Inflated Home Prices

The Statesman quoted in its Sunday edition from a Twin Falls Times-News article about assessing home values. The T-N argued that home sale values should be made public.

Idaho is one of only seven states that does not require home sellers to disclose sale price. That's akin to the IRS checking your tax return without being allowed to know your income.

Fair market value determines your property tax bill. Without sales figures, there's no way to guarantee your tax bill is correct.

The argument is that by making sales values public, or at least disclosing them to the public, the assessor can more accurately value homes for tax purposes. The T-N advocates for disclosing the values to the assessor, though not necessarily to the public.

So Bonner County is considering ordinances that would require buyer disclosure to the assessor, though not to the general public.

The point of not telling the public is to protect realtors. If you can easily find out what other homes are selling for, you aren't as likely to need a realtor.

Home pricing is a complex business, especially in a volatile market. Homes typically are valued based on sale value of comparable nearby homes, as a means to establish market value. What it sells for is market value, right? Maybe.

Consider the Treasure Valley market over the last few years, and its rapidly rising valuations. It was a true real estate bubble. Many of the buyers bought homes for speculation, homes they did not intend to live in, counting on the ever-rising values. It was easy; loans for 100% of the value, interest only loans, loans given without proof of income. This inflated prices over the true value. People weren't so much interested in the lowest price, because the rising market would soon add equity. It might appear to be market value, but the market was distorted.

Another troubling trend; using homes as vehicles to obtain money for speculation in other investments. A person could buy a home for whatever value, preferably one that had not been sold through the multiple listing service, because that would establish a current market value. Once purchased, the buyer obtains a new, higher, appraisal, often by shopping around to various appraisals. This has the effect of instant equity in the home. The buyer then gets a new loan and a home equity loan. The property is now over-valued, but the buyer has money to invest.

If the money is invested at, say, 6%, and the buyer is paying 2% or so on the equity loan, the buyer wins. In a rising market, after a couple of years when the interest rate adjusts, the buyer can sell at a price that will have risen to the over-valued appraisal. Net effect; the buyer uses lender money to make money, called leveraging.

That's great for the buyer when everything works out. However, when the bubble bursts and homes stop rising in value, things fall apart. If the buyer was dumb or greedy enough to do this on 2 or more homes, things really go bad.

If a person wants to speculate, fine, let her. But don't bail her out when the bubble bursts, because her actions had victims; other home buyers. You see, when she refinanced at the inflated value, it caused other homes to sell for more. Great for realtors on commission, great for mortgage lenders who lent on higher values, great for loan officers who also get a percent of the sale value.

Not great for the honest home buyer who had to buy a home that was overvalued because its value was determined by comparable nearby homes, homes that were overpriced in order to help a speculator make money. The honest buyer paid more in commissions, more in interest, more in principle.