Friday, December 26, 2008

ebay, Homewood and ......... Henry George?

PG's Elwin Green picked this up in his own semi-official Blog on all things Homewood: My Homewood.

Elwin latest entry is about a property on his own block in Homewood be caught being sold on ebay. See the ebay auction here which is labeled "Deal of the Century". He expressed some concern that the ebay auction might just be a fraud. It might be, but I have to say the ebay listing looked at least semi professional. See the addendum below for some thoughts on that, but for the moment let's assume it is a legit offer. Whether a real offer or not what got me a bit curious was the actual current ownership of the parcel shows a tax mailing in the UK.

The Allegheny County real estate assessment info on the parcel is here. What is curious is the ownership, or at least the tax mailing is:


I find no other mention of Snowqueen et al anywhere on ebay or google, fwiw. I think it is this place according to google maps. They have street view even, but google didn't seem to go off the main road down the block to the exact location.

Why do I notice? A couple things. Before the national real estate mania reached its apogee I would have a semi regular conversation with someone or another about an out of town person buying property in Pittsburgh sight unseen. What I was pretty sure was happening at the margin was that there were folks in other regions who just couldn't comprehend how cheap real estate was here. There could have been folks who had some nominal wealth, and were thinking they saw some great investment opportunity they didn't want to miss. In the big picture it's just another form of Tulip-vision. I am sure the buyers had lots of different stories, but I always imagined these were folks who had either gained a lot of paper wealth as their own real estate values skyrocketed, or felt they had missed the boat investing elsewhere and thought Pittsburgh was the place to get in on the ground floor as it were. When Pittsburgh real estate prices finally began to converge with the nation they would be set to make a serious return on their investment. What could be the downside?

Irony of course is that the expected reversion to the mean is happening with a vengeance. Just not the way some folks expected. What I always imagined was nouveau riche Manhattan real estate micro-moguls swooping in and buying these parcels, I never really thought about how advantageous the dollar exchange rate in recent years would have exaggerated that argument for folks in Europe. I am surprised we never saw some Russian oil money rain down on us. But if Pittsburgh real estate seemed cheap in dollars, it must have seemed virtually free in euro or pounds until the dollar's appreciation a few months ago.

But back to Homewood and ebay. For the sake of argument let's presume the seller is legit, which I suspect is the case. Don't look to that as a reason to believe the next Internet auction you see for real estate in Pittsburgh. It may just wind up being like the brief listing on ebay for the Illinois Senate seat.

Elwin expresses some dismay that this property could be sold at such a low price. But was the price really that low? Or lower than normal? One disclaimer on the ebay listing is that the buyer must 'pay back taxes'. As the county real estate site shows, real estate taxes have been unpaid for at least 3 years. While the tax amounts owed on the county web site appear low for the parcel, most county residents here know that the county portion of your tax bill is the smallest part of your tax bill. Bigger real estate millage is levied by your municipality and school district. So with 2009 tax bills about to be sent out, it looks like the county alone expects $600 on this parcel. Which means that the city and school district must want an additional $3K or so themselves. We say that those tax bills are capitalized into to transaction value. So the nominal price on ebay of $2,200 represents at least $5-6K in actual cost to the buyer... before closing costs even.

So according to the county again, this property was bought from what looks like a foreclosed upon VA auction for the grand sum of $4,500 in 2005. So given the tax accounting and incurred liability described above, the buyer may have lost some money by holding the property these last 3 years, but they may have come out ahead in a certain accounting sense. If nothing else, the ebay auction may have generated a higher price than the previous transactions...that itself would be remarkable given that Homewood prices have it anything been trending downward. As an added benefit, someone may have saved some real estate transaction costs/commissions by using ebay. Add in the dollar appreciation and you could almost get a profit in their "flipping" of the property. Ok, that's hyperbole.... In the end the current owners may not be out many pounds sterling, but it does not appear to have been the Deal of the Century for them either.

Seriously, this all may point out to the need to re-implement some form of a land tax in the city. If you want non-resident owners to sell and move on you want them to incur a penalty for holding and underinvesting in local parcels. It is almost the same type of land speculation that the land tax was first put in place to counteract. Does not always work here of course. Pittsburgh's big problem with essentially dead parcels (no owner in any form) is a problem that won't be helped by that type of tax policy. But if there really are these out of region, state, county owners holding property and just letting them deteriorate waiting to flip them when the awaited Pittsburgh real estate boom happens... you want that activity to stop cold. It just happens to be a problem with a tool already invented to deal with it. Won't solve all our problems, but it can't hurt:

Unfortunately we've been in the habit of actually incentivizing the opposite type of behavior. Anyone remember the long painful story of the city's tax liens which may represent the single worst policy in urban redevelopment ever implemented. Then we had a massive lien holder who had inventive to hold up transactions anticipating tax payments that could never come yet at the same time didn't incur any tax penalties since they were not technically the owner for any of the properties they held hostage:

It was like the anti-land tax implemented as policy.

All that being said, is it a legit offer? The ebay auction has some disclaimers including this one:

Terms of sale: You are bidding on the full price of the home. Winning bidder will pay $1,000 by paypal at the end of auction. The balance within 3 days. You will recieve a deed. The winning bidder will also pay $1,200.00 for costs, which cover the closing/completion, and deed delivered to you., etc. Title insurance would be extra at approximately $300, if buyer requires.

So I just wonder. How do you close on a piece of real estate contracted to buy via ebay? "Deed will be delivered to you". I think its a bit more complicated than that. My closing had lawyers and real estate agents and folks representing my mortgage broker. I am also a little curious if there are any title insurance complications with a foreign owner. The listing also does disclose that there the buyer must pay "past taxes of $171.72 to be paid by you in addition to the winning bid price". That is one year's worth of taxes to the county. As the county real estate web site clearly shows, there are more years of past-due taxes just for the county and there is no mention of the city/school district taxes due. I wonder if the winning bidder realized both of those things. Could be a case of buyers remorse.

Maybe Elwin will do a follow up?


Anonymous Anonymous said...

"Anyone remember the long painful story of the city's tax liens which may represent the single worst policy in urban redevelopment ever implemented."

Granted that was bad policy, but for sentimental reasons, I'm still going to go with building a several hundred million dollar tunnel for a subway few people will ever use except on weekends in the fall while the roads crumble and the buses that constitute the most heavily used public transit resource are cut.

Also, while this isn't strictly redevelopment policy, you could consider the tail-end of Murphy's tenure and city's policy of appealing the property taxes of everybody who bought a house in the few areas that were attracting new residents. Welcoming newcomers to the city by raising their taxes right after they've completed the most expensive purchase of their lives doesn't sound like a good solution to a declining population. Nearly every conversation eventually turned to whether or not you'd gotten your notice yet, has so and so gotten their notice, how'd your hearing go, etc.

Friday, December 26, 2008 8:04:00 PM  
Blogger C. Briem said...

a complex subject and the whole assessment mess I will leave for another day... but it is worth noting that the city neighborhoods with the more expensive properties that were being appealed are doing far better at retaining population than the areas where the city was not bothering to appeal. So I am not sure what correlation is there, let alone any causality. I'm also a bit unclear if it was always the city and not the school district or city controller that was more active at trying to appeal values back then. Trust me when I say neither of those two were taking any lead from Murphy on anything. If nothing else, it was not only Murphy who disagreed with how the assessments were going. Bob O was just as upset.

Saturday, December 27, 2008 9:33:00 AM  
Anonymous Anonymous said...

Perhaps the ONLY good thing about the lien sale to Capital Asset (then bought out by MBIA, who got slaughtered in that market, which is what made buying the liens back for ten percent of what we sold them for possible. CB, please correct me if I'm wrong...) was that they paid the City $60 Million and sold them back to us for $6 Million, so, for the decade of grief, we did make a profit. How much we may have lost in development and putting those parcels back on the rolls over that tenure is anybody's guess.

CB, did you ever consider government consulting as a side gig? Would the Chancellor even let a municipality buy out your time to the University for what I assure you would be the most noble of public services that a City could use right now......

Saturday, December 27, 2008 12:19:00 PM  
Anonymous Anonymous said...

I was never able to get a straight answer about whether it was the schools or the city that did my own appeal. The form said the city, but county said the city was appealing at the behest of the schools. I just blamed them both. I worry much more about the city because there is no such thing as a parochial paving company and because the school having actually increased any taxes since I've been here.

Saturday, December 27, 2008 1:05:00 PM  
Blogger C. Briem said...

Ha. I do agree the city made out in the end in a financial sense... taking MBIA's money and giving back cents on the dollar. It was lucky to a degree and I will give credit to their negotiating in the end, but whomever planted that story with Bloomberg which generated the bad press for MBIA and is really what precipitated the buyback of the liens deserves a million dollar commission from the city.

as for consulting.. from the little notes I get indirectly I am pretty sure the city would pay me to keep quiet long before they pay for any advice. What can you do.

seriously on the assessment appeals at the time: I am almost sure the city had no legal resources devoted to assessment appeals back then except in some of the really big cases. They were not involved in many individual residential cases at all unless you owned some serious real estate in town? The school district was pretty active. The 'acting on behalf' of the schools was surely a pro forma type of thing. I would bet no city solicitor was involved in your case.

Sunday, December 28, 2008 12:48:00 AM  
Anonymous Anonymous said...

Probably all of the city solicitors were busy asking Harrisburg to let them send the parking tax through the roof.

Sunday, December 28, 2008 4:00:00 PM  
Anonymous Anonymous said...

Speculation has been, and is, a big problem in Pittsburgh. The historic focus of land taxes on land rather than development was supposed to have curtailed properties being held for less than their highest and best use. Has there been any determination of when those strategies work, and when they do not? Or is that a good topic for a PhD thesis?

Monday, December 29, 2008 9:18:00 AM  
Blogger C. Briem said...

there has been a lot of research on the impact of the land tax in Pittsburgh, immensely more on the land tax in general. Problem for Pittsburgh is that it's hard to seperate out all the other things going on here to judge the land tax in itself. That and this is my opinion: you can make the case that the land tax apparered to be stronger than it was here. School district never implemented it for one thing. Also, near the end something I have tried to look at myself is what the impacts of bad assessments were on the land tax. I hypothesize assessments on most residential property came abnormally close to valuing land at 1/6th of total property value. Given that was the ratio of the tax of land to structure in the post-1979 version of the land tax, the result is that the impact of the land tax was mostly obviated. Again, that is my theory I have never had time to test.

anyway, big topic. When I muse on what the impact of a land tax could be, I am thinking a much more comprehensive land or split tax. In fact, a universal abatement on new construction or improvements in the city would come close to acting like a split tax. That was one of my points here:

Monday, December 29, 2008 9:32:00 AM  
Anonymous Anonymous said...

While it is all well and good to find the best way to tax, I still think Pittsburgh's problem is much more the amount of the taxes than how they are raised. The state and local income tax load is like 8-9%. Plus 3% of your house. Plus 7% of everything you can't buy on Amazon. Plus the drink tax on top of PA's already seriously over-priced alcohol. The parking tax. The 4% sales tax on houses.

Monday, December 29, 2008 12:37:00 PM  
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