Hank Miller, Broker & Certified Appraiser

Room count and room designation is as confusing a topic as calculating living area. Both play such a vital role and yet both remain a continuous source of confusion. Agents often work listings to make them as attractive as possible to a potential buyer – which is what they should do. However, there’s a fine line between exploiting the gray area and misleading buyers. The comments below are based upon my appraisal experience and they are reasonable to use when evaluating a home. Most homes will be evaluated by appraisers as part of the closing package; all parties should be familiar with how they will consider the property.

What is a Bedroom? That's Up to You...Sorta

What constitutes a bedroom? Among other things that depends on the age of the home, location of the home, and how comparable homes like it are viewed. There are neighborhoods in Marietta, Atlanta, Kennesaw and other parts of Metro Atlanta that are comprised of homes built prior to the 1940’s. These homes often have bedrooms with no closets – old central heating systems often lacked ducts in each room. Rather than take space with closets that would lack air circulation, clothes were often stored in armoires, cedar closets, or some similar manner. As a small child, we lived in a “railroad” apartment in Brooklyn, NY. There were no doors; you entered in the small kitchen and walked through two “bedrooms” back to the living room. Talk about functional obsolescence….but that floor plan was (and still is) common in that market. Applying current standards to these older homes is impractical as consumer demands have changed. This is a perfect example of why it’s critical to use accurate comparables.

It is reasonable to expect the following in “modern” bedrooms:

· a closet
· a window
· a ceiling height of 7’ or more
· a dedicated, securable entry with no “thru” traffic
· area enough to accommodate a small bedroom set

This list isn’t exclusive; common sense will come into play. One big variable in the Atlanta real estate market is “bonus” rooms being called bedrooms. Typically located over the garage, these rooms can work as bedrooms, offices, play rooms, media rooms….use depends on your needs.

And What About Those Other Areas...and Basements?

What constitutes a dining room? Common practice (and common sense) is to call it a dining room if it is a definable space suitable for formal dining. In my view, this is a walled room that is adjacent to or near the kitchen, with defined entry and exits. A dining area is typically off the kitchen and is a space suitable for informal meals. This area is open to the kitchen and the traffic flows unobstructed.

What constitutes a finished terrace? This is a bit of a word play as in the Atlanta market this is usually a finished basement. In most parts of Metro Atlanta, we have the luxury of rolling terrain that affords us the ability to have partially above grade basements. Natural daylight, exterior entry doors, high ceilings….these things combine to make finishing the area very worthwhile. But – DO NOT EXPECT THIS AREA TO BE REFLECTED IN THE LIVING AREA OF THE HOME. It’s common for agents to include finished basement rooms in the overall room count. This area must be heated and cooled by a permanent source and must be “finished” in a manner minimally consistent with area norms. Finished surfaces on the walls, ceilings and floors – permanently heated and cooled are usually minimal standards. Many agents and owners also include this area in the square footage of the home. This is inaccurate; if an agent does that they are either misleading the client or they are ignorant of industry requirements.

Does finished basement area “count”; does it add value; is it included in the appraisal? Yes, yes and yes. ANY finished area that is less than FULLY ABOVE GRADE is considered finished basement. Appraisers will use comps with similar finishing and the area will be reflected outside of the gross living area in the basement section. Adjustments for size, quality, condition, etc will be made to the comps based upon comparison with the subject. This can get dicey with finished basements, but consider the challenges of appraising some mountain or lake homes where the majority of the living space is technically below grade…

Bathrooms, Tub, Shower Stalls and Stand Up Urinals...

So is a bathroom with a shower stall a full bath? Again, look at it through an appraiser’s eyes as they will have a role in the transaction. In my experience a full bathroom is any with a tub/shower combo, a separate tub and shower, or a shower stall. Bathrooms with only tubs and no shower are tricky; current standards would consider that functional obsolescence but those are seen in older homes and even some "retro" remodels. Powder rooms or half baths are typically a toilet and sink. But what about a bathroom with a stand up urinal? Yup - saw two in the last six months...how sexist.

If it Works, It's Fine

Keep in mind that a buyer’s requirements for a home supersede an agent’s description. That bonus room might serve as a bedroom, a bedroom as an office, or the dining room as a play room. Sellers need to see their home through the eyes of the market. If that loft is open to the family room then call it a loft, the room in the back of the basement with no windows and no closet might not be a bedroom even if it’s used it that way. Don’t get dramatic about what a room is or isn’t called – all that matters is what works for the family occupying the home.

I fired a buyer today, told her to find another agent. After about seven months and three offers, after hours of research, hundreds of emails, calls and texts…I happily walked away. I figure this was about an $11K walk but I’m not losing a wink of sleep. This “buyer” suffers from a disease that’s very tough to cure and it can drain an agent…Paralysis by Analysis is what I call it. Always finding a reason “not to” or setting up a scenario to fail…being afraid of getting what you want so you make it virtually impossible to get.

Many buyers will show a few symptoms but most keep it under control and move forward. Others will have more than a few symptoms and it will take a good agent to bring them back off the ledge. And a select few….like this one…you’ll push off.

What to look for (in no order):

· A client that consistently looks for the negative or potential adverse issues with any deal

· A client that expects drastic reductions on every property regardless of circumstances

· A client that is ignorant of the current real estate environment

· A client that is ignorant of how a seller’s situation impacts them

· A client that doesn’t understand that a seller may say no to their offer even if the data supports it

· A client that takes a little data, often marginal and becomes an authority

· A client that takes detailed data and obsesses over it, focusing on only what they agree with

· A client that doesn’t grasp the ebb and flow of a market

· A client that doesn’t listen to suggestions from agents

· A client that is happy being cranky and constantly whines

· A client that doesn’t learn from past experiences

This sounds like a vent, it’s not. I pride myself on educating my clients; as a both an appraiser and broker my world is completely data centric and my clients benefit from that. I believe that a good agent sets the table for a client’s success and I believe that a good client enjoys a great meal at that table.

Poor information can be a bad thing, so can good information when not properly applied and so can too much information. Few industries have the amount of “data” out there that the real estate field does. Combine the internet and the media and everyone is an expert; it’s easy to see how “Paralysis by Analysis” can grab a client. I’d submit that if you see it, run….because that client will drain you.

Since I cut ties with this buyer, I’ve had time to ink two 400K+ deals…amazing how productive you can be when you realize it’s time to give that client a gently nudge…..right off the ledge.

You never know what you might find in foreclosures. I’ve found dead animals, “hoarder” style homes, those filled with animal and human feces and of course, rat and roach infested homes. I’ve walked in on drugged out junkies, even thought one or two might be dead…but I’ve not found a dead body thus far. A Milwaukee agent did…she found forty-one-year-old David Carter’s “nearly skeletonized body” on the second floor of his home. A Smith & Wesson 9-mm. handgun was found lying on his chest; an autopsy later determined a gunshot to the head as the cause of his death.

How does a dead man’s body go unnoticed for four years? And we’re not talking about a murder victim whose remains were hidden or obscured, or even some poor homeless soul whose existence was already pretty much anonymous. This was a 41-year-old man who committed suicide in his own home. From the article:

The best estimate is that his suicide happened in late 2007. That’s when he quit his job. That’s when he wrote his last check. That’s when he talked of moving away. And that’s when he disappeared, not quite in plain sight but right there in his longtime home. His body was not discovered until January. I don’t mean 2008 or 2009 or 2010 or 2011. He was found last month. This year.

For four years, he never paid a bill or emptied his mailbox or pushed a lawn mower or snow shovel. Notices and warning letters were sent his way, but no one ever entered the house to see if he was there and doing all right. Finally, on Jan. 23, Carter’s 45th birthday, a real estate worker from the Milwaukee County treasurer’s office walked up to the door. A locksmith came along. The house near S. 58th and Madison streets had just been awarded to the county in December in a tax foreclosure. It’s a visit no one would welcome. But it solved the mystery of Carter’s whereabouts. The workers found his “nearly skeletonized body,” in the words of the medical examiner’s investigative report. “Spider webs were noted all around the residence,” it said. “A Smith & Wesson 9mm handgun was found lying on the decedent’s chest.”

The unpaid property taxes, fees and costs have grown to more than $30,000. The shoveling and mowing since 2007 total more than $3,700. Milwaukee County sent many notices to collect payment during the past four years but was in no hurry to take the property. The tax foreclosure was filed last July and granted by a judge on Dec. 21. According to the county treasurer’s office, the house will be cleaned and repaired and put up for sale. Because the property was considered abandoned, whatever money that’s left over from the sale will go to the county, though that could be contested in court by a relative or the mother of Carter’s child.

The full article is here

One second, let me scan the seller’s disclosure form for homicide...nope, you're good. Do I need to write on here that my brother died of AIDs in the house? This is a great place, other than that house up the street that we think has a meth lab in the basement; that won’t be an issue will it? That’s an old Civil War cemetery behind the house, the only time it creeps me out is just before a storm. I hear whistling and crying down in the basement; should I mention that?

Work in this business long enough and you’ll run into some crazy disclosure questions, some will leave you stumped. Here in GA and in most states sellers are legally required to note and disclose all known defects with the property. Yet there are many things that the seller is not required to disclose, some things that a buyer may deem important.

The seller’s disclosure in GA is geared primarily at detailing issues surrounding the structure. There are things that the seller doesn’t have to tell you, some things that you might appreciate knowing. Responsibilities are detailed above, that is a snapshot from the 2012 GA Seller’s Disclosure. Note section B – “buyer beware” is clearly spelled out.

Back to My Wife in the Bedroom

In GA, sellers do not have to disclose if violent crimes like rape, homicide, suicide or similar crimes occurred on site. Thought here is that these issues don’t impact the utility of the home, clearly they may give pause to some buyers but the physical condition of the property is unchanged. However…if the seller or the agent knows that such an event occurred and is asked, they are required to answer truthfully.

Meth Labs, Peeping Toms and Sex Offenders

Just a few of the things that seller isn’t likely to disclose. As noted earlier, GA is a “buyer beware” site and the contracts contain very clear language that notifies the buyer to inspect the area and neighborhood. It is assumed that the buyer will complete all desired inspections during the due diligence period. After that, draw the drapes and lock and load.

Things That Go Bump in the Night

So if sellers don’t need to disclose a murder in a home, there’s no reason to disclose something that can’t be proven like a haunting. Back to the physical impact on the property, is there damage being done? Does the seller even believe in ghosts? Does the home have a reputation as being haunted? Has it been made public knowledge somehow? If so, is it a detriment? If it is and the buyer knows this, is it an adverse hidden condition if not disclosed? Have you checked for rats in the attic or bats in the belfry?

Don’t Ask – I Can’t Tell

Sellers in GA are not required to disclose if the home was occupied by someone with a disease “which has been determined by medical evidence as being highly unlikely to be transmitted through the occupancy of a dwelling”. A broad definition which might first bring to mind cancer but also includes AIDS. That disease is covered under the fair housing laws which consider it as a handicap. As such, sellers and agents cannot disclose if an AIDS patient lived in the home. If you ask, they are not allowed to answer the question.

And What About the Appraisal?

I wear two hats, in addition to being an associate broker I’m also a certified appraiser and have been since 1989. In that time I’ve appraised many “stigmatized” homes. Four homes where homicides have occurred – one was a mini mass murder of four people; all issues were disclosed in the report. The mass murder occurred at a log cabin in upstate NY and a buyer from Brooklyn bought it at about half the market value. I’ve done a good ten homes with previous meth labs, those require extensive environmental clean-up and testing. I’ve been in probably five or six “haunted houses”, no floors turning to blood or fire out of lights; if they were publically recognized it was noted. If it was an owner seeing ghosts at the bottom of a Jack Daniels bottle it wasn’t. When I have the appraiser hat on, it’s disclose disclose disclose.

Writer Disclosure

It goes without saying that any questions regarding what to include on a seller’s disclosure should be discussed with the seller and agent. If additional guidance is needed, consult an attorney. I’m not an attorney and you shouldn’t listen to a thing that I say.

It’s fair to say that the public perception of real estate agents is not a positive one; agents are one of the more popular targets when assigning blame for the real estate collapse. This industry deserves it; for as important a role as agents play, the requirements to earn and maintain a license are ridiculously light. This is a business of primarily part time and “acquaintance” agents; this is also a business where that sort of arrangement is embraced by both the public and industry itself. Agents rise to the level expected of them and the public doesn’t expect much.

It’s a mind numbing expression, but buying/selling a home is likely to be one of the largest financial transactions a person will be involved with – and it’s likely to occur on more than one occasion in more than one area. The process has become significantly more complex; both from marketing and an advisory stand point. Forget dealing with the other components like mortgages, appraisals, inspections, legal…just the specific agent requirements of finding or selling a home, advising clients, writing and negotiating a contract and getting a client to the closing table require more effort than many agents put forth. But, if the public is content then why change?

He Said - She Said

Real estate commissions are out of control, just ask the public. Real estate agents do nothing but stick a sign in the ground and wait, just ask the public. Real estate agents tell you what you want to hear to get a commission, just ask the public. The public will use “someone they know” to represent them after having “me” do all the research, just ask a real estate agent. The public has no idea how hard this business is, just ask a real estate agent. The public will arbitrarily dump “me” and I’ll have wasted time and money, just ask a real estate agent. But just as the public is content with such a high number of sub-par agents – so are the sub-par agents content with a public that doesn’t care to qualify agents.

Is it That Hard?

Is selecting a real estate really that complicated? Or is the better question “Does the typical buyer/seller understand what is involved in a real estate transaction?” I don’t believe that they do. Selecting a real estate agent – or accountant, lawyer, doctor, dentist, contractor, etc – should minimally involve researching experience, credentials, performance, referrals and compatibility; after all, you will be working with this agent. John Q. Public will not mesh with every agent and conversely, every agent will not mesh with John Q. Public. A good agent interviews Mr. & Mrs. Public as much as they interview the agent.

DNA Agents - We have a friend...

If we assume that the public wants highly qualified agents, why then do such a large number of sub-par agents remain? A few reasons. Everyone “knows an agent” and when it’s time for J.Q. Public to make a move, it is known that word will get out and he’ll be compelled to at least speak with them. This can be awkward; a client may recognize agent incompetence but this may be a friend or relative, perhaps in need of work or expecting to “be the one”. The client may not have the courage to candidly assess the situation, properly compare this agent to others or mandate a high level of performance; in short they sheepishly sign on with this agent instead of holding them to a higher standard. They contribute to the problem instead of helping to correct it.

Industry & Company Support

Real estate companies don’t mind part time agents. Real estate firms earn income from both “desk fees” and splits off real estate commissions. Firms are fine with agents that pay monthly fees but may not be closing a high number of or even any homes. As long as the monthly fees and membership fees are paid, agents are considered “active”. The slowdown has given rise to companies offering “no fee” arrangements; agents only pay if a transaction occurs. Trade organizations function the same way, as long as fees are paid the agent is “in good standing”; production is largely irrelevant. Trade organizations have adjusted to the times by offering additional “designation” opportunities, most of which require a fee and nominal “training” to secure. This serves two purposes, provides an income stream for the organizations and allows the agent to publicly advertise these “designations”. There are designations that indicate a high level of education and production, but in the plethora of alphabet soup the public is often clueless.

Raise the Bar

There are few if any other professions that require licenses similar to real estate. The majority of real estate agents are not sole providers; the majority do not earn a living from real estate and do not practice real estate full time. It is unrealistic to expect excellence, yet the public expects this very thing and is upset when issues arise. The appraisal industry takes a different approach with experience and education. In GA, real estate appraisers have three distinct experience levels that are predicated upon education, time and number of reports completed. Internships are required for new appraisers and to reach the certified level requires hundreds of hours of classroom work, 2500 hours of documented work, several exams and a two year college degree. Being both an active certified appraiser and broker since 1989 I can assure you that the potential for disaster is much higher with sales activity than with appraisals. I’m not absolving the appraisal industry from its role in the meltdown, but to their credit they are increasing professional requirements while nothing has changed on the sales side.

Clearly the real estate meltdown has forever impacted this economy and the lives of millions of people in this nation; from owners to renters to those involved in construction and supply, the damage has been cataclysmic across the board. Little will be done on Wall Street; much can be done on Main Street. If the public is unhappy with the real estate industry then it’s incumbent upon the public to initiate change and raise the performance bar. Demand more from real estate agents, hold them to the highest production and experience standards, challenge them and stop accepting mediocrity. In short, be part of the solution instead of part of the problem.