"Bubbly Consequences"

Perhaps this a good example of the "law of unintended consequences"; a booming real estate market has left in it's retreating wake record property tax valuations. County assessors are nearly as giddy as schoolgirls over the record-all time high tax roll presented to the various boards for budget planning and subsequent tax collection.

The brutal truth is that the same relatively unbelievable jumps in prices of real estate of all types (primarily residential) beget further hysteria and near panic to buy (sound familiar?). The game of golden musical chairs ultimately leaves no one with a seat when the party is over. By all appearances the party is over now, and the word has universally spread unevenly across the network of buyers, sellers, brokers, lenders and appraisers with a few notable exceptions. I heard the latest "winner" of the Donald Trump sendup, "The apprentice" astonishingly hold two beliefs in her head at the same time when she recently stated in a Fox interview, "This is a buyers market but prices won't drop", say what?

My practice has fielded a number of calls over the last few weeks as "TRIM" notices have been sent out and received by property owners who reacted in panic nearly as profound as when the prices were rising almost faster than buyers could bid. No joke though, here in Florida a near doubling of insurance costs after a devastating hurricane season last year coupled with tremendous increases in taxes (especially for new-recent buyers) leaves a thorny problem.

Here is the first dilemna, the sales data that the assessor used to estimate the value of your property are the same sales your appraiser will have to use. There will be exceptions of course where mistakes have been made and they should be addressed. Don't forget however that the process is weighed heavily in favor of the assessor and that the burden of proof is on the property owner and his expert. Know also (as you probably do already) that the window of opportunity is small in size and that most hearings take place in October with a chance to sit in front of a special magistrate who will be looking for errors or misjudgements but is often skewed to the property appraiser's office.

My best advice is to plan for next year when the first resounding crashes of a rapidly cooling market will have appeared in the form of lower sales prices which will equal lower values. Likely the property appraiser will dispute whether these sales are "market sales" but it is a weak argument countered by the open question of whether the overheated sales market was "market value". Markets fluctuate, we all know that, it is fundamental to the nature of markets for any commodity or good. Plan for next year, line up your expert and be realistic about your expectations and honest in your evaluations.

In the meantime boards of elected officials gleefully anticipate spending the new tax surplus and in many cases small business and homeowners on a tight budget may be forced to liquidate (in an already soft market with few buyers) or lose what they have built in terms of business or equity. It is a tough situation and one that is particularly painful as a result of a totally unexpected epidemic of runaway demand for a "real estate investment". In time common sense and reality prevail and it can be sobering to face.

Further vulnerable are those who have repeatedly "cashed out" of their equity through home equity or re-finance loans up to the limit and rode the market to the top. If there is a budget to be met, the consequences of insurance and taxes and possible ARM increases may create a devastating secondary market of overfinanced and overpriced homes.

Stay Tuned, we will soon be discussing strategies for disposition if one needs to sell or a holding strategy and timing for those who can wait.