OT Relocation to San Jose? How are prices set?
 

I am sorry for posting such an off topic question but I don't know where else to post it.

I am relocating to San Jose and I was told that the appraisals that are done on the house are not what the houses sell for.

In other words, a house can appraise for 800K and it will sell for 1.6 million. Is this true?

I don't understand how people would get loans if the house appraisal is so off from the asking price.

Can someone tell me if this is true? How hot is the housing market in the area? Are they thinking it will be slowing down soon?

Thanks for reading my post.

Don;t know how this works in San Jose. But a friend of mine who bought an apartment about a year ago paid a much higher price than the apapraisal. This is esy since the appraisal has nothing to do with what you pay - only with how much of a mortgage you can get. So - if that's how the system works you need to be ready to make aver substantial downpayment. (In his case he paid 50% down - not that much more than the 33% the co-op required anyway.)

As for the appraisal and what he paid - IMHO he paid way too far above market value - but it had certin amenities he really wanted (terrace and fireplaces) and was willing to overpay for them.

That's what I am talking about. I mean I know you can sell your home for anything but I was talking about how do people get loans when you pay 2 X over the appraised amount.

It just amazes me that some of these old, small homes are going for such high prices.

The kitchens have painted cabinets, and fake wood floors. UGH. I guess it is all about the location but geeze we aren't talking Hawaii here. You know? LOL

In the Cambrian area of San Jose, you can find older but well kept track homes (circa 58/62 ish) for sale, in the upper 600Ks, lower 700K's.Nice modest middle class area with easy access to freeways, Los Gatos and only a 1/2 hour drive to Santa Cruz (not in rush hour.

The market has cooled down somewhat. Prices haven't really gone down, but we aren't seeing the same intensity in the market as in the past. We bought our house 2 years ago, so we got to see the madness up close and personal - LOL. These days, the inventory of houses for sale is higher so we don't have the same shortage of supply driving up offers. There are still some bidding wars going on, but for the most part, any craziness is isolated to highly sought-after areas where homes don't come up for sale very often.

This situation is not unique to San Jose. It happens all over the USA. Appraisals are usually done only once a year, in some cities even less often. During the year or more between appraisals, the market value of houses often increases.

The asking price in San Dieg, and possibly other places in California, isn't usually based on an appraisal, but on the selling price of similar properties in the neighborhood. The appraisal is done for potential buyers because their lender requires it. Usually there isn't such an enormous difference between the appraisal and the selling price. Appraisals are not done annually, only when the owner refinances or for a new buyer. Property tax is based on the selling price.

Sorry, San Diego.

I home a home in the SF Bay Area (Livermore).

The appraisal is based on what the house is worth as compared to the other homes in the neighborhood or city.

Appraiser look at the home, size, shape, condition, comparable homes and the recent market. In some cases they "know" what the house needs to appraise for because they have had some conversations with the mortgage broker.

In a very hot market homes can sell for way over the asking price (a few years ago in the SF Bay Area). If the selling price is over the appraised value then usually that difference has to be paid directly by the buyer. Most banks will not loan money over the appraised value.

I find it hard to believe that a home appraised for 800K could sell for 1.6M. But then again I don't have 1.6M.

SAPS I agree with you. I also find it hard to believe. I also don't have the extra 800K to put down on it. This is what I am being told and it is scaring me. I might have to rent but that is probably no better.

Friends of mine bought their "starter home" for 750K in OC and it was just a tiny condo. YIKES

So here are two professionals scrimping to make ends meet because of their mortgage.

Thanks for all your reponses. I guess it is just the San Jose must just be a hot market.

Have a good day!

redrockglass, have you looked at www.realtor.com? You will get an idea of prices there. You should talk to a realtor in San Jose who specializes in relocation. Was that a specific property, or just a much-exaggerated generalization?

I remember some properties in Palo Alto with absolutely crazy selling prices - twice the asking and things like that. I don't think I have heard of any specific properties going for anywhere near that much over asking since the dot com bust though.

Definitely check out realtor.com to get an idea of what housing prices are like.

trippin gave you some good estimates for what normal houses cost around here.

I don't know what your friends' condo in OC looks like, but for $750K here, you can get a very nice condo/townhouse in an upscale building or a modest single family home in good condition in a nice neighborhood.

Our house in San Jose is a 3 bedroom townhouse and others just like it are selling for just over $500K. We bought it 2 years ago for just over $400K.

The housing market is expensive here, but doable.

I have been a Realtor in the area for almost 30 years - a busy, active, informed expert - not bragging - just the fact. I think you are a bit misinformed as to what is going on. Yet I certainly understand where that comes from, as the goings on here have been legendary!
The appraisal is done after the sale has been made. First the price is set by the agents and sellers together, based on what comparable sales have been. The prices won't be jumping much higher than the asking price anymore (with some exceptions). So then the appraisal is done by the lender to be sure they are lending on a property that is worth what the buyer paid. Only very rarely will you find yourself in a situation where the appraisal would not match the price paid. Your agent should have enough experience to guide you safely through the process such that you pay what you can afford and get the best value for your money.

Feel free to post more questions, and I'll respond. It isn't as bad as you have heard. However, the houses are not generally nearly as nice or as big as they are in almost every other inch of this country. We live modestly and enjoy the outdoors and the wonderful weather and all the many amenities of the Bay Area!

I think you are mixing up two different things here: a lender's appraisal and a local authority's <b>tax assessment</b> the latter of which is used to calculate real estate taxes.

Not uncommonly, the tax assessment is below, sometimes WAY below the market or selling price.

OTOH the lender's appraisal is done because the lender &quot;requires it&quot;...because they want to know whether or not the property is worth the loan's value, i.e., if the borrower dishonors the note the lending institution wants an idea of whether or not it can get its money back after foreclosure and re-sale.

As to how people buy properties that sell for more than the appraisal..simple: the seller makes up the difference between the loan amount and the actual selling price with cash.

OOOpss..should have said the <b>buyer</b> makes up the difference in cash.

Dukey has it right - do not mix up terms appraisal and assessment.

Assessment is easily available public information done by city/town to compare your house to others so they can know how much to charge you in property taxes. It can have little to do with actual price of property. This is often done based on square footage, number of bedrooms, rooms, etc. and often does not even invole looking at the property.

Appraisal is something that someone pays for on a specific property, usually involving sale - either before to determine price or related to getting financing. Appraisals information on a property are not something you can easily get - that information is released to whoever pays for the appraisal and is not generally public information.

Often when a bank does an appraisal of a property they are asked to finance, that number will come in a little lower than the selling price - the bank does not want to get stuck financing a piece of property worth less than they could sell it for if lendee defaults.

Hi,

I am not mixing up the two terms. The house I am thinking of the owner had it appraised for a refinance.

That was how I was first made aware that there are a big difference in the appraised price VS the asking price.

I just wasn't aware that there was such a demand for houses in San Jose that would drive the prices up like that.

Thanks for all your responses. :)

This is a very interesting discussion. Having an Asking Price and or Selling Price higher than the Appraised Value (for lending purposes) is not unique to San Jose. It's happening where I live (Texas) but perhaps not to the same extent as in some of the cited examples. I think it may be partly do to a shortage of quality properties (except the recent housing glut may belie that statement a bit) and since appraiser use &quot;comps&quot; when making appraisals it's quite possible &quot;past&quot; sales are not truly treflective of the current market. Of course there are always some people who are willing to pay a premium to obtain a certain preferred property.

One phenomonon that is prevellent in our area is buyers paying market price for an existing home only to bulldoze it away and build a completely new home. That is something I've never quite understood - the ones I'm talking about are not smaller homes that have been neglected but rather older homes in upscale areas selling anywhere from $750K to well over $1 million. The way I see it when a buyer does this all he/she is doing is increasing the cost of dirt. So my question is if a house sells for say $1 million doesn't an appraiser have to figure a portion of the value is the land (say 25% - $250,000) and the remainder (75% - $750,000) is the value of the structure. If the house is torn down does that automatically increase the land value to $1 million? I would think not - land is land and an empty lot in a certain area has a value that is less than a similar lot in the same area that has a house on it. By the same token you can't roll the value of the old structure into the value of the replacement structure. Where does this &quot;lost&quot; value go?

Yup... land and location location location... essentially the house structure itself has no value to the people tearing it down.

The endless money supply is astonishing, and I don't mean loans but the cash that all these people have to buy, tear down and rebuild.

gail and Dukey, I live in California and here, property tax is based on the market value of the property, i.e. the selling price. It is not based on the square footage, the number of rooms or anything else othere than how they and the location affect the market value and it is very striclty controlled via Proposition 13 from 1978. I'm sure cabovacation will correct me if I'm wrong.

redrockglass, having your home appraised to refinance is a different situation which has nothing at all to do with asking prices or selling prices. I'm not sure which number is which now. Was the $1.6m the actual selling price? Was the $800K the actual appraisal value for a refinance?

cabovacation, I also am constantly amazed by the &quot;endless money supply&quot;, although it may actually be coming to an end now...perhaps.

&quot;asking price&quot; - one can ask anything they want for a house - I would think the selling price is what is relevant.

Barbara - property taxes are based on the &quot;selling price&quot;? in CA - that is a new one to me, although I admit I live on east coast. What if a property has not changed hands in a long time - what do they base property taxes on. Or are we talking about 2 different things. In Massachusetts there also is a law controlling rise in property taxes in a given town.

And property taxes are paid every year based on assessed value - they have nothing to do with appraised value, and ones justification for disputing their appraisal has to do with appraised comps (such as same size, similar location type) rather than anything to do with sale price.

I would think if an appraisal is that far off, the appraiser messed up.

In CA the property tax is based on the sales price of the property. In my county it is around 1.25%. Due to Prop 13 that was passed by the CA voters in 1978 property tax can only go up 2% a year. So if a property owner has lived in their house for decades their property tax is much lower then say the house next door that just changed owners last year.

I just read an article this morning regarding house values in my county which evidently has had one of the hightest increases in prices these last few years. Some experts believe prices will drop by 12% between now and 2008. Others think 12% is to high of a figure. But due to more houses on the market inluding houses that have been built by developers (they are now giving bonus packages to buyers to entice them to buy their producet) it appears that probably the multiple bids on houses for sale has reached it peak as there is a high inventory of houses for sale and they are staying on the market longer.

Due to a high percent of buyers that have taken out adjustable rate mortgages and interest only mortgages foreclosures are up also. Sadly many people that have purchased houses in the last year or two will owe more on their house then the value of the house.

I think if I were going to buy another piece of property I would wait for some months to see where prices are going.

I would also imagine that property owners will be contesting their property tax values in a year or two if they recently purchased a house and values do go way down.

gail, the State sets property tax at 1% of the selling price. Local authorities, school districts and other entities are able to put bond issues before the voters to raise money for whatever. They have to lay out the details very precisely to get them passed and they will add a specific amount of money to your property tax for a specific period of time. Obviously, these are not huge amounts of money otherwise people wouldn't vote for it.

I remember in the early 90s when property prices went down, some people were able to lower the amount of property tax they paid. Of course, they weren't so high as they are now to begin with. In San Diego, there is a huge increase in the number of people in foreclosure. Salaries here have not kept up with the cost of housing and many,many people have very dodgy loans. also, many, many people used up a lot of the &quot;equity&quot; in their home either to remodel or to pay debts and buy toys. My feeling is that the huge increase in the cost of housing here has been fueled by speculation and greed much more than supply and demand.

Barbara has it right. Although right now it is hard for me to say that we will see prices dropping very much. It's only in hindsight that we can tell :) But I predict that in January and February, when the market opens up again, we won't see much change at all. It is endlessly interesting, though, isn't it?

On prices in San Jose, I think homes in the upper 600's to lower 800's, will hold their prices better than the million plus priced homes which may drop next year. Who really knows though...

Thanks for the explanation of how CA does it. In Massachusetts it is based on assessed value, so towns to reassessments whenever it is beneficial to them.

We have something called Proposition 2 1/2 that regulates total amount of property tax a town can collect with increase based on total value of properties in that town - so if they continue to build multi-million dollar houses, everyones taxes can go up. Tax rate per $1000 assessment is reset every year.

Years ago assessment was, in dollar terms, not really meaningful. All that mattered was that if there were identical houses across the street, they were assessed the same. Now it is closer to appraised value to add to property tax base in each town.

Prop 13 definitely causes inequalities in property taxation. It can also put people in a bit of a spot if they should decide to move.

My mom, for instance, has owned her house for 15 years. Her job was recently outsourced, but she has been offered another job that she really wants to take, but the new job is almost an hour and a half commute from home. The obvious choice to to relocate closer to the job, which she could do and buy a comparable house for a comparable price - basically a lateral move. Unfortunately property taxes are a big consideration. Her house is worth about 4 times what she bought it for 15 years ago. If she moves, then her property taxes will go up significantly.

Redrockglass,

You don't say where you live now. California is a whole different universe! You had better do more homework and compare housing prices and cost of living. See if your company is going to be paying you enough to make this relocation affordable :-o

Hi J_Correra, is there any chance that the county your mother lives in has an agreement regarding the county that she will need to move to wherein her tax basis will be transferred to her new house? I can't remember all the details unfortantly but unless things have changed I remember reading more then once some time ago that certain counties in CA have this agreement. It might be worth checking into.

it's true that within and between a few counties in CA the tax basis can be transferred one time only for residents that meet certain requirements, including that they are over 55 and that the house they transfer to is worth withing approx 5% or less of the home they sell...and it has to have been the personal residence, etc. Always consult a tax professional for these things!

CaboV- Do both owners have to be 55 plus, to qualify for the tax transfer? Just curious, not that we plan any change soon.

Hi trippinkpj, the person selling their house has to be over 55. It does not matter what age the buyers of their house are. And it does not matter what the age of the owners of the house that is purchased is either. But I think only something like 12 counties in CA have this agreement, cabo probably knows. And I can't remember if this applies to these counties if the seller buys another house in the same county. Cabo???

What I meant was, say my husband and I are selling our house and buying another one next year. I would be 52 and my husband 58. Would we qualify?

Thanks for the heads up about transfering the tax basis. I will have her look into that.

Trippin...only one person in a couple has to be 55. And it's a one time only deal, too....the tax transfer deal. It works within the counties and between them - just the ones who offer the deal. So - it works within Santa Clara county, for example. You can always call any title company for a list of counties.

That's good to know Cabo. We'll keep that in mind.

This is a one month old already, but some good misinformation here with the good information. Certain to filter the two so you get the good parts.

So many people refer to an area as San Jose and knowing a $1.6M price for a house it can be only few places such as Almaden, Mt. Hamilton, Silver Creek - mostly at the golf club surrounds there, or a homestead with larger lot than a 1/6 acre standard postal stamp, and some Willow Glen or Victorian house downtown prime spot.

Then the areas touching SJ get throw in with the stories. So the Los Gatos, Cupertino, with the hills in that pricing ranges.

Telling me if this is wrong, but I reading the median price is $735,000. A person can wise to buy the 4 or 3 bedroom house know that holds the strong demand over time. The 8 bedroom house is more special market segment may not always have the high demands like the 4 bedroom.

Buying a 100% finance home is not uncommon in the area and people wanting the risk OK of the optionARM loan. They have the idea the house is going up 10% every year and 1.5% part of the interest payment can be comfortable as that house is for investment - not always for keeping. And interest only loan can be a best tool for a home owner in the valley here. I not saying how I know this, but you knowing I have more than one house here.

You have a need for hazard insurance around $60 per month and taxes could be $765 per month on top of house payment and the banks want to seeing 2 months or 3 months of these total for the best loan rate for you. If you not having this savings or asset, they still make the loan at a higher rate for interest.

Do seek truth in all your travels and you will never be overmortgaged, overpriced, or overtaxed.

AR

My area of San Jose, Cambrian which I mentioned earlier, has nice older homes in the high 600 K's &amp; low 700K's. So my immediate area is slightly below the median. There are other decent/ low crime neighborhoods like this also. Blossom Valley, parts of West San Jose and Campbell also.

Appraisals are done solely for the mortgage lender, to assure the lender (although not &quot;insure&quot;--Fannie Mae does that) that the loan is appropriately collateralized.

There is frequently a difference between the appraised value of a house and the contract price. When the appraised value is lower, one of a few things can happen: the RE agent gets angry and they order a new appraisal from someone who will hit that number, OR the buyer comes up with the difference in cash. When the appraised value comes in higher than the contract price, instead of loving the fact that they have a lower LTV ratio than before, and therefore a greater equity cushion, most buyers rush out and take a line of credit or 2nd mortgage for furniture or a new pool. Sad, but true!

Redrock, do your homework. Find an appraiser in San Jose and offer to pay him or her for their time at an hourly rate of at least $50. Get addresses of some houses you've seen with an agent. Have the appraiser run a few numbers for you with comparable properties (comps), search the county tax digest, and come up with a realistic bid for a house. This is basically the only way you can be sure you are not overpaying for a house, and very few people take the time to do it. Spending $300 can save you many thousands of dollars.