I Want To Buy A New Home
 

I'm ready for a new home and am looking for some advice.

Our current home is/was our first, and we've lived in it for about 4 years now. It was something to get us started at the time, but I'm ready to move on to something bigger and better.

First of all, my income situation is much better than it was 4 years ago. A nice promotion a couple of years ago has bumped my income up by over 40%. We've added one new child to the mix with another on the way.

In addition to the increases in income and children, there are other reasons. This house feels too small now. Now that I'm older and wiser, there are things I want like a bigger garage, an attached garage, a bigger yard, bedrooms all on the same floor, etc. My oldest child will be starting kindergarten in fall 2009, so I want to be in a better school system.

We bought our house for $167,000 and currently owe about $153,000 on it. Our tax bill for last year showed an assessed value of $180,000.

My first question is, does this mean that we should be able to sell our house for $180,000 if not more since that's what the city assessed it at? What's typically the correlation between assessed tax value and actual value?

Also, we've remodeled one bathroom and finished off the basement since that assessment, which means the value should be even higher, correct?

Finally, the last part of my post is this:

I'm trying to figure out a gameplan.

I think for the type of house I'd like to have in the area I'd like to be in, we'll probably be looking in the $250,000 range. I'd like to put 20% down to avoid PMI, so $50,000.

We just bought a vehicle, so our savings account is down right now. I figure we could save up at least $20,000 over the next year. That combined with the equity in our current home would hopefully provide us with that 20% down I'm looking for. That would mean that we'd wait another year to start shopping around. At least, that's kind of what I'm thinking.

I guess the purpose behind this post would be to ask the following:

1. What's the correlation between assessed tax value and what we could actually get out of it (with the remodeled bathroom and newly finished basement)?

2. Would it be better to simply save that $20,000 over the next year, or put it towards improvements on the home (new windows, remodel kitchen, etc.) to increase the value?

3. What does the current housing market mean to me and my situation? I'm thinking it's a good time to buy, but in the same regard, it's not necessarily a good time to sell. What about when you take in to consideration the $20,000 I think I could have at this time next year?

I'll be the first to admit that I'm pretty elementary when it comes to housing, the housing market, etc. Like I said, our current home is our first, so I've never sold a house before. Any advice would be appreciated.

Thank you for this thread. I'm looking forward to hearing the diverse opinions you're about to get.

Have a realtor look up the comps in your area to get a feel for the price you could demand. Most will also gladly come in and give you their best guess.

Unless you think that without improvements, your house wouldn't sell, don't improve anything. Save the money to increase your down payment.

I'm having trouble adjusting my sarcasm meter. Are you genuinely interested in information, or are you simply viewing for entertainment value? :)

OK, so better to save and sell as is than to make improvements simply to try to increase the sale price?

I'd agree with this. Don't do major improvements unless you're going to be able to live in the house a while (a few years) and enjoy them.

Dave Ramsey would tell you to pay cash.

One quick thing is.. the "assessed value" for tax purposes is almost always higher than "actual" value... esp in the currently depressed market

I don't know about where you live, but assessed values usually run 80-90% of what houses normally sell for around here. Just keep in mind having a bigger house just means you'll likely accumulate more crap.

Really? I thought it was lower...

Not even an ounce of sarcasm. I'm considering a move myself within a year or so, and I truly appreciate the thread.

Yes, IMO. You won't make the money back in the sales price. Unless, as I said, you have something (particularly a bathroom or the kitchen) that really needs updating or repairing which would preclude the sale.

Without knowing much about your area, housing demand, growth area/not.. its hard to say, but if you are REALLY dead set on moving.. you will probably have to swallow some profit and possibly be ready to take a little loss on your house to get out of it.

Personally, I would try to wait at least 6months in hopes that the housing market would start to show signs of life so you can get more out of your house and still find a bargain on an upgrade

Nope, there really isn't anything that would keep the house from selling.

Nope. Three different values:

1) Assessed value. What the tax man thinks your property is worth.
2) Appraised value. What the appraiser thinks your house is worth.
3) Market value. What a potential buyer thinks your house is worth.

So is there a general opinion anywhere that next summer might be a better or worse time to make a move than this summer?

As I said, I'm guessing that now is a great time for first time home buyers. But, since I'd have to sell in order to buy, the same doesn't hold true.

I make that statement based on this period in the market.. most of the assessed values are based on what the market was doing and not its current state.

I just bought a house from my parents and they had a licensed appraiser say it was worth 162k and the "assessment" on the house had it for 188k...

just passing along my nugget of experience

Only use realtors who sell TONS of stuff. 99% of them are useless idiots. Make sure they give you a very professional presentation, and keep in mind that the majority of what they're telling you is a lie. The only way they make money is if you work with them, so their motivation isn't you, it's your money. Get the pros who present themselves that way and have a huge track record of doing exactly what they're telling you they'll do.

I would also plan on the sale of your home taking awhile, and getting more now than I would next year. The market is on the way down, and the end is much further away than "a few months."

When you buy, especially if you want a new home, find homes by builders that have gone bankrupt. Offer the bank that owns the property a very fast close for a huge discount. A discount on % basis, not $ basis. Personally if I was looking in the $250,000 range I'd either be looking for a $400,000-$500,000 home, or spending about $125,000-$150,000 on that $250,000 house. You need to be flexible if you want to do that, so if your perfect home is more important than one that's almost perfect but way cheaper, or way bigger and better, then disregard what I said. Homes aren't investments, they're where you're going to live and your personal satisfaction is far more important than the return on your money. But if you can get a big return on your money and enjoy the crap out of it all the better!

So in other words, my city is claiming that my house is worth more than it really is?

Kitchen, master bed and bath have great return on your money but that's still 80-90% right now. If you're getting out soon, and like Donger said it doesn't increase your value over 80 - 90% save that money for your next place.

Yes. They get more money from you that way.

Not necessarily. It sure as hell doesn't work that way here in Omaha. Check and see if your county assessor has a website, most of them have one where you can find out assessed values of any home and the sale price of homes that have sold recently.

Wait until the market has bottomed. If you're looking at buying a $250K home and selling a $180K home you'll be far ahead when the market drops another 10%. There's a reason prices have dropped (credit crunch, stoopid buyers/banks), so be patient and you'll be glad you did. Cramped quarters aren't so bad when you can save several $1000's.

It really depends on where you live, the current housing market, etc. The tax assessment is based on prior sales price.

So if you bought your home for $150k, the city will begin assessing property taxes roughly around that figure. The city will increase the tax ever so slightly on a yearly basis. In Los Angeles, it's .012% of the sale price. If you don't know, you should check with your accountant or with the city as to the actual assessment tax.

As for the current real value, as many have mentioned, have a reliable agent give you comps in the neighborhood. Only then will you know the true value in the current housing market in your area. There could be many factors involved that could make the value higher, lower, substantially higher or substantially lower than the city's assessed value.

Just be sure to pick THE best realty agency in your area. Otherwise, it's really a waste of time. No one likes cleaning the house every Sunday only to have 2 people show up.

Good luck!

Again, not necessarily. I wish they did that here, but instead they'll leave it alone for years and then nail you with a huge valuation increase. My valuation jumped from $116K (the same it had been since I bought it in '99) to $144K last year.

I've been a real estate investor since 1995, and I've bought, sold, and held several properties in up, down and flat markets. I'm saying that only so you know where I'm coming from.

To answer your direct questions:

There is no important correlation between assessed tax value and sale price. The county isn't looking to buy your house, so their opinion of its value doesn't matter. The only thing that matters is the price that a willing buyer will offer for the property.

Don't spend $20K on improvements with the hope that you'll get it back a year from now. If you can spend $10K to gamble that it will increase your home's value by $20K, go for it, but don't count on it. If you want to sink $20K into the home, you'd better be relatively certain that you are making improvements that will get you $30K at least. You don't want to lose money on improvements. Hell, you don't want to break even. There's an enormous amount of time that you'll spend in improvements, even if you're not doing the work yourself.

If you aren't a home design and construction professional, you'd probably be better off saving the money. Still, you'll have to make sure that the home looks its best when it's time to sell.

All real estate decisions should be based on local information and immediate timing. There's no way that anyone could answer this question.

I originally had Los Angeles in my reply, then re-worded and forgot to mention that.

That's a drag.