So when you make a listing presentation, do you intend to share copies of CNN’s “predictions;” especially with unreasonable sellers? It looks like listings are going to have to be priced at about 9% [instead of 2-1/2%] below your CMA if sellers realistically expect to sell their homes within the next 1-1/2 years. Now how many sellers do you think are going to be willing to do this? And if they aren’t, do you intend to walk away rather than take their listings?

With your permission I’m going to throw something else out here Guy [because otherwise, this thread is going to result in nothing more than a series of “welcome to the party CNN.” And I don’t know the particulars of all this but I’m sure people like Derrick can school the rest of us.

Close to a year ago I heard that the Chicago commodity exchange was going to start selling residential housing futures. The idea was to start out with some of the largest markets [like San Francisco and New York] and then expand. That way if you thought prices were going to drop, you could sell short. By selling short, a seller could offset the effect of having to sell his/her home at a lower price than what he/she could have secured yesterday. And if prices rose and our seller sold too low, he/she could offset the effect by selling his/her futures contract for a profit.

Now as I said I don’t know if this type of commodity actually exists and if it does, whether there’s a contract available for Reno. But if there is, might not this be an additional quiver to present to sellers in their quest for an overall sales strategy? Even if Reno is not one of the contracts available, if prices here are being mirrored in other markets for which there are contracts, the same net results can be secured.

Creative markets mandate creative strategies.

Think of the bright side, Guy : we wont have to worry about Jumbo Loans failing in escrow.

::duck::

“So when you make a listing presentation, do you intend to share copies of CNN’s “predictions;” especially with unreasonable sellers?”

I don’t know about that, but I’m certainty going to include it with any offers I make.

o.O

Meanwhile, the house I’ve got my eye on was purchased in Jan ‘06 for $400k and it’s for sale at $399k right now. So I should just offer $312 right now, right? eh… well, you can’t just say that houses will appreciate at a -22.4% from 06Q1 to 09Q1 and call it done.

Why?

1) Renovation expenses made
2) Realtor/Closing costs (calculated into the $312?)
3) Opportunity Costs for the dowpayment, etc
4) Tax issues (for both the buyer/seller)

I’ve been told that the time to buy stock is when every conversation you hear about the stock market is doom and gloom. The time to sell is when every conversation is rainbows and kittens. Hindsight has proven this to be right every time (for the stock market, at least)
Then again… maybe we have yet to reach crescendo on doom and gloom.

I live in an upper middle class/lower upper class neighborhood: primarily upper management, licensed professionals (MDs, lawyers) and owners of small businesses. The neighborhood is between 5-10 years old.

House one: already foreclosed upon
House two: asked $540K, sold for $450K
House three down the block from me: asking 600K plus, neighborhood scuttlebutt is that NO ONE has seen the house in ages.
Houses four through seven: all asking above $550K. My best recollection is that all of them have been on the market for at least nine months.

One of my neighbors in the RE business claims that another 3-4 houses will be foreclosed upon by the end of the year.

How bad will it get? NO ONE KNOWS! When will it end? NO ONE KNOWS!

Having lived through numerous other crashes my only advice is (1) cut your expenses, (2) pay off your debt as much as possible, and (3) hunker down until the hurricane blows over.

SJ

Tom wrote: “Such dire predictions are hardly likely to materialize…We…have a bulge coming in the next two years of retirees in California…that will have…positive affect upon demand for housing in retirement target sites [like]…Reno-Tahoe.”

Retirees from California AREN’T going to relocate to Reno [as homeowners] because of the disparity between the cost to rent versus own, and real property taxes [I know because my wife and I are two of these retirees].

Long time California homeowners have by-and-large had their real property taxes frozen in time [since 1976] because of Proposition 13. I personally know a retired couple in a nice Silicon Valley 3BD home [probably worth about $850K] whose real property taxes run under $800 annually. The minute they sell, downsize and relocate anywhere within the 7 California counties that allow transfer of their current assessed valuations, they get to take their $800 annual ad valorem tax bill with them!

Yet if they relocate outside of California [or anywhere within the Lake Tahoe Basin (none of the California counties in this region reciprocate in the assessed valuation transfer process)] and become homeowners, their real property taxes instantly increase to current market. This will be a many, many fold increase for them, even in Reno [depending upon where] which translates into higher monthly expenses.

Now why are retirees going to do this when the whole idea of retiring is to eliminate the pressures of greater expenses with lower income? Lower housing acquisition costs you say? I don’t think so. Somersett? Compared to Lincoln Hills, Granite Bay and other California retirement communities, I don’t think so again.

One of the major reasons why my wife and I elected to become renters versus out-of-state owners was because of real estate taxes. We’re not willing to pay local government many thousands/year [with many more thousands/year guaranteed to augment these many thousands in future years] as owners, when we pay zero as renters [and please don’t tell me we in essence pay those taxes through the rent we pay our landlord because with the current depressed rental market, that’s simply not the case. Most landlords can’t even recoup their debt service and hypothetical return on their capital investment, repairs and upgrades, let alone real estate taxes].

The onslaught of California purchasers of housing in Reno the last couple of years was fueled mostly by first time home buyers - they couldn’t afford to buy in California, but they could in Reno. This class of purchaser is mostly gone, so there won’t be any “bulge” in the next two years coming from them either.

So for all of you waiting for the onslaught of California retirees [and others] to bail out Reno residential real estate owners who’ve overpaid, I suggest you think again.

I moved here from California and thought about the property tax, but weighed it against the 9% California state income tax I was paying and came out by a large amount. And not everyone who moves here from California weren’t in their homes long enough to really enjoy the benefits of prop 13.

However, being in a community of about 70% california transplants I don’t think any of them paid over asking price & most moved here more than 5 years ago. The newer residents in my area are young professional Reno natives who bought at the peak in late 2005 and don’t seem much bothered much by what’s happened to the value of their homes-guess they are in it for the long haul…

RE: “We also have a bulge coming in the next two years of retirees in California”

Yeah, yeah. Bernanke will cut rates and save us, and then the flood of Californians will save us, or maybe we don’t even need to be saved because Reno is different than the rest of the universe.

Those were common cliches even before Reno prices fell 15-20%. How amusing to see them resurrected now.

This is probably where you respond with “but, we’ve hit bottom!” and “the worst is behind us” and don’t forget: “it’s a great time to buy!”

Smarten questions why California retirees might decide to relocate to Reno-Tahoe, based upon their ability to retain low property taxes by staying put, or by relocating to the handful of transfer-eligible counties for seniors. Believe me, we have done that analysis, having owned our Los Angeles home for thirty years.
Do I want to stay in the traffic, in smogsville, jammed together side-by-side with over 12 million people in this county, just to save a few bucks on property taxes? No, thank you.

The participating counties allowing preservation of historical assessed values are not the nice woodsy, El Dorado County type areas. They are largely the dense, urban living areas of L.A-Orange Metro., the bay area, and San Diego. How many rural northern California counties participate? NONE. Speaking for myself and at least two other families who have lived and practiced in the big city for a lifetime, moving to another big city or suburb of the same, and more urban living is not that attractive. The idea is to change lifestyles, not to save a differential on property taxes. If squeezing a few thousand dollars of savings on property taxes is the pivotal factor, than one could go to Arkansas or West Virginia, or any number of places, and save even more on property taxes than by staying put in California.
I think our fellow commentators may focus too much on `limited choice’ buyers in the comments I have read on this blog site. There are many people who have had successful careers who have options, and I doubt that the difference between a $2,000 annual property tax bill and a $8,500 annual property tax bill will be a determinative factor for them. These same families by avoiding state income taxes on investment income, interest, and other non-California source ordinary income, can save more–even after tax-affecting those sources for the federal deduction of the state taxes–than the property tax differential. More importantly, with the onslaught of special fees and assessments, and the constant attempts to modify Prop. 13, this historical level of taxation cannot be relied upon and projected into the future. The social needs and costs in Los Angeles County, for example, are way too great for this to continue, and the voting base is changing.
I suggest that an analysis focused so much upon property tax differentials would perhaps be more applicable to retirees of modest circumstances, who do not have other economic factors to include in their decision-making. For those retirees, probably a few thousand dollars of difference in property taxes would be a substantial impediment. I agree that they will look elsewhere or stay in their present homes. But I can assure you that I have seen among my own clients, a significant number of professionals in their early 60s who have the ability to make choices, and for them, the property tax differential is outweighed by income tax benefits, open space, outdoor recreational opportunities, and the idea of living in neighborhoods where they feel safe and comfortable. Maybe some of you have not spent much time in public places in Los Angeles County lately; it is not at all like it was twenty years ago. What do you think it will be like ten years from now?
The families I refer to have told me they are seriously looking at Reno-Tahoe, but up the Mt. Rose Highway and into the woods, not down in the meadows or in town. So there will be some of these, I predict, moving your way, although certainly not in huge numbers, statistically speaking.
Thanks for reading my comments.

I wanted to raise the issue of property taxes and I’m glad this thread seems to be moving in that direction. So let’s talk about real estate taxes in the real world.

Does anybody REALLY know how real property taxes are actually determined in Nevada [I’ve attempted to discover the answer and to date, have been unsuccessful]? From my understanding, it’s supposed to be based upon CURRENT assessed valuation [”A/V”] and not supposed to exceed 3% of that A/V [for you non-Californians, ad valorem taxes in California cannot exceed 1% of A/V]. Yet current Washoe county A/Vs seem to be substantially below [like 50% or more] real world resales, and the taxes based thereupon appear to be far less than 3% of those A/Vs. My experience has been that if the law requires properties to be regularly reassessed, then an assessor would be derelict in his/her duties in not regularly reassessing.

In any event, in California a buyer’s acquisition cost becomes his/her/its property’s A/V and that A/V cannot exceed 102% of the previous year’s A/V. In Nevada, there’s no cap on future years’ A/Vs. Moreover if the Assessor were doing his/her job, A/Vs would be redetermined every year. Although this practice apparently isn’t currently occurring, I don’t understand why not. As local government’s appetite for increased revenue becomes more glutonous [and believe me, it WILL], I don’t expect the current non-diligent reassessment practice to continue.

What appears to be the “norm” is that A/V is redetermined in Washoe County every 4 or so years. And since it’s so behind the curve, when A/Vs are redetermined, they and the property taxes which are levied based thereupon seem to double.

So let me give you a real world example we discovered while searching Incline Village properties. There’s a particular condominum complex we were interested in. So we assembled a survey of past sales in this complex going back 5 years. It seems that real estate taxes back then [based upon then resale prices of about $800K] were running at about $4,200 annually. Then 4 years ago [when resale prices were running at about $1.1M], real estate taxes doubled in this particular complex to over $9K annually. Current sales are running anywhere from $1.6M-$3M. Although real estate taxes are still running at over $9K annually [because there hasn’t been an A/V reassessment in the last four years], it’s time for a reset and when it happens [which I fully expect to take place throughout ALL of Washoe County (meaning Reno) within the next fiscal year], I fully expect ad valorem taxes in this complex to increase to $16K or more annually.

In any event, in my little example you can see how the long time homeowner in this particular Incline Village complex will soon see his/her/its property tax bill increase by 400% in a period of 6-8 years. And BTW, what sort of income tax benefit does this homeowner realize insofar as Nevada state income taxes are concerned [according to Tom in a 9% California state income tax bracket, the loss of $1,440]? ZERO!

Now what would have this hypothetical homeowners’ ad valorem tax bill been in a comparable California community? Assuming even a 2002 acquisition price of $800K [although my earlier comments to this thread assumed this particular homeowner had owned since 1976 with a more likely acquisition cost of $60K (resulting in an annual real estate tax bill of $600 or so)], annual ad valorem taxes in 2002 would have totaled a maximum of $8K. What would they been in 2003 [when A/Vs were redetermined]? A maximum of $8,080 [because of the 2% annual cap (thus comparable ad valorem taxes in California would have been LESS than in Incline Village)]. What will ad valorem taxes be in 2008-09? A maximum of $8,960 [because of the 2% annual cap (thus comparable ad valorem taxes in California will be 44% LESS than in Incline Village)]. If you haven’t recognized it yet, real estate taxes in Nevada are going to become a nasty little by-product of the recent real estate boom.

Tom talks about Los Angeles transplants concentrating their search for new housing in the “woodsy” area off of Mt. Rose Highway. O.K., that’s Montreux, Galena and St. James Village. What are those properties currently selling for in Reno’s “depressed” residential real estate market? How do their current A/Vs compare to these asking prices? What are these properties’ annual real estate taxes based upon unrealistic A/Vs? And what do you anticipate they would be WHEN [and not if] A/Vs are redetermined? I guess if you currently call $9K or more annually inconsequential, then I guess they’re inconsequential. But if you share my view that A/Vs are about to reset for ALL of Washoe County, you’re going to see ad valorem taxes in this portion of Reno increase to $15K-$20K annually. Still inconsequential [especially to the “modest” California retiree]? I don’t think so.

Derrick recounts how his former Sonoma real property taxes increased 37-1/2% [from $8K-$11K] presumably in one year notwithstanding the benefits of Proposition 13. First of all, we have to all remember “this is Derrick” and his facts aren’t always factual. Notwithstanding, if true I can’t tell you how this happened without looking at Derrick’s property tax bills. But I’m betting the reason is straightforward: Derrick paid more for his Sonoma home than $800K and as a result, it was retroactively reassessed to 1% of what he actually paid.

Tom also talks about incestuous special assessments adding to ad valorem property taxes in California. Although he’s absolutely correct, do you think Nevada is immune from this practice? Although maybe not as pervasive as California, Nevada has learned to extract the same kinds of “add-ons” from its property owners. In fact, at least in Incline Village [I don’t know about Reno], local officials are even proposing an excise tax on the transfer of real property.

So bottom line, the cost of secured real property taxes is a very real issue to many California retirees. In fact in Santa Clara County [one of the seven California counties that allow inter-county transfers of a homeowner’s current A/V], the local Board of Realtors has estimated that if this “benefit” were eliminated, 47% of sales involving purchasers age 55 and older would be eliminated. Now while Santa Clara County may be able to absorb this loss in sales volume, Washoe County cannot.

Tom asks who wants to retire in overpopulated Los Angeles? I can’t disagree with him. But that doesn’t mean there aren’t some very pleasant places to retire to in California [even Los Angeles County itself]. So why come to Reno [NOT the Reno-Tahoe area (I understand why people come to Incline Village or Tahoe City), but Reno proper]?

Whatever your answer [other than avoiding $250K in California state income taxes], now throw into the mix that if you purchase real property in Reno that’s likely NOT to appreciate in value within at least the next 1-1/2 years, and more likely not within the next 3-5 years; and you end up paying more each year [compared to California] in secured real property taxes; and the allure of Reno beings to diminish rapidly.

Since Tom talks about the state income tax savings in Nevada that supposedly more than make up for higher real estate taxes, I’ll address the issue. Remember, we’re talking about the supposed influx within the next two years of California retirees who are presumably living on lower fixed incomes. These people AREN’T paying huge sums to California in the form of state income taxes and certainly no where near the 8.6% maximum [rather than 9%] State rate. I’ve said it before and I’ll say it again; I know very, very few Californians actually paying the State much more than $4K annually in income taxes. Consequently, I can’t imagine many retirees choosing to relocate to Nevada in order to save several thousands of dollars in state income taxes.

So the point of all this is that if locals expect California retirees are going to sell their $1M+ homes that they’re paying a couple of thousand dollars annually in deductible [for California state income tax purposes] ad valorem property taxes; purchase a comparably priced Montreux, Galena or St. James Village homes with the very real prospect of $15K-$20K annual property tax bills; living on lower fixed incomes; with the idea of downsizing their lifestyles in their golden years; then I’ve got a house in Spanish Springs South you may be interested in purchasing at below market value!

If you expect Californians of NON-modest means [those like Tom who are willing to pay $15K-$20K in annual real property taxes] to purchase homes in woodsy Montreux, Galena and St. James Village because of the state income tax savings [which offset higher real property taxes], I submit: you don’t have to be a “retiree” to fit into this category; and, what about the rest of Reno which ISN’T so woodsy [what my wife calls “Barren Hills”]? Just look at Somersett. Where are all the Californian retirees [or is it your belief they’ll be pouring in within the next couple of years]?

Smarten dont give me your sh!t on my posts not being truthfull, especially in regards to the property taxes I paid while living in sonoma county. I was only trying to understand your thought process that property taxes were cheaper in california. And that californians had little to gain by moving here.

If my house here (reno) were to be picked up and set in sonoma county where I lived before it would almost certainly be assessed at 800k or more. which was another benefit to me and many other california folkds moving here, Not only did MOST of us save ALOT in property taxes but we didnt have to give up our quality of life and home size.

Yes certainly prop13 does help out some area’s it hardly effects the majority of homes in california, therefore on average property taxes AND insurance rates are higher in california.

I would hardly consider saving 25K and just as much in income taxes the last 5 years a wash… considering I got a home just as beautifull here if not more beautifull with great amenities and good schools. 3 hours is hardly a pain to drive If I ever wish to visit.

I’m sure I ecko the thoughts of many californians who have moved here.

Taxable Property Value in Nevada is not tied directly to property sales price. It is based on the Assessor’s annual valuation of the fair market value of the land, plus the fair market replacement cost of the improvements less depreciation. Properties are not reassessed on sale.

The Assessed Property Value is 35% of the Taxable Property Value. The tax rate is established by the Nevada Tax Commission annually based on the operational budgets of each juristiction (city/county, schools, fire protection districts, etc.). 2007 tax rates are 3.1202 for Washoe County, 3.5167 for Sparks, and 3.6462 for Reno. These rates may vary somewhat in areas with special assessments. Taxable Value x .35 x Tax Rate = Annual Property Tax.

Since 2005, Annual Property Tax is abated if the tax due is more that 103% of the previously years tax. Yes, you have to declare that you are eligible for the abatement program, but that is a formality - it does not trigger a property reassessment.

Washoe County is divided into 5 assessment districts. Each year, one of the districts gets a thorough review of assessed value. The other 4 years out of 5, your Taxable Property Value is basically last year’s amount times a factor the Assessor works up.

The major assessment reviews do factor in resale values as one of the metrics. The improvement values can adjust based on increases in replacement costs, but this is balanced to a degree by the depreciation factor. In times of rapid appreciation, it is the taxable land value that skyrockets.

Smarten, that sure was a long winded justification for not purchasing property based on future property tax increases. Obviously you chose not to buy here based on that, but what struck me was your Incline Village analysis. You say 5 years ago these condos were $800K, 4 years ago $1.1M, and now $1.6 to $3M. I personally would be happy to double my property tax bill every 5 years if the value of my house doubles. Secondly, the other criteria that 200,000 Californians looked at when they moved to Nevada over the past 10 years obviously out weighed property tax concerns. You must be on a very fixed income. I’m happy to say as a lifelong Nevadan, that I wish that you stayed in California.

Tom, I enjoyed reading your post. Very articulate, and I feel you are right on.

We are under the Nevada version of prop 13, and will be moving in the next year or two, despite the increase in property taxes for many of the reasons stated in your first post.

I also think many people just want what they want, and whatever the price/costs are, they just pay it as long as it’s not overpriced. If they can get it on sale, that’s just a bonus. Not everyone is looking for a bargain, just some.

You completely misunderstood my post, though it was simple to understand.
Perhaps you can try offering something positive to the board instead of playing village antagonist/pathological offender.

And don’t bother responding, I seldom read your posts anyway.

TOM,

I currently have a new home in Montreux for sale. Shoot me a email re rental or purchase if you are interested. Montreux is not immune as I have lowered the price $80K+ Thanks, woodsybear@gmail.com