bostonbubble.com

[dtremit]

I'm looking at buying a modest condo in the next year, in or near Cambridge; for a bunch of reasons unrelated to the market, this is an ideal time for me to buy, and so unless the savings are huge I'd really rather not endure another temporary rental.

I'm trying to make sense of what's selling and what isn't in Cambridge, and one thing that's got me incredibly confused is the inconsistency in the relationship between sales price and assessment. I see plenty of things selling for 30% over assessment, with assessment values dropping -- but at the same time, there are an equal number of sales within 5% of assessment, and many things priced at assessment that are sitting without movement. These are all for similar properties.

Massachusetts is the first place I've ever lived that had purportedly full value assessments, so I'm not sure if I'm missing some tacit understanding that, say, homes that have been owned longer tend to be underassessed. From my perspective it looks like some folks are getting lucky and finding naive buyers, but I'm hardly an expert.

Anyone have any thoughts?

[john p]

My take is this:

A community's Assessor does an evaluation every few years and supposedly evenly evaluates each property based on comperables in the town/city. If the evaluation year was 2005, don't be surprised if prices are below assessed value. Because the Assessor should be a fair umpire, something like 30% below assessed value is worth looking into.

In Massachusetts a town's expenses can not grow beyond 2.5% (Proposition 2 1/2), unless you get an override or have debt exclusions

http://www.mass.gov/Ador/docs/dls/publ/bull/2003/2003_11B.pdf

So, the tax rate is based on the evaluation of the people's property value and the expenses, so typically if house price evaluations (assessments) go down, tax rates go up.

This is worth noting because a price point in one town might be much cheaper due to taxes than another town. I'd bet the swings could be up to $20k or more house in one town than another just based on property taxes.

[dtremit]

I should have specified -- these are all listed as 2007 or 2008 tax year assessments, and the city website seems to agree. 2008 assessments seem to be down 1-2% over 2007.

The 30% figure is sales 30% *above* assessment -- sadly nothing coming up 30% below! The ones that are below assessment are maybe 5% below, max.

[john p]

It sounds dumb, but sometimes they base tax assessments on the history of a prior year's sales history. For instance, my town did this year's evaluation based on 2005 sales. Call the town's assessor to see what year they based their assessment.

[JCK]

I live in Cambridge, and they do an assessment every year. In my building, all of the assessments are well below any of the recent sales. I don't purport to know how they arrive at these numbers. You may want to call the assessor's office and ask.

I wouldn't use the assessments as meaning anything other than how much tax you pay. Look at comparable sales, which you can find on the City of Cambridge website, the registry of deeds (www.cambridgedeeds.com), or using one of the many free websites (www.newenglandmoves.com, zillow.com).

[Steverino]

When I owned in Cambridge, my assessment was a fraction of what I sold the property for. I didn't complain; my taxes were miniscule--the chief benefit of living in Cambridge.

You also asked about what's selling and what isn't. Basically, you often see quick sales for SFHs around $1 million plus in neighborhoods like the Marsh, Agassiz, and Radcliffe. There's a reason--if you look on cambridgedeeds.com, you'll see most of these sales involve Harvard as a lender or guarantor. Harvard doesn't have the brains to wake up and realize that it's only bidding against itself.

Outside that segment, a property must be a total cream puff to sell quickly--totally renovated, good outdoor space, parking, well-priced, etc. An architect-renovated but too-spendy condo languished on a beautiful street in Agassiz for three years. Don't even touch anything with an odd layout, small kitchen, etc.

If you're going to insist on buying now, look only at places with desperate sellers. However, I think it's very foolish to buy before Fall 2008 at least, because you're not going to know how the market will fare on its next leg down.

[john p]

I heard that Cambridge is rich with money.

I've been getting involved in my Town's finances and here's the gist:

We've got this Proposition 2 1/2 thing right? Well if you look at dept. budgets that routinely surpass 2 1/2 percent and you get the employees wanting 3% raises each year, what happens is that it eats away at the big ticket items they call "articles". An article is like a police cruiser or fire truck. So what most towns are doing now are putting these items on bonds and paying them back instead of having it come out of the budget. It is like a family paying their bills on credit cards; it can only last so long. I mean I saw some towns that spent 10 times more to service their debt than they spent on their fire department.

Just like housing, the economic fundamental context when legislation was past has changed and common perception hasn't caught up. For example, the levy ceiling for Prop 2 1/2 is 2.5 times the market value of property in town. Well back in 1983, don't you think that that ceiling was relatively lower because house prices were more closer tied to incomes etc.?

Consider a state pension. If a person retires with 20 years they get a fat pension, something like 60% of their pay. If a person retires with say a $80k salary, they're going to get like $50k cash flow when they retire with a COLA. I mean getting a $50k cash flow is like having a nest egg of $1 Million and living off of the 5% interest.

So ask yourself who's better off: a public sector employee getting a 1 1/2 percent raise with the big pension cash flow, or the private sector employee who gets a 3.5 percent raise and has to fund his own retirement?