Real Property Taxes – Honolulu, Oahu – Tax Calendar

Honolulu Real Property Tax

We have arrived in November, an extremely busy time for the City and County of Honolulu Real Property Assessment Division.  October 1 is the “date of valuation” for the 2013-2014 tax year, and the County assessors are now busy preparing property values that will be mailed out to taxpayers on December 15…just in time for Christmas!

Taxpayers and property owners on Oahu should be aware of the following real property taxation dates:

September 1 Deadline for filing dedication petitions (Forms available)
September 30 Deadline for filing exemption claims (Forms available)
September 30 Deadline for filing tax credit applications (Treasury Division)
October 1 Date of Valuation
October 31 Deadline for dedication approval/disapproval
November 1 Deadline for reporting changes affecting exemptions (Form available)
December 15 Assessment notices mailed
January 15 Deadline for filing appeals (Forms available)
February 1 Certified assessment roll sent to City Council
June 15 Tax rates set by City Council
June 30 End of tax year
July 1 Beginning of tax year
July 20 First-half year bills mailed
August 20 First-half year payments due
January 20 Second-half year bills mailed
February 20 Second-half year payments due

For property owners considering an appeal of their assessments, the two most important dates are December 15 and January 15.  If you are going to appeal, you have to do it in that 30-day window.

If you decide you want to appeal your assessment, the chart above has links to the forms you’ll need.  If you’re having trouble, send me an email and I’ll get you pointed in the right direction.

General information about your Oahu property, including its assessed value and other tax data can be found at this website: http://www.honolulupropertytax.com

Questions or comments?  Please leave them in the comment box below, I would be happy to clarify and/or expand.

Aloha, Chris

Please read my disclaimer.

Definitions

appeal
In property taxation disputes, the legal process by which an owner may challenge either an ad valorem taxation assessment or a special assessment.

assessment
1. The official valuation of property for ad valorem taxation.
2. A single charge levied against a parcel of real estate to defray the cost of a public improvement that presumably will benefit only the properties it serves, e.g., assessment for the installation of sidewalks, curbs, or sewer and water lines. 
3. A determination of the amount paid by or to the owners of real estate to defray the cost of a public improvement that is presumed to benefit the properties it serves in an amount at least equal to the cost of the improvement, e.g., assessment of benefits and/or damages for public sewer or water lines. 

assessment date (date of valuation)
The status date for tax purposes. Appraised values reflect the status of the property and any partially completed construction as of this date

assessor
1. The head of an assessment agency; sometimes used collectively to refer to all administrators of the assessment function. (IAAO)
2. One who discovers, lists, and values real property for ad valorem taxation.

property tax

Any tax that is imposed on persons on account of their ownership or possession of property and is measured by the number of units, the value, or some presumptive evidence of number of units or value, of such property. Note: This tax is generally, but not necessarily, intended to be a direct, proportional ad valorem tax.

tax exemption

Total exemption or freedom from tax; granted to educational, charitable, religious, and other nonprofit organizations. Partial exemptions from ad valorem tax are granted to homesteads in some states.

tax rate
The factor used to calculate the total tax for a property, typically expressed in dollars per $100 or $1,000 (mills) of assessed value. The tax rate can be calculated by dividing the total amount of the taxes for a community by the total assessed value of all properties in the community.

Source for all definitions: Appraisal Institute, The Dictionary of Real Estate Appraisal, 5th ed. (Chicago: Appraisal Institute, 2010).

The Appraisal of Real Estate, 14th Edition – New AI Video

The Appraisal Institute recently published the 14th edition of The Appraisal of Real Estate, the premiere textbook in the real estate valuation field.

The Appraisal of Real Estate - 14th Edition

2013 Appraisal Institute President Rick Borges, MAI, SRA discusses the new book in this video:

Appraisal research and reference are now much more efficient when using the PDF version of the book.  Words and phrases are easily searchable and citations from the text are straightforward.

Thank You Rick!

The Hawaii Chapter of The Appraisal Institute was honored to host Mr. Borges and Fred Grubbe, MBA, CAE (CEO of The Appraisal Institute) in Honolulu earlier this year–it was a wonderful event that will be talked about for years to come.   A shameless photo-op with the 2013 President and yours truly:

Richard L. Borges, II, MAI, SRA and Chris Ponsar, MAI

Richard L. Borges, II, MAI, SRA and Chris Ponsar, MAI, SRA

PBN: “Chinese buyers have ‘insatiable appetite’ for Hawaii real estate”

Hawaii resort brokers have long talked about the potential for Chinese buyers to enter the second home market in a big way.  So far, at least on the neighbor islands, we haven’t seen it, but the speculation continues” – CP

Chinese Flag

Link to story here.

Chinese buyers have ‘insatiable appetite’ for Hawaii real estate

Oct 2, 2013, 2:56pm HST UPDATED: Oct 2, 2013, 4:04pm HST

Reporter-Pacific Business News 

Wealthy Chinese buyers have an “insatiable appetite” for Hawaii real estate, and there is a group that is looking to purchase larger projects and is even in discussions with local developers, a Canadian entrepreneur and co-founder of a New York and Shanghai-based company that offers lifestyle and travel opportunities to its private network of high net worth and emerging wealth Chinese members said Wednesday.Derek Muhs, co-founder of Affinity China and the keynote speaker at the “China Ready Real Estate Investment” seminar held at the Ala Moana Hotel, told a group of real estate industry stakeholders and others, about what the Chinese are buying in Hawaii, why they are buying it and how to connect with Chinese consumers.

Chinese real estate investors are expected to spend more than $175 billion during the next few years acquiring residential and commercial properties around the world and Hawaii is on the list of desired investment places, according to Affinity China.

The Chinese are buying single-family homes in high-end areas ranging in price from $500,000 to $1.5 million, and 70 percent of them pay cash, Muhs said.

“They buy it because they can afford it and they are looking for deals, like distressed assets and when the economy slows,” Muhs said. “They come to top locations like New York City, Los Angeles, San Francisco with central locations and good schools, but Hawaii is there in the top 10, sometimes in the top five.”

He also pointed out that Chinese buyers like new, or newer, projects and look for infrastructure, such as shops and other amenities.

The Chinese also like it when businesses adapt to them.

For example, Muhs said, one of his clients bought in San Francisco instead of Hawaii because, besides pointing out that properties are dated, the city by the bay seemed to have more restaurants with menus in Chinese.

Muhs noted that the Chinese are buying in Hawaii because it’s a good investment for them.

“There are many trust issues they have in China, so they want to get some money out and diversify,” he said. “They have a lot of cash and they don’t want it all in the same bucket. It is part of their DNA and culture to own tangible assets, real estate.”

Trust is one of the bigger challenges when trying to connect with Chinese consumers and Muhs said that many people in China struggle with this challenge.

For instance, they’ll often trust a family member or friend, rather than a professional.

“One of my clients bought in Greece because a family member bought there too,” Muhs said. “They expect a relationship to commence. This ‘hit it and quit it, get the deal done’ stuff won’t work.”

Maui Million Dollar Home Sales ($1.0M+) – Day 9 of 10 – “How Long Did They Take To Sell?” (Days On Market)

From January 1, 2012 through September 16, 2013, a total of 231 “million dollar plus” homes sold in Maui County, generating total volume in excess of $525 million.  There are many ways that Hawaii real estate appraisers analyze sales statistics for luxury homes.  Because a proper market study for this segment would run many pages, I am posting one article per day for ten days.

Day 9 of 10 – Maui Million Dollar ($1.0M+) Single Family Homes By Days On Market (DOM)

Consider the following graph and chart, which categorize Maui million dollar home sales by the amount of time they were on the market before being sold (converted to months):

Maui Million Dollar Home Sales By Days On Market (converted to months)

Maui Million Dollar Home Sales By Days On Market (converted to months)

Maui Million Dollar Single Family Homes By Days on Market
Sold From 1/1/2012 through 9/16/2013
Days On Market # of Sales % of Total
0-6 Months 114 49.4%
6-12 Months 74 32.0%
12-18 Months 23 10.0%
18-24 Months 5 2.2%
24-36 Months 3 1.3%
36-42 Months 7 3.0%
42-48 Months 1 0.4%
48-54 Months 3 1.3%
54-60 Months 1 0.4%
Total 231 100.0%

I was a little surprised by the results of this analysis.  My experience with the high end residential market is that marketing times of over one year are not uncommon (and at 18.6 percent, its not exactly unheard of, but certainly not the norm).  I suspect two elements are at play: (1) the “under 3.0 million” market is probably responsible for the majority of quick sales, and (2) the Maui luxury market has been heating up, especially since January 1, 2013–fueling absorption.

Bottom Line: Price your Maui million dollar+ home right, and it should sell in under a year.

Questions or comments?  Please leave them in the comment  box below, I would be happy to clarify and/or expand.

Aloha, Chris

Bonus: Marketing Time

marketing time
An opinion of the amount of time it might take to sell a real or personal property interest at the concluded market value level during the period immediately after the effective date of an appraisal. Marketing time differs from exposure time, which is always presumed to precede the effective date of an appraisal.

Source: Appraisal Institute, The Dictionary of Real Estate Appraisal, 5th ed. (Chicago: Appraisal Institute, 2010).

Maui Million Dollar Home Sales ($1.0M+) – Day 7 of 10 – “When Were They Built?”

From January 1, 2012 through September 16, 2013, a total of 231 “million dollar plus” homes sold in Maui County, generating total volume in excess of $525 million.  There are many ways that Hawaii real estate appraisers analyze sales statistics for luxury homes.  Because a proper market study for this segment would run many pages, I am posting one article per day for ten days.

Day 7 of 10 – Maui Million Dollar ($1.0M+) Single Family Homes By Year Built

Consider the following graph and chart, which categorize Maui million dollar home sales by the year of their construction:

Maui Million Dollar Home Sales By Year Built

Maui Million Dollar Home Sales By Year Built

Maui Million Dollar Single Family Homes By Year Built
Sold From 1/1/2012 through 9/16/2013
Year Built # of Sales % of Total
1920-1929 1 0.4%
1930-1939 4 1.7%
1940-1949 1 0.4%
1950-1959 10 4.3%
1960-1969 3 1.3%
1970-1979 18 7.8%
1980-1989 35 15.2%
1990-1999 40 17.3%
2000-2009 107 46.3%
2010-2019 12 5.2%
Total 231 100.0%

More than 50 percent of the Valley Isle’s million dollar home sales have been built since 2000, with 84 percent constructed since 1980.

Bottom Line: Newer is better, no surprise here.

As wealthy buyer preferences for residential real estate evolve over time, the luxury segment is quick to adapt.  For example, solar energy and “great rooms” are in, rear projection television nooks and galley kitchens are out.

Although they are usually built to high construction standards, an appraiser often observes that residences in the high-end/second-home market can have economic lives that are are shorter than less expensive dwellings–sometimes meaningfully so.  A future article will identify a case study or two where ultra-high end oceanfront homes in Hawaii were torn down for land value/redevelopment, despite being less than 20 years old!

Questions or comments?  Please leave them in the comment box below, I would be happy to clarify and/or expand.

Aloha, Chris

Bonus: Economic Life

economic life

The period over which improvements to real property contribute to property value.

Source: Appraisal Institute, The Dictionary of Real Estate Appraisal, 5th ed. (Chicago: Appraisal Institute, 2010).

Maui Million Dollar Home Sales ($1.0M+) – Day 2 of 10 – Sale Prices

From January 1, 2012 through September 16, 2013, a total of 231 “million dollar plus” homes sold in Maui County, generating total volume in excess of $525 million.

There are many ways that Hawaii real estate appraisers analyze sales statistics for luxury homes.  Because a proper market study for this segment would run many pages, I am posting one article per day for ten days.

Day 2 of 10 – Maui Million Dollar ($1.0M+) Single Family Homes By Sale Price

Consider the following graph and chart:

Maui Million Dollar Homes By Sale Price

Maui Million Dollar Homes By Sale Price

Maui Million Dollar Single Family Homes By Sale Price
Sold From 1/1/2012 through 9/16/2013
Sale Price # of Sales % of Total
$1.0 M to $1.9 M 157 68.0%
$2.0 M to $2.9 M 31 13.4%
$3.0 M to $3.9 M 18 7.8%
$4.0 M to $4.9 M 9 3.9%
$5.0 M to $5.9 M 5 2.2%
$6.0 M to $6.9 M 2 0.9%
$7.0 M to $7.9 M 1 0.4%
$8.0 M to $8.9 M 4 1.7%
$9.0 M to $9.9 M 3 1.3%
More than $10.0 M 1 0.4%
Total 231 100.0%

The data shows a predictable trend, with more than 80 percent of the “one million plus” sales on Maui being in the “under $3.0 million” price range.  Although a handful of high profile Maui luxury homes have sold in the past few years for prices in excess of $20.0 million, MLS records show only one residence eclipsing $10.0 million since January 1, 2012.

Bottom Line: Price Matters

There is healthy market activity in Maui’s “million dollar plus” category, but the overwhelming majority of sales (nearly 90 percent) sold for less than $4.0 million.

Questions or comments?  Please leave them in the comment  box below, I would be happy to clarify and/or expand.

Aloha, Chris

Sales Comparison, Adjustments, and Paired Sales

This video looks at the sales comparison approach that appraisers use as the primary method to value real estate.

A few appraisal terms that are used in the video are:

Sales Comparison Approach
A comparative approach to value that considers the sales of similar or substitute properties and related market data and establishes a value estimate by processes involving comparison. In general, a property being valued (a subject property) is compared with sales of similar properties that have been transacted in the open market. Listings and offerings may also be considered. A general way of estimating a value indication for personal property or an ownership interest in personal property, using one or more methods that compare the subject to similar properties or to ownership interests in similar properties. This approach to the valuation of personal property is dependent upon the Valuer’s market knowledge and experience as well as recorded data on comparable items.

Adjustments
Mathematical changes made to basic data to facilitate comparison or understanding. When dollar adjustments are used, individual differences between comparables and the subject property are expressed in terms of plus or minus dollar amounts; with percentage adjustments, individual differences are reflected in plus or minus percentage differentials.

Paired Data Analysis
A quantitative technique used to identify and measure adjustments to the sale prices or rents of comparable properties; to apply this technique, sales or rental data on nearly identical properties is analyzed to isolate and estimate a single characteristic’s effect on value or rent. Often referred to as paired sales analysis.

Adjustment Grid
A table used to display comparable data and facilitate adjustment of differences in elements of comparison.

Comparables
A shortened term for similar property sales, rentals, or operating expenses used for comparison in the valuation process. In best usage, the thing being compared should be specified, e.g., comparable sales, comparable properties, comparable rents.

All Definitions Sourced From: Appraisal Institute, The Dictionary of Real Estate Appraisal, 5th ed. (Chicago: Appraisal Institute, 2010).

If you have any questions or comments, please leave them in the comments box below.

Aloha, Chris

New Book – The Appraisal of Real Estate, 14th Edition

The newest edition of the appraisal bible, “The Appraisal of Real Estate, 14th Edition” is being released in mid-September 2013.  It’s a book that will act as the Gold Standard for real estate appraisers worldwide.

According to the Appraisal Institute, it will be available for the first time in digital formats: as a PDF in September 2013 and in E-pub and Kindle formats in January 2014!

It is an essential text if you are in the appraisal field, or engage appraisers in your practice:

http://www.appraisalinstitute.org/14thedition/

The Appraisal of Real Estate - 14th Edition

UPDATE: The Appraisal Institute just released the table of contents for the 14th Edition.

You can download the PDF here: The Appraisal of Real Estate 14th Edition – Table of Contents

I’m looking forward to Chapter 14, “Statistical Analysis in Appraisal”–it appears to be new in this edition.

Table of Contents
Foreword – ix
Acknowledgments – xi

PART I Real Estate and Its Appraisal
Chapter 1 Introduction to Appraisal – 1
Chapter 2 Land, Real Estate, and Ownership of Real Property – 11
Chapter 3 The Nature of Value – 19
Chapter 4 The Valuation Process – 35

PART II Identification of the Problem
Chapter 5 Elements of the Assignment – 49
Chapter 6 Identifying the Type of Value and Its Definition – 57
Chapter 7 Identifying the Rights to Be Appraised – 69

PART III Scope of Work Determination
Chapter 8 Scope of Work – 87

PART IV Data Collection and Property Description
Chapter 9 Data Collection – 95
Chapter 10 Economic Trends in Real Estate Markets and Capital Markets – 129
Chapter 11 Neighborhoods, Districts, and Market Areas – 163
Chapter 12 Land and Site Description – 189
Chapter 13 Building Description – 219

PART V Data Analysis
Chapter 14 Statistical Analysis in Appraisal – 275
Chapter 15 Market Analysis – 299
Chapter 16 Highest and Best Use Analysis – 331

PART VI Land Value Opinion
Chapter 17 Land and Site Valuation – 359

PART VII Application of the Approaches to Value
Chapter 18 The Sales Comparison Approach – 377
Chapter 19 Comparative Analysis – 397
Chapter 20 Applications of the Sales Comparison Approach – 427
Chapter 21 The Income Capitalization Approach – 439
Chapter 22 Income and Expense Analysis – 463
Chapter 23 Direct Capitalization – 491
Chapter 24 Yield Capitalization – 509
Chapter 25 Discounted Cash Flow Analysis and Investment Analysis – 529
Chapter 26 Applications of the Income Capitalization Approach – 541
Chapter 27 The Cost Approach – 561
Chapter 28 Building Cost Estimates – 581
Chapter 29 Depreciation Estimates – 597

PART VIII Reconciliation of the Value Indications and Final Opinion of Value
Chapter 30 Reconciling Value Indications – 641

PART IX Report of Defined Value
Chapter 31 The Appraisal Report – 649

PART X Appraisal Practice Specialties
Chapter 32 Appraisal Review – 671
Chapter 33 Consulting – 683
Chapter 34 Valuation for Financial Reporting – 689
Chapter 35 Valuation of Real Property with Related Personal
Property or Intangible Property – 703

ADDENDA
Appendix A Professional Practice and Law – 717
Appendix B Regression Analysis and Statistical Applications – 733
Appendix C Financial Formulas – 753
Bibliography – 797
Index – 819

Is that thing a “fixer upper” or a “tear down”?

Today a friend asked me how real estate appraisers value properties that are in “below average” condition.  He wanted to know if we valued them in their “as is” condition, and whether or not repair costs were factored in.

In essence, how do you know if a property is a “fixer upper” or a “tear down”?

In a nutshell:

  1. If a property is in poor condition, an appraiser considers whether or not the value of the real estate, in its “as is” condition, exceeds the value of the underlying land.
  2. An appraiser determines this by analyzing the cost to repair the building to typical/average condition, and comparing the net value against the value of the underlying land, less demolition costs.

In detail:

It’s a relatively simple process, the appraisal buzzwords associated with this valuation method are “highest and best use” and “cost to cure”.

To demonstrate the analysis, I went on the Honolulu MLS and found a commercial property built in 1959, the same year Hawaii became a State.

Here, in all of its glory, is the poor condition (according to MLS)  office / retail property known as “1339 North School Street”:

1339 North School Street

1339 North School Street, Honolulu, Hawaii

A bunch of appraiser math/mumbo-jumbo below, skip to the chart at the end to see the answer.

For our purposes, the asking price is irrelevant, especially because the listing includes additional land parcels.  The figures used below are part of a simplistic appraisal demonstration only.

Let’s assume an appraiser determines that vacant land in the subject neighborhood is worth $100 per square foot.  Similarly, let’s assume average/typical commercial buildings are selling for $300 per square foot of building area.  The values would compare as shown below.

HYPOTHETICAL APPRAISED VALUES – 1339 N. School St.
Item Area in Square Feet Value Per Square Foot Total Value
Vacant Land 20,000 $100 $2,000,000
Less: Demolition Costs     -$100,000
Equals: Property Value   $1,900,000
       
Average Condition Building 7,500 $300 $2,250,000
    Difference $350,000

Since the value of an average condition building “as improved” is worth more than the property “assuming demolition”, we proceed to the next step: determining the value of the building in poor condition (its “as is” condition).

HYPOTHETICAL APPRAISED PROPERTY VALUE – COST TO CURE
Item Building Area
in Square Feet
Building Value
Per Square Foot
Total Value
Average Condition Building 7,500 $300 $2,250,000
Less: Cost to repair to average condition   -$500,000
Equals: Poor Condition Property Value   $1,750,000

Let’s assume a reputable contractor estimated the construction/repair cost necessary to renovate the subject building to “average” condition to be $500,000.  This amount is deducted from the “if in average condition” building value to arrive at the value of the overall property in poor condition of $1.75 million.

So, where are we at?

How does land value (assuming demolition) compare to property value (assuming renovation)?

HYPOTHETICAL APPRAISED VALUES – HIGHEST AND BEST USE
Item Total Value
Land Value Assuming Demolition $1,900,000
   
Poor Condition Property Value $1,750,000
Yep, it's a tear down.

Yep, it’s a tear down.

In this hypothetical scenario, the value of the underlying land, even after deducting demolition costs, exceeds the value of the poor condition property “as is”.  Therefore, the highest and best use of the property is demolition of the built-in-1959 (54 year old) improvements to make way for new development.

Questions, comments?  Please leave them in the comment box, I would be happy to clarify and/or expand.

Aloha, Chris

Interest Rates and Hawaii Residential Prices–Are They Really Connected?

I posted an article a few days ago that examined the theoretical relationship between interest rates and purchasing power.  The calculations beg the question “are interest rates and Hawaii home prices actually connected?”

Logic says “of course!”, the data suggests “not so much!”

Let’s assume a 20 percent down payment, market loan fees (points), and monthly payments of 35 percent of a household’s gross income.

The following chart shows State of Hawaii median income, condominium median prices, single family median prices, and national average interest rates for 30-year mortgages from 1987 through 2011 (the latest year for which all data points are available).

Sources: U.S. Census Bureau, Freddie Mac, Hawaii State Data Book, and Chris Ponsar, MAI

Based upon the income and interest rates shown, the median Hawaii family could afford a monthly payment of $1,021 in 1987, and $1,722 in 2011.  These payments equate to affordable home prices of $114,370 in 1987, and $341,898 in 2011. (A pretty hefty increase in purchasing power, driven largely by lower interest rates)

Lets see how the figures track with historic price fluctuations in the Hawaii residential real estate market.

Hawaii Home Affordability vs Median Prices

The red and green trendlines track single family and condominium prices in the study period–as shown, condos and single family home prices track pretty well.

How about affordability (the purple trendline) based on interest rates ?

The long term trend is clearly positive for all variables, with affordable price, condo price, and single family price all being about 3x higher in 2011 than they were in 1987.

But that’s not the question most folks are asking.  The market participants I talk to are generally trying to answer the question “If interest rates go up (this year, or next year), will prices go down (this year, or next year)?”  Is it a causal relationship?

What do you think?  Personally, beyond long term growth, I don’t see a strong relationship in the data, and neither is a solid correlation revealed in geeky statistical analyses.

Why isn’t the correlation better?

Higher interest rates do equate to lower affordability for a particular household, but why doesn’t that relationship translate well into median prices?

A few suggestions:

  1. Median prices are not the best way to measure market trends–overall dollar volume and the raw number of sales may provide more insight (and material for a future article)
  2. Hawaii’s population continues to grow faster than new housing units are developed–fundamental demand grows incrementally in both good times and bad. (Which explains the overall upward trend in prices, but not the ups and downs in particular years)
  3. When monthly payments go up, families still need shelter.  For those families contemplating a home purchase, spending on discretionary items will likely suffer first (say vacations or luxury items)–these spending habit adjustments allow families to absorb a certain amount of extra monthly payment caused by increased interest rates.
  4. When prices start to decline, sellers may opt not to put their home on the market.  Financially stable homeowners can afford to “hold out” for their desired price, which restricts supply, and in turn has a stabilizing effect on prices.

Frankly, when I began researching the data for this article, I expected to see a pretty reasonable relationship between affordability and median prices–instead, we see that from the perspective of a current homeowner, prices appear not to fluctuate on a “dollar for dollar” basis with interest rates. From an appraiser/appraisal perspective, it is imperative to observe how the market reacts to the rising rates that are currently anticipated, not just automatically assume lower prices if interest rates rise.

Comments and/or Questions?  Please leave them in the comments section below–I’d be happy to clarify or expand.

Aloha, Chris