Main point: don’t trust the local government to do the right thing automatically. They are often backed up and have wrong information about your home. If you are already paying higher taxes for an approved expansion or remodel, make sure they have the right information on hand. By making one phone call I was able to increase my home’s value by ~$160,000.
Every so often I invite a realtor who has sold a home nearby to come over and give an assessment of my home. The realtor has perfect information about my neighborhood at the time because he sees all the offers. He knows the demographics of the buyers, how many people are interested versus the same time last year, and all sorts of other insights.
If you want to know the pulse of the market or get advice on what you could do differently to your home to increase its value for free, I recommend you do the same. Realtors are always happy to stop by to share their opinion and hopefully one day win your business. Even if they don’t win your business, at least they will be familiar with your house to pitch to their clients if you ever decide to sell.
Fight For Your House’s Value With Proof
When the realtor stopped by I explained to him how I created about 144 more square feet of livable space by expanding my master bathroom into the garage (went from a 36 sqft bathroom to a ~180 sqft bathroom). The garage wasn’t big enough to fit two cars tandem and there is plenty of free street parking outside, so I figured I might as well recapture as much of the garage as possible. Garage space does not count as livable square footage while a bathroom does.
The realtor was impressed with the master bathroom, but asked why the records still only showed my house at 1,729 square feet even though my ~180 square foot master bathroom project was approved last year. I told him I had no idea, and thought the City would automatically update the square footage. He told me to call the San Francisco Assessor’s office to inquire.
Having an updated “3R Report” is important when selling a house. The 3R report is a property’s report card. It has records of when all permits were pulled and completed. From your home’s report card, the city will then tax you accordingly, largely based off your home’s square footage.
When listing a property, you can only advertise the official square footage of the house and the number of bathrooms and bedrooms per the 3R report or tax records. If you market something different, you could set yourself up for liability or an escape door for a buyer to cancel last minute without a penalty. Therefore, an up to date 3R Report is crucial, especially when livable square footage has been underreported.
When I called the San Francisco Assessor’s office, they said they were backed up by 3 – 5 YEARS in terms of updating records after building permits have been approved and completed. This is terrible for anybody who plans to sell sooner. What’s the point in paying so much state tax? When I pressed them further to see if there was anything they could do to expedite the appraisal update, they gave me the name, e-mail, and number to my Neighborhood Assessor.
I e-mailed my Neighborhood Assessor ASAP with my request for updating my square footage. I told her I was thinking of selling my house this year (not really), and wanted to get my new square footage up to date. She e-mailed me back right away and asked for a latest appraisal report which contains a floor plan sketch. All I had was one from before my bathroom expansion.
Area Of Contention: My Office / Sanctuary
Interestingly, she decided that based on the approved floor plans of my entire house I sent in for my bathroom, my house would stay the same size at 1,729 even though I reclaimed about 144 sqft from the garage! When I asked her how this could be, she said based on the plans she had, the room where my sanctuary was said “storage” and didn’t count as livable space!
I countered that of course my sanctuary is livable space. It has 9 feet tall ceilings, a window with a view of the ocean, a twin size day bed, a piano, a standing desk, and shelves for my clothes. She refused to budge and told me to come down to City Hall so she could more clearly explain to me how she did her calculations. There was no way I’d waste 1.5 hours of my time to only get rejected. There had to be another way.
Then I noticed that the width and length of my home in the appraisal sketch the assessor had was 1.5 feet shorter than reality. Right there that explains a lot of missing square footage. I told her I’d happily spend two minutes measuring the width and length of my house and send it to her. But she said “it wasn’t a good idea.” WTF.
Finally, I told her that I would send a quick video “MTV cribs” style to show that my sanctuary is truly livable space. She finally acquiesced. As soon as I e-mailed her the video, she called me back and laughed. She realized she was wrong and assigned a new home square foot size of 1,910, 181 square feet larger than the 1729 square feet on record, and 37 square feet MORE than my original estimate of 1,873 after bathroom expansion! After all, if I created a 180 square foot bathroom out of a 36 square foot bathroom, that means my net addition should be 144 square feet (180 – 36) not an additional 181 square feet.
I didn’t argue with her new estimate, because more is better. Besides, her calculations are probably more accurate than mine. Who am I to argue? What I think she may have done was simply forget to subtract the old bathroom’s square footage. Who knows with these folks.
Proactively Create Value
If I had not proactively call the SF Assessor’s Office, I never would have gotten a new square foot size of 1,910 on my 3R Report. They would have updated the size of my house 3 – 5 years from now with basically the exact same size (added the bathroom space and removed my sanctuary space because it was mislabeled in the plans). I would have been pissed and miffed! I am already paying higher property taxes based on the value of my approved bathroom addition.
Going from 1,729 to 1,910 means increasing the value of my home by roughly $163,000 based on a average selling of $900/sqft in my area. What’s also important is getting the BONUS 37 square feet of space which is equivalent to an additional $34,000 should I sell. Perhaps my original square foot size of 1,729 was wrong in the first place. Whatever the case may be, having an official 1,910 square foot house on my 3R report is golden, especially since it will be the first update since the 1950s.
If I didn’t have an updated 3R report, I could always tell prospective buyers that my house is really 1,910 square feet after the bathroom expansion, and the City never properly updated their records. But throwing out a square foot number is too much of a liability because a buyer could always measure the house themselves and come up with a different number and then back out.
Having 1,910 on my official tax records is much more powerful a statement than anything I could ever say.
* Errors occur all the time. Because it doesn’t have the right information, there’s a good chance your City Assessors Office is undervaluing or overvaluing your house. If you improved the value of your house through a remodel or an expansion, call them to make sure they have the right information on record. Houses are often valued on a price/square foot basis. The more square feet you have, the more valuable your house all other things being equal.
* Use video and pictures to explain any discrepancies. My assessor was adamant on following the architectural drawing submitted to the Department of Building when I applied for the bathroom permit. She couldn’t accept my oral assurances that the storage room was actually a full size bedroom / office. However, my MTV cribs video was able to set her straight. Thank goodness for technology.
* Your home’s report card is important when it comes time to sell. In San Francisco, the 3R report is a mandatory report that is included in the disclosure packet. Similar types of reports are mandatory in every state. It will have all your approved permits and details about your house. Your marketing words won’t hold as much weight as what’s on your official housing report. There will always be a discount for what you say because buyers are always wary.
* Build as many good relationships with local realtors as possible. Getting maximum value is about getting enough people to know about your property. It takes just one buyer who thinks your property is perfect and pays top dollar for you to receive maximum returns. Success is a numbers game.
* The downside to having a higher assessed value is higher property taxes. If you never plan to sell your house, then you should try and make your house look as unappealing as possible. You may want to go in reverse and argue several rooms are simply storage rooms instead of bedrooms! For me, there was no escape. They already had sent me a supplemental property tax bill for the added value of my master bathroom, regardless of my house size, because I had already submitted the estimated cost to build. As a result, I made sure my living space was up to date and as large as possible since I’m paying for it.
This example of ensuring ~$160,000 in value was created with one phone call and several e-mails should demonstrate the Financial Samurai mindset. To build great wealth, you must be proactive. Too many people have no idea where all their money goes because they don’t track their finances. Folks naively think their company will benevolently take care of them, so they don’t do any research about employee rights and severance negotiation strategies before they get booted to the curb. The same thing goes for all types of insurance policies. When you finally need it, you don’t want any negative surprises!
If you pay property taxes or any type of state taxes, you better make sure the local government isn’t short changing you!
Surgically invest in real estate: If you don’t want to constantly pay massive property taxes, don’t have the downpayment to buy property, or don’t want to tie up your liquidity in physical real estate, take a look at RealtyShares, one of the largest real estate crowdsourcing companies today. You can invest in deals around the country for as little as $5,000. It’s free to explore.
Shop around for a mortgage: Check the latest mortgage rates online through LendingTree. They’ve got one of the largest networks of lenders that compete for your business. Your goal should be to get as many written offers as possible and then use the offers as leverage to get the lowest interest rate possible. Interest rates have finally started to tick higher post election.
Updated for 2017 and beyond. The house in the top picture was bought by a 30 year old founder of Cruise Automation for ~$20M.