Crazy RE - Redfin CEO Tweetstorm

[Jerry1]

That's actually only partially right. Assessed value is determined by a massively complex set of rules (literally hundreds and hundreds of pages - I know, because I have a copy) that determine value NOT on what you paid for your house, what you think your house is worth, etc - but instead, literally, every last amenity and feature your house has. Have a garbage disposal? Cha-ching. (Seriously? I've paid for my garbage grinder about 10 times over already in the form of additional yearly taxes..on a GARBAGE. GRINDER). Granite? Cha-ching. Brick? Cha-ching. A pool (God help you if you do). SERIOUS Cha-ching - that alone adds $40K to your valuation, REGARDLESS of how much your pool is worth or what you paid for it. The list goes on..and on..and on..EVERY. SINGLE. AMENITY. you have adds valuation - and hence, tax. Double oven? Cha-ching. Built-ins? Cha-ching. A gable over your porch? Cha-ching. Bay window? Cha-ching. It's ENDLESS. Oh, and that doesn't get in to what "Class" they put your house in. That's in the SOLE OPINION of the Assessor. Oh, sure..they have guidelines. But you'd better be pretty nice to your Assessor or you could wind up in a higher class than would be ideal. And that alone will add tens if not hundreds of thousands to your base valuation if that happens.

We were seriously considering building a retirement home in MI but pulled back when I became INTIMATELY familiar - WAY too familiar, in fact - with how house valuations are set. And it TRULY has ZERO to do with what you paid for it, and EVERYTHING to do with what it is "in" your house in terms of amenties, square footage, materials used, etc. And if you think differently, good luck with the review process.

All that said, I stand by my earlier statement that MI Property Taxes are INSANE and some of the worst in the country.

All that said, you ARE absolutely correct on the limitations on INCREASES in annual value. But you're missing the key part, and that's how the BASE value is initially set. And that has everything to do with what's "in" your house, the materials you used to build it, etc and DIDDLY to do with what you paid for it, what you "think" it is worth, etc. Worse, if you (God help you), sell a "capped" house (like we have..20+ years in, so our increases have been limited), everything "resets" on the new house. And you start from scratch all over again with a significantly higher starting point. We literally just looked at a new house today. Much smaller than current house. Nicer lot. Our taxes would go up $4-5K annually from what we are currently paying, because we are 'capped' today on the existing house but wouldn't be once we sell and buy a new house.

What you’re describing is the assessment on a newly built house. Been there done that. Since there is no sales price, you are correct, the assessor gets first stab at what the home will be assessed at. That doesn’t mean that you can’t appeal that with market based comps. In my case, I over built and the assessment came in lower than what I spent so it would have been pointless to appeal.

Second, I’m not sure if your retirement home was going to be your full time residence or not but there is a homestead property tax exemption in Michigan. If the house is your primary residence, you pay half the tax. So, if you looked at the taxes and did not consider the homestead credit, you may have been mislead. If it was not going to be your primary residence, then yes, the taxes would be double and I can see how that would appear outrageous.

When we gave my daughter her house, she lost her homestead exemption. We won it back since her name was on the title the entire time (we just gave her our share) but yes, the initial tax bill was crazy. Especially given the size and value of the house.

 

[Jerry1]

PS - our retirement house was going to be ~2,500 sq ft. We planned to make it "nice" (like, actually having a garbage grinder, LOL) but not exhorbitant. I worked very closely with the county assessor to make sure I wasn't getting myself into a situation where my taxes would be prohibitive. Best estimate was that my property taxes would be $12,000 - $14,000 per year on that simple, albeit "nice" 2,500 sq foot house.

That's not to say EVERY 2,500 sq ft house in MI has those property taxes. Far from it. But like I said..it depends on a lot of things include materials used to build, what's "in" the house, even the architecture of the house (believe it not..gables? Cha-ching. Bump-outs like a bay window? Cha-ching. Face brick? Cha-ching..the list goes on..and on..and on.

Like I said..MI property taxes are BRUTAL.

Were you building on a lake? That would change things drastically. However, I can see a 2500 sq ft house in Traverse City being taxed at $12-$14K but that would be before the exemption. In Glen Arbor and on a lake - whole different situation.

 

[24601NoMore]

Were you building on a lake? That would change things drastically. However, I can see a 2500 sq ft house in Traverse City being taxed at $12-$14K but that would be before the exemption. In Glen Arbor and on a lake - whole different situation.

Not on a lake. In a sub.

Glenn Arbor millage rate is a LOT lower than it is downstate. Roughly half. (I've actually looked it up). We've actually been looking in Glenn Arbor for that reason. But - cost of living AND cost of homes (especially new construction) is then a lot higher also, and you have the tourism issues and crowding to deal with.

And, yes, $12-14K WITH the homestead exemption on a 2,500 sq ft "nice" (albeit, not crazy) house. That same house in TN would probably be $2K / yr in Property Taxes. Remember that everything - and I mean EVERYTHING you put into a house here increases valuation. We were being required to use mostly brick (vs wood, which I wanted to use since we ideally wanted a Craftsman style. The cost of the brick was calculated per square foot on the TAXES - not just the construction cost. And it was hugely more expensive on a yearly tax basis than wood. Crazy!!)

I have no idea if other states have this whacky approach to valuation, but FWIW..and I do think that sites like WalletHub who think MI is "mid" bad in terms of taxes have no idea what they are talking about, as they are looking at RATES only and none of these other variables.

 

[RetireeRobert]

And, yes, $12-14K WITH the homestead exemption on a 2,500 sq ft "nice" (albeit, not crazy) house. That same house in TN would probably be $2K / yr in Property Taxes. .

Why don't you move to TN?

Family I know with eight kids just moved to TN from Oregon. Taxes was one reason.

 

[24601NoMore]

Why don't you move to TN?

Family I know with eight kids just moved to TN from Oregon. Taxes was one reason.

We've been looking in TN for a while now. Just haven't found anything that is close to what we're looking for in terms of location, close to parks and trails, decent medical, type and size of home, floor plan, privacy, etc.

The bigger issue is that wife has a pretty large family that she's close to, and is really hesitant to be more than a car drive away..I do think she'd (very) reluctantly go if we ever found something, but so far it's been like looking for a purple unicorn.

 

[pjigar]

Talking to my friends who know RE well, the consensus is this isn’t a bubble either. Guess we’ll see.

Everyone say this when "in the bubble" every time! I simply look at the long term inflation adjusted home price chart. It has to revert to its mean if history is any proof. Some interesting charts/data here. Looks like we are already past 2008 peak! I am calling it a bubble.

 

[Jerry1]

Everyone say this when "in the bubble" every time! I simply look at the long term inflation adjusted home price chart. It has to revert to its mean if history is any proof. Some interesting charts/data here. Looks like we are already past 2008 peak! I am calling it a bubble.

Yes, but the 2008 bubble was burst because there was a collapse in the lending industry. What’s out there to burst this bubble? If the raise in prices is due to a shift in work location (virtual) and the resulting shift into different housing, do you see that bursting? I don’t. I think it will find a new high and level off. It will probably stagnate at some point and maybe drop some, but I don’t see a burst. Same with the low interest rates. Prices may stagnate or drop as interest rates go higher, but why would they go bust? Of course only time will tell, but I think we’re going through a structural change in the workplace that is affecting how people want to live and I don’t see that changing so rapidly in the other direction as to cause a burst, or drastic drop in pricing.

 

[pjigar]

Yes, but the 2008 bubble was burst because there was a collapse in the lending industry. What’s out there to burst this bubble? If the raise in prices is due to a shift in work location (virtual) and the resulting shift into different housing, do you see that bursting? I don’t. I think it will find a new high and level off. It will probably stagnate at some point and maybe drop some, but I don’t see a burst. Same with the low interest rates. Prices may stagnate or drop as interest rates go higher, but why would they go bust? Of course only time will tell, but I think we’re going through a structural change in the workplace that is affecting how people want to live and I don’t see that changing so rapidly in the other direction as to cause a burst, or drastic drop in pricing.

I don't have a crystal ball but "any" chart always reverts to its mean. I don't know how that happens but it has always happened. Specifically for RE, biggest risk I see is the mortgage rate. In light of recent inflation fears, federal reserve may have to raise the interest rate sooner rather than later. RE prices has to come down significantly to make them affordable at a higher mortgage rate.

PS: Lower part of K will eventually pose new kind of problems for the country that no one can foresee. Again I don't know what is going to be the end result but everything is going the wrong way for the lower K.

 

[W2R]

We've been looking in TN for a while now. Just haven't found anything that is close to what we're looking for in terms of location, close to parks and trails, decent medical, type and size of home, floor plan, privacy, etc.

The bigger issue is that wife has a pretty large family that she's close to, and is really hesitant to be more than a car drive away..I do think she'd (very) reluctantly go if we ever found something, but so far it's been like looking for a purple unicorn.

Keep looking! That house is out there somewhere. It took me four years of daily searching online, and sometimes in person, to finally find my Dream Home. This was despite knowing exactly where I wanted it to be.

 

[ExFlyBoy5]

Flying into Atlanta airport to change planes last week, could not believe all the red clay torn up for brand new developments. Must have been 10 or more huge neighborhoods being built, with brand new roads visible from on high. Traffic is already unbearable there, isn't it?

It is miserable (traffic) and has been for years. In the most sought after areas, there is infill going in. Older ranch homes (1500-2000 SF) are being bulldozed for McMansions. Yet, the people still keep rolling in.

I am quite happy to live where I do now. Big enough city that is 20-25 minutes away to give me most of what I want out of a big city without the big city issues. Good hospitals 10 minutes away. Ag exemption on a large piece of our property that is out "in the sticks". I don't ever see me living in ATL (or a similar place) ever again.

 

[ProspectiveBum]

I don't have a crystal ball but "any" chart always reverts to its mean. I don't know how that happens but it has always happened. Specifically for RE, biggest risk I see is the mortgage rate. In light of recent inflation fears, federal reserve may have to raise the interest rate sooner rather than later. RE prices has to come down significantly to make them affordable at a higher mortgage rate.

At least part of the recent price explosion has to be related to super-low inventory. There are more buyers than sellers, which is driving prices up. As the pandemic eases and things get back to “normal”, the extra inventory should theoretically spur some competition among sellers and at least flatten prices.

 

[Koolau]

That's actually only partially right. Assessed value is determined by a massively complex set of rules (literally hundreds and hundreds of pages - I know, because I have a copy) that determine value NOT on what you paid for your house, what you think your house is worth, etc - but instead, literally, every last amenity and feature your house has. Have a garbage disposal? Cha-ching. (Seriously? I've paid for my garbage grinder about 10 times over already in the form of additional yearly taxes..on a GARBAGE. GRINDER). Granite? Cha-ching. Brick? Cha-ching. A pool (God help you if you do). SERIOUS Cha-ching - that alone adds $40K to your valuation, REGARDLESS of how much your pool is worth or what you paid for it. The list goes on..and on..and on..EVERY. SINGLE. AMENITY. you have adds valuation - and hence, tax. Double oven? Cha-ching. Built-ins? Cha-ching. A gable over your porch? Cha-ching. Bay window? Cha-ching. It's ENDLESS. Oh, and that doesn't get in to what "Class" they put your house in. That's in the SOLE OPINION of the Assessor. Oh, sure..they have guidelines. But you'd better be pretty nice to your Assessor or you could wind up in a higher class than would be ideal. And that alone will add tens if not hundreds of thousands to your base valuation if that happens.

We were seriously considering building a retirement home in MI but pulled back when I became INTIMATELY familiar - WAY too familiar, in fact - with how house valuations are set. And it TRULY has ZERO to do with what you paid for it, and EVERYTHING to do with what it is "in" your house in terms of amenties, square footage, materials used, etc. And if you think differently, good luck with the review process.

All that said, I stand by my earlier statement that MI Property Taxes are INSANE and some of the worst in the country.

All that said, you ARE absolutely correct on the limitations on INCREASES in annual value. But you're missing the key part, and that's how the BASE value is initially set. And that has everything to do with what's "in" your house, the materials you used to build it, etc and DIDDLY to do with what you paid for it, what you "think" it is worth, etc. Worse, if you (God help you), sell a "capped" house (like we have..20+ years in, so our increases have been limited), everything "resets" on the new house. And you start from scratch all over again with a significantly higher starting point. We literally just looked at a new house today. Much smaller than current house. Nicer lot. Our taxes would go up $4-5K annually from what we are currently paying, because we are 'capped' today on the existing house but wouldn't be once we sell and buy a new house.

Not MI but a friend lived next door to a guy who did a remod that included the external part. He LEFT it finished in tar paper which saved him (Old memory, so could be off) $1000/year(?). Some states/localities are just plain obtuse when it comes to tax basing. We feel fortunate to be taxed at our rate in an otherwise HCOL area. State taxes, in general are definitely off-set for the oldsters under most circumstances. One of few bargains here in Paradise so YMMV.

 

[misanman]

That's actually only partially right. Assessed value is determined by a massively complex set of rules (literally hundreds and hundreds of pages - I know, because I have a copy) that determine value NOT on what you paid for your house, what you think your house is worth, etc - but instead, literally, every last amenity and feature your house has. Have a garbage disposal? Cha-ching. (Seriously? I've paid for my garbage grinder about 10 times over already in the form of additional yearly taxes..on a GARBAGE. GRINDER). Granite? Cha-ching. Brick? Cha-ching. A pool (God help you if you do). SERIOUS Cha-ching - that alone adds $40K to your valuation, REGARDLESS of how much your pool is worth or what you paid for it. The list goes on..and on..and on..EVERY. SINGLE. AMENITY. you have adds valuation - and hence, tax. Double oven? Cha-ching. Built-ins? Cha-ching. A gable over your porch? Cha-ching. Bay window? Cha-ching. It's ENDLESS. Oh, and that doesn't get in to what "Class" they put your house in. That's in the SOLE OPINION of the Assessor. Oh, sure..they have guidelines. But you'd better be pretty nice to your Assessor or you could wind up in a higher class than would be ideal. And that alone will add tens if not hundreds of thousands to your base valuation if that happens.

We have lived in Michigan nearly all of our adult lives and have not experienced this. FWIW.

 

[tmitchell]

Everyone say this when "in the bubble" every time! I simply look at the long term inflation adjusted home price chart. It has to revert to its mean if history is any proof. Some interesting charts/data here. Looks like we are already past 2008 peak! I am calling it a bubble.

I certainly hope you’re right! Otherwise I may have to keep working for a few more years!

 

[erkevin]

Question: with so many new homes being built and birth rates dropping, isn't the net result going to be a glut of homes? I doubt immigration is the X-factor.......or is it?

 

[HawkeyeNFO]

Question: with so many new homes being built and birth rates dropping, isn't the net result going to be a glut of homes? I doubt immigration is the X-factor.......or is it?

There has been a glut of older homes for decades...in cities like Pittsburgh, Detroit, St Louis, etc. They can be bought at giveaway prices. But nobody wants them. When anyone tries to clean things up, they call it gentrification, which is often a bad word.

 

[Out of Steam]

PS - our retirement house was going to be ~2,500 sq ft. We planned to make it "nice" (like, actually having a garbage grinder, LOL) but not exhorbitant. I worked very closely with the county assessor to make sure I wasn't getting myself into a situation where my taxes would be prohibitive. Best estimate was that my property taxes would be $12,000 - $14,000 per year on that simple, albeit "nice" 2,500 sq foot house.

That provides some weird incentives in construction, such as using cheap builder-grade fixtures and leaving out expensive trims long enough to get a certificate of occupancy. Then go back and put in the expensive things later.

 

[Out of Steam]

I doubt immigration is the X-factor.......or is it?

I suspect that a decrease in legal immigration over the past 4-5 years may well be the X-factor right now.

Increasing wages, combined with population losses in gateway cities while it grows elsewhere may both point in that direction.

 

[daylatedollarshort]

At least part of the recent price explosion has to be related to super-low inventory. There are more buyers than sellers, which is driving prices up. As the pandemic eases and things get back to “normal”, the extra inventory should theoretically spur some competition among sellers and at least flatten prices.

I think you are right. There may be a long term shortage of land in some places with geographic or zoning limits, but we have enough places in the U.S. where land is cheap. There are generally no constraints on prairie cities building out further and further. Working more from home is likely here to stay so more workers may be able to move more to follow cheaper housing. Post-pandemic, one of our relative's jobs has been changed to permanently work from home, with team members living in countries all over the world. The company is going to "office hoteling" where they have generic office space people can go to if they want but there's no more individually assigned cubes or offices.

I don't think most homes use any rare earth metals that may have long term limited inventory. Supply will catch up with demand as lumber yards reopen and stock up, interest rates will likely rise and housing prices will drop. Robert Shiller said in a recent article that prices will come back down, not overnight, but enough to cause some pain.

 

[harley]

Working more from home is likely here to stay so more workers may be able to move more to follow cheaper housing.

I hope you are right, but based on what I've been reading and hearing an awful lot of companies are trying very hard to get workers back in the office. Even workers who could relatively easily work from home.

I don't think most homes use any rare earth metals that may have long term limited inventory.

The physical structures may not, but there are so many appliances and devices that are part of the IoT that it will definitely affect home building. There's not much value in building a shell and not being able to outfit it.

 

[ExFlyBoy5]

I hope you are right, but based on what I've been reading and hearing an awful lot of companies are trying very hard to get workers back in the office. Even workers who could relatively easily work from home.

On a legal forum I am on, there are a lot of mid sized firms that are learning the hard way that people are GOING TO WORK FROM HOME and it's not up for negotiation. A fella I went to law school with had 3 paralegals/assistants QUIT when they were told they would have to go back to the office. Some of the larger firms have decided that they will allow many of the "non attorney" employees chose if they want to work from home or at the office.

 

[Koolau]

I hope you are right, but based on what I've been reading and hearing an awful lot of companies are trying very hard to get workers back in the office. Even workers who could relatively easily work from home.

This may be the opening salvo in which companies who realize that "w*rking from home" DOES work, are setting folks up for the "Well, you no longer need to live in a HCOL area to make it TO w*rk, and your usual expenses caused by BEING at w*rk (car, clothes, extra travel time, day care, etc.) are now zero, we can cut your pay! Welcome to OUR world, Mr. and Mrs. 'stay-at-home'." YMMV

 

[24601NoMore]

We have lived in Michigan nearly all of our adult lives and have not experienced this. FWIW.

Sounds like your valuation (SEV) was set without anyone sharing with you as to how, because what I described is precisely how it works. Everything in your house - down to the materials used to build it such as brick vs aluminum siding - influences and/or partially contributes to what the SEV is set to. Trust me on this - I spent a very long time last year diving into it all in excruciating detail with the area assessor. But if you still don't believe me, go read it yourself in the State Assessor's manuals at https://www.michigan.gov/treasury/0,4679,7-121-1751_2228-423932--,00.html.

Now, if you bought a used house - the valuation was set using the process I described when the SEV was first determined. Some (few) things can change a house's SEV, like an upgrade such as finishing a previously unfinished basement - and that's where the massive set of rules and calculations comes in. SEV as I understand it can also change to reflect "market conditions".

Taxable value (the amount you pay property taxes on), of course, is different than SEV. And taxable value increases, unlike SEV, are capped to the lesser of 5% or CPI annually. When a house is sold, taxable value resets to SEV. That's what can make it hard to move - many people are enjoying a pretty big gap between SEV and taxable value. If/when they move, they start back at square one with a taxable value equal to the SEV of the house they are purchasing.

 

[24601NoMore]

That provides some weird incentives in construction, such as using cheap builder-grade fixtures and leaving out expensive trims long enough to get a certificate of occupancy. Then go back and put in the expensive things later.

EXACTLY! People frequently do that for precisely the reason you mentioned, with the biggest "do later" being converting an unfinished basement to a finished one.

If you're building a house, it really does pay to understand how your taxes are going to work ahead of time - in mind numbing, nauseating detail. Or you could very easily get a pretty unpleasant surprise come tax time.

We just had neighbors move in from TN. I feel really bad for them, as their taxable valuation is reset to the state equalized value. That means for essentially the same type of house (square footage, trim, quality, etc) they had in TN, their property taxes are going from ~$2-3,000/yr to over $14,000 per year. They (oddly) don't seem that concerned about it as they're both still young and presumably pulling in some pretty good paychecks, but holy cow what a jump.

Like I said initially..websites like SmartAsset that think they can come up with lists of where property tax values are good and not so good are usually unaware of many of these details..and people making decisions off those lists can wind up with some pretty unpleasant surprises. Because it's not just the official millage rate that matters - but what house valuation you are paying taxes on to begin with. And even very similar houses in 2 different states can have WILDLY different taxable valuations.

 

[USGrant1962]

I suspect that a decrease in legal immigration over the past 4-5 years may well be the X-factor right now.

...

Doubtful. Aside from the noisy data, at ~1M/year legal immigration seems to still be near a high point except for the turn-of-the-last-century Ellis Island days.

https://www.migrationpolicy.org/pro...Annual-Number-of-US-Legal-Permanent-Residents

I would guess that 2020 will be a bust due to Covid restrictions.