Most FSBOs (people who are selling their own homes) are aware of the conventional use of escrow. In this article, we look at ways to use escrow to solve problems. 

Escrow

Escrow means different things in different parts of the country.  In California it’s part and parcel of the settlement process. In Virginia, while there’s no formal escrow before settlement, the settlement agent gathers title information, draws or has a deed drawn, coordinates with the lender, receives various inspection reports and in general conducts an informal escrow in the days before settlement. The difference is that, in Virginia, usually documents aren’t signed by the parties until they meet at the settlement table.  It’s the use of escrow after this period that we’re concerned with here.

A Problem Rears Its Head

What’s possible varies from state to state, but creating an escrow account (usually held by the settlement agent) after a home is sold can solve problems. What sorts of problems? Let’s look at a few.

First of all, let’s assume the buyer or seller needs, or wants, to settle by a certain date. Lots of things can cause this including the date school starts, the date a breadwinner starts a new job or the date of settlement on the seller’s new home.

Now, let’s suppose a problem crops up which would prevent that settlement deadline from being met.  Such problems might be caused by the discovery of termites and termite damage, the discovery of encroachment on a utility right of way by a garden shed on the property being sold or the discovery of high levels of radon gas within the home.  

Let’s further suppose that the buyer and seller have agreed on the basic solution of the problem. In the above examples, typical solutions might be that the seller will have the home treated for termites and have a licensed contractor repair the damage. Or the seller will have a contractor move the shed out of the right of way. Or the seller will install a radon mitigation system.  Of course, everything is negotiable, and a buyer who wants a property badly enough could agree to fix the defects himself.

What if the pest control company, contractor or the radon mitigation company can’t finish their work until after the planned settlement date?  What happens then?  Most frequently, settlement is delayed until these sorts of things are taken care of, but sometimes that isn’t desirable.  Sometimes delay of settlement can be a deal killer.

Problem Solving 101

Enter the “after settlement escrow.” The parties agree that an amount of money (usually a bit larger than the estimate) is set aside in escrow pending completion of the work. The escrow agent has clear (usually written) instructions about what must be done before the money is released to the person who put it up (or before the work is paid for and any excess returned to the person who put it up).

The funding of an after settlement escrow usually comes from the proceeds of the sale, so it can be used where there are no funds to take corrective action any other way. Even if the person responsible could get a loan for the purpose, the process could take too long to meet the settlement deadline. In that way, it can be a “cash flow” solution, too. 

No matter what problem you encounter, it’s usually possible for a willing seller and a willing buyer to work things out. Remember that all sorts of needs can be accommodated without anyone’s being a loser.  Situations in which both buyer and seller are winners happen frequently. With any luck, that’s what will happen in your case. It just takes creativity and persistence.

There is quite a bit of real estate available in Arizona, because new homes are being built constantly. If you’ve ever been to Arizona, you may be surprised by its vast open spaces – and even the new developments that spring up don’t seem to take anything away from all of that wide open space. In fact, all of that beautiful space is what attracts many people to the Arizona real estate market!

Many people buy real estate from a distance, sight unseen. While this practice can be used to scam people out of their hard-earned money, if you follow certain guidelines you and your money should be relatively safe. Start by understanding what documents you should see throughout the sale process. 

The first thing you should see is the MLS printout. MLS stands for Multiple Listing Service. The MLS printout is a copy of the listing that was sent out by the service. It contains a description of the property, and there may be statements made in the MLS that need to be verified for accuracy. If the property or home is in a new sub-division, you need to ask for the Public Report as well. 

Other important documents that you should request include the Seller’s Property Disclosure Statement (SPDS), Covenants, Conditions, & Restrictions (CC&Rs), governing documents from the Home Owner’s Association, HOA Disclosures, the Title Report, the Home Warranty Policy, an Affidavit of Disclosure, Lead-Based Paint Disclosure, County Assessors Records, and a Professional Home Inspection Report. Make sure that you get a copy of all of these documents, for your own protection. It is a good idea to have your lawyer look at these documents as well.

There is quite a bit of information that you need to learn about a property in the state of Arizona before making a purchase. For instance, some places in the state may be infested with scorpions, which are quite common in Arizona and are hard to get rid of. Some areas of Arizona contain soil and groundwater that has been contaminated by improper disposal methods.

“Collecting more taxes than is necessary is legalized robbery.” These words of wisdom, spoken by the 13th president of the United States, Calvin Coolidge, still ring true in today’s society for homeowners and business owners. Robbery may seem like a harsh word, but what would you say if someone tried to sell you one-year-old motel sheets for 90% of the original cost? Based on the appraisal district’s depreciation schedule, this is a fair deal. 

Most people would not consider this a fair deal and either reject the offer or request a lower price. This should be the same thought process when the appraisal district overassesses your business personal property (BPP). Texas law requires business owners to report BPP, personal property used for the production of income, to the appraisal district for assessment and taxation. Although there are no criminal penalties for not complying with the law, there is a penalty of 10% of the taxes. For example, if you have a BPP account assessed for $100,000, your annual BPP taxes are $3,000, based on a 3% tax rate. The 10% penalty for this BPP account would be $300 ($3,000 times 10% equals $300). 

The huge range of assessed value for business personal property (BPP) makes obtaining substantial property tax reductions highly probable. It is not unusual for the range of assessed value for BPP accounts for similar properties to vary by 5,000%! For example, furniture and computers for companies within the same office building sometimes vary from $1 to $50 per square foot. Market value and unequal appraisal are two options for appealing BPP assessments. Given the inequity in BPP assessments and the subjectivity of valuing BPP, property owners have a high probability of success when properly prepared for a BPP assessment appeal. Protest both market value and unequal appraisal. 

How to appeal? 

To appeal your BPP, you can either use the Comptroller’s form, or send a letter to the appraisal review board (ARB) on or before May 31st of each year. The protest letter to the ARB should identify the property and the reason for your protest (section 41.44d of the Texas Property Tax Code). 

Tips: 

· Since the appraisal district’s staff tends to become more motivated to resolve appeals later in the season versus earlier in the season, it is better to appeal or protest on May 31st or shortly before the deadline date. 

· Even if you do not receive a notice of assessed value for your BPP account, it is still important to send a written notice of appeal or protest. The appraisal district does not have to send a notice of your assessed value if the value does not change by more than $1,000. If the notice of assessed value gets lost in the mail, and you do not send a protest notice, you lose your right to appeal for the current year. 

When sending a notice of appeal to the ARB, also send the appraisal district a House Bill 201 request. House Bill 201 refers to section 41.461 of the Texas Property Tax Code that allows property owners to obtain a copy of any evidence the appraisal district plans to use at the ARB hearing 14 days before the hearing. This request prohibits the appraisal district from using any information that was not provided to the property owner 14 days before the ARB hearing. 

Market Value, Book Value & Comptroller Schedule 

Three popular options for describing value for BPP are: market value, book value, and the Comptroller’s schedule. Market value is defined in section 1.04(7) of the Texas Property Tax Code that reads as follows: 

“Market value” means the price at which a property would transfer for cash or its equivalent under prevailing market conditions if: 

(a) exposed for sale in the open market with a reasonable time for the seller to find a purchaser, 

(b) Both the seller and the purchaser know of all the uses and purposes to which the property is adapted and for which it is capable of being used and of the enforceable restrictions on its use, and

(c) Both the seller and the purchaser seek to maximize their gains and neither is in a position to take advantage of the exigencies of the other.

Let’s compare the differences in value resulting from using market value, book value and the Comptroller’s schedule. The BPP for a typical motel room includes items such as bedding, linens, window air-conditioning unit, towels and a television. Based on market value, after one year, these types of items could probably only be sold for 10% to 30% of the original cost. Book value, based on federal depreciation schedules, indicates a value of 80% of the purchase price after one year. The Texas Comptroller’s schedule for BPP for motels has an eight-year life with 10% depreciation for the first seven years. Hence, the Comptroller schedule indicates one-year old hotel furnishings are worth 90% of their original purchase price. This is clearly inconsistent with market value for these items. 

Inventory 

There are a number of controversial issues related to how inventory is assessed. These include shrinkage, damage, functional obsolescence and economic obsolescence. For example, what is the market value of merchandise returned during the week after Christmas on January 1st (the effective date for valuation)? Since returned merchandise has usually been opened, damaged, missing parts or may be an unpopular item, it is worth less than cost in many cases. Market value is relevant in determining the assessed value for inventory for Texas BPP taxes. 

Preparing A Summary For Your Hearing 

 The appraisal district would prefer to see a fixed asset listing, which includes the original cost and date of acquisition for every asset purchased. However, a fixed asset listing is not required. This is good news for small businesses that do not maintain a fixed asset listing. 

Unequal appraisal 

Assessed values for BPP accounts often range from ten-times to fifty-times on a per square foot basis for companies in the same industry. For example, real estate brokerage offices, which have 10,000 square feet of office space, may have assessments ranging from $10,000-$500,000. It seems unlikely that the computers and furniture in one brokerage office are 50 times as valuable as those in a competitor’s firm on a per square foot basis. 

Appraisal districts tend to accept the assessed value rendered by property owners. Many large companies render using fixed asset listings. Appraisal districts use the cost basis information and the Comptroller’s schedule to calculate the “market value” for property. The valuations for these rendered accounts tend to grossly distort the actual value of these properties. Property owners who do not render have values on the lower end of the range of value. While it seems intuitive that appraisal districts would penalize owners who do not render by sharply increasing their assessed values, the practice is the opposite. Appraisal districts tend to reward property owners who do not render by leaving their assessed values at modest levels. This creates a disincentive to render. It also unequally taxes property owners who render with a fixed asset listing. These factors have caused a high degree of dispersion in BPP assessed values. 

How To Appeal On Unequal Appraisal 

Contrary to popular belief, it is possible to appeal BPP utilizing unequal appraisal, a concept that is fairly new. Most property tax consultants and large property owners have not considered or utilized unequal appraisal regarding BPP. Appraisal districts are resistant to the concept of appealing BPP based on unequal appraisal. (It is inappropriate to tax property owners who render using a fixed asset listing at the highest level, based on utilizing the Comptroller schedule, when allowing property owners who do not render very lean levels of assessment.) 

Preparing an appeal based on unequal appraisal for BPP is simple and straightforward. Start by obtaining information on the assessed value, and amount of office space/manufacturing or warehouse space for property owners similar to the subject property owner. This is typically done by using companies with the same Standard Industrial Code (SIC) as the subject property owner. You can obtain this information by sending an open records request to the appraisal district. When appealing, research the assessed value for your competitors. Compile data regarding the assessed value and building area for the subject and comparable accounts into a summary: 

When should you appeal? 

Appeal annually on market value and unequal appraisal. To effectively appeal on these two options, research unequal appraisal based on assessment comparables on the appraisal district’s web site and evaluate the market value of your BPP. After reviewing both the unequal appraisal and market value options, determine your primary focus for appealing your BPP account. If neither market value nor unequal appraisal provides a basis for appealing your property taxes, you can withdraw the notice of protest or just skip the hearing. 

Tips for your hearing (Informal & ARB) 

Informal hearing 

· First meet with the appraiser and politely explain the basis for your adjustment. Give the appraiser a copy of your evidence and explain it in a methodical way. 

· The appraiser will review your information and the information he/she has available, and will then likely make an offer to settle. Consider the appraiser’s offer and explain why your evidence is better than his/her evidence, and again request your value or a value between your value and his/her value. 

· You will quickly learn the lowest value the appraiser is willing to accept. At this point, you need to either agree to that value or proceed to the Appraisal Review Board (ARB) hearing. 

· If you settle the appeal at the informal level, you will not be able to pursue an ARB hearing or a judicial appeal. However, it does resolve the issue in a timely manner.

ARB hearing 

· Introduction of the two parties at the hearing 

· Explanation of the hearing process 

· Property description (address any errors in the description of your property after the appraiser’s description of your property) 

· Property owner presentation 

· Questions from the ARB panel members 

· Appraisal district presentation 

· Rebuttal and closing evidence from the property owner 

· ARB announces its decision

Summary Points 

· Annual appeals will minimize your BPP property taxes. 

· There are huge differences between the market value estimated by the Comptroller’s schedule and actual market value. 

· Based on excessive assessments for BPP for companies who render using a fixed asset listing, a low percentage of property owners who render and the low assessed values for property owners who do not render, there are rich opportunities for appealing BPP by using unequal appraisal.

Apartments. Usually somebody’s first home after getting married. Can’t really say they’re relatively cheap anymore. Depending on where you live, apartments can run you anywhere from several hundred to several thousand dollars a month.

So what does one do when looking for an apartment? Believe it or not, there are many different types, styles, and pay plans involved. We’ll try to cover the basic types in this article and what you can expect to find with each.

Starting off small there is your basic studio apartment. A studio apartment is usually 1 room with a kitchen and bath. Let’s first off define what a room is when getting an apartment. A room is any room other than your kitchen and bath. Bathrooms do not count as rooms at all because they are required by law. Kitchens are a little different. Most walk in kitchens are considered a half a room. If the kitchen is simply an area in the apartment that is not cut off from the other rooms then it is not counted as a room. So a studio 1 room would have a kitchen area that’s part of the 1 room, meaning it probably comes with just a refrigerator and a stove and sink. A studio 1 1/2 room would have a kitchen that is actually separated from the rest of the apartment by a wall and has a doorway. Most studio apartments are 1 room.

Studio apartments, contrary to what most people think, are not cheap. A studio in New York City can cost you $1000 a month. In some areas you can get a studio for about $500.

Then there are your basic apartments that are normally 3 or 4 rooms.

A three room apartment has a living room, dining area and 1 bedroom. Again, the difference between a 3 and a 3 1/2 room is the kitchen being either part of one of the rooms or cut off.

A four room apartment usually has a living room, dining area and 2 bedrooms. If a family needs a third bedroom the dining area is usually converted. The problem with dining areas is that they don’t normally have doors to separate them from the other rooms. So to ensure privacy some kind of sliding door is usually installed. Actually most 4 room apartments, because of the extra room are really 4 1/2 rooms because in almost all cases the kitchen is cut off from the other rooms.

In apartments there is seldom a basement. Most apartments are assigned a basement area in a main basement used for the entire complex. In some cases each apartment section or group of apartments has a basement nearby.

Aside from the number of rooms there is also the issue of layout. Most apartments are single level, meaning all the rooms are on one floor. But in some cases there are apartment complexes that are what they call duplexes. These are two apartments side by side in each complex and each apartment is two floors as opposed to the 4 apartment complexes where each apartment is on a single level. In two level apartments the living room and dining area are usually downstairs with the bedrooms upstairs. Most two level apartments are 4 1/2 rooms.

Then there is the issue of what services come with the apartment and what services have to be paid for separately.

In some apartments your gas and electricity and water utilities are included in the cost of the rent. In other apartments only the water is paid for and your gas and electric are paid to your local public service company. Some apartments don’t cover any of your costs. So when you get an apartment make sure you find out just what your rent covers. The reason for this is that an apartment for $900 a month with all utilities paid may actually be a better deal than an apartment for $750 a month if the latter apartment doesn’t include any utilities at all.

Finally, in securing an apartment many require a security deposit equal to the rent of the apartment. Some require one month security and some require two months. This is paid back to you when your lease expires if you decide to leave. Breaking a lease will usually mean forfeiture of your deposit.

Which brings us to apartment rules. This is why there is nothing like owning your own home. Most apartments allow no pets. Playing music after a certain hour will bring complaints from your neighbors. The list goes on and on but I’m sure you get the point. Your freedom to do what you want in an apartment is limited.

Some people love the idea of not having to worry about repairs, as the super usually takes care of that, and live in apartments their whole life. Others can’t wait until they can get into their own home. That’s the wonderful thing about this world. One man’s dream is another man’s nightmare.