office in August reviewed four of 16 HECM loan servicers nationwide, finding the number of defaults shot up 173% from May 2009 to March 2010.

So far there have not been any foreclosures, HUD and industry experts say, meaning no seniors have been evicted from their homes. The inspector general’s report said HUD, which would have to approve the foreclosure process, had been looking the other way because it was loath to foreclose on “senior citizen borrowers.”

The report was highly critical of the agency for not having a way to accurately track defaults and, as a result, not knowing the extent of the problem or being able to help borrowers figure a way to become current.

It estimated the government could be on the hook for at least $1.5 billion in the event the roughly 20,000 loans identified in the study ended up in foreclosure.

HUD says it is working on a tracking system and expects to release default data “in the near future.”

In January, HUD, through the Federal Housing Administration, which insures the loans, instructed lenders to send notices to home owners with delinquent taxes or insurance and to start working with them to avoid foreclosure. Options include HUD-funded financial counseling from an approved counselor to help set up a repayment plan or explore the possibility of refinancing.

The agency called foreclosure “a last resort” when dealing with elderly clients.

Peter Bell, president of the National Reverse Mortgage Lenders Association, said lenders had been successfully working with delinquent borrowers to get current, sometimes helping them get food stamps or discount prescription drug cards.

He said defaults were a function of the tough economy and the collapse in the housing market.

HUD’s new guidelines call for lenders to stress to home owners their obligation to pay taxes and insurance before closing on the loan.

And although eligibility for a reverse mortgage isn’t based on income and credit history (the primary factors are age and the value of the home), the agency has introduced a new financial tool to help lenders evaluate a borrower’s ability to keep up with property expenses. If there are major doubts, borrowers may be required to establish a reserve fund for those expenses.

Some of those retirees, who are finding it harder to sell their home and downsize in a depressed real estate market, have been turning to reverse mortgages to defer their mortgage obligation and get rid of burdensome monthly payments. But that leaves them with no equity to tap in an emergency.

If you’re in the market for a new home…or thinking about selling your current home, contact a REALTOR. Their value and expertise will ensure a professional home buying/selling experience.

Digital Video Recorders Use More Energy Than Flat Screen TVs

Digital video recorders (DVRs), cable, and other pay-TV boxes cost American consumers $3 billion a year–$1 billion to operate when in active use and an additional $2 billion while inactive but still running at near full power, according to a study from the Natural Resources Defense Council, says (Local Board spokesman)

The NRDC study, Reducing the National Energy Consumption of Set-Top Boxes, also found that today’s average new cable high-definition digital video recorder (HD-DVR) consumes more electricity annually than the new flat-panel TV to which it’s typically connected and about 40% more than its basic set-top box counterpart.

There are approximately 160 million set-top boxes installed in U.S. homes, or the equivalent of one box for every two Americans. These boxes consume as much electricity each year as that consumed by the entire state of Maryland and are responsible for 16 million metric tons of carbon dioxide emissions per year.

National set-top box electricity use is growing as more consumers shift from basic boxes to DVRs, which provide consumers with a convenient way to record and play back shows. One DVR and one basic set-top box use approximately the same annual electricity use as one new refrigerator.

These devices still run at near-full power when the consumer is neither watching nor recording a show. Hitting the on/off button merely dims the clock or display and does not significantly reduce the amount of power used.

Dramatic energy savings can be readily achieved by having set-top boxes automatically go into a low power mode when people are neither watching nor recording a show. This functionality is beginning to appear in boxes used in Europe. To achieve this in the United States, pay-TV service providers such as Comcast, Time Warner, DIRECTV, Dish, and the phone companies–who control set-top box installation, configuration, software updates, repair, refurbishment, retirement, and resale service–could work with manufacturers to develop and deploy more energy-efficient devices.

Likewise, to make sure their interests are being met, consumers can request their pay-TV service provider (e.g. their cable or satellite company) supply them with set-top boxes that meet Energy Star Version 4.0.

If you’re in the market for a new home…or thinking about selling your current home, contact a REALTOR. Their value and expertise will ensure a professional home buying/selling experience.