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Community Impacts of U&O Inspections

Depressed Home Values

Advocates of Point of Sale inspections believe such ordinances are necessary to maintain and improve housing stock in our communities. If these ordinances did in fact preserve or improve the quality or condition of housing units, it stands to reason that homes subject to these regulations would hold their value and fetch a higher price point. However, this is not the case. Using the most accurate and up-to-date data from Bright MLS, it is clear to see how Point of Sale boroughs consistently underperform their non-Point of Sale counterparts.

 

In addition to lower overall prices, Point of Sale boroughs experience larger discrepancies between list prices and the final sales price. List prices are typically calculated by comparing to the values of similar homes in the area, and are indicative of what the home is worth. These gaps indicate that homes in Point of Sale boroughs are more likely to sell for less than their fair market value, due to a complication during the sales process.
It is important to consider that these sales issues disproportionately affect elderly homeowners who may have been forced to delay repairs due to health or financial reasons, and often rely upon the sale value of their home to pay for their retirement.

Increased Vacancy Rates

When municipalities tell buyers and sellers that permanent Use and Occupancy is contingent upon compliance with certain repair requirements, they inadvertently give a major competitive advantage to one kind of buyer: an absentee owner.
When more absentee owners purchase properties in an area, it increases the vacancy rate in the community. Using statistics from the US Census Bureau’s American Communities Survey, we see that vacancy rates for residential properties, particularly non-rental properties, are much higher in Point of Sale municipalities.

 

The reason for this is simple: You don’t need to worry about making repairs to get a permanent Use and Occupancy permit if you have no intention of ever using or occupying the property.
While many aspiring homeowners may be unable to afford new inspection fees, not to mention costly repairs within the first 12 months of the largest financial transaction they’ve made in their lives, someone who has no intention of using and occupying the property has no reason to worry about these costs. In fact, because U&O ordinances can only prohibit people from moving into the property after it is sold, someone who doesn’t plan to use the property doesn’t even need to conduct a U&O inspection in the first place. The ordinance would only create additional costs and regulations for responsible homeowners.
This gives the absentee buyer an unfair advantage when making competing offers against other buyers. Once they acquire the property, these absentee owners are far less likely to end up performing any sort of maintenance compared to a homeowner who would live on the premises.
Higher vacancy rates are harmful to our communities because vacant properties are far more likely to become blighted. Blighted properties drag down the values of their neighboring properties, and are often tax delinquent, meaning that the municipality loses out on vital tax revenue.

Increasing Property Taxes

As an increasing number of properties become vacant and tax-delinquent, the municipality must make up for lost revenue by increasing taxes on the rest of the community.
In Berks County, the average local property tax rate in Point of Sale municipalities is more than double that of their non-Point of Sale counterparts. When comparing the tax rates of Point of Sale boroughs to non-Point of Sale boroughs, it is easy to see how Point of Sale borough residents are paying more.

 

In addition, municipalities often underestimate the cost of enacting U&O ordinances, because the per-property cost of inspecting one property at a time is far greater than what it would cost to perform wholesale inspections of entire neighborhoods. Often, this leads to increasing inspection fees. In 2018, Kenhorst Borough unanimously voted to abolish their U&O inspection program due to ineffectiveness of the ordinance, and rising fees which were making homeownership less affordable.

Conclusion

The Reading-Berks Association of REALTORS® believes that the best way to promote the proper care and maintenance of properties is to enable responsible property owners to purchase and maintain the homes that they live in. Inspections, fees, and fines for noncompliance should be targeted specifically towards problem owners, regardless of whether the property is being sold.
U&O inspections achieve the opposite of these goals: inspections and U&O permit requirements create barriers to homeownership for responsible buyers, while absentee investors are not affected, resulting in higher vacancy rates.
The vast majority of responsible homebuyers already pay for a private home inspection which is far more comprehensive that U&O inspections, and– unlike U&O inspections– provides the homeowners with a warranty in the event that anything is missed. Every dollar spent on redundant U&O inspection fees means one less dollar for them to put towards improving and maintaining their new home. This reduction in the amount we put into improving and maintaining our properties results in property values that significantly underperform other communities, a trend that is easy to see throughout the communities in Berks County which have enacted such ordinances.

 

Methodology

Statistics were obtained from Bright MLS and the US Census Bureau’s 2017 American Communities Survey. Local tax rates were obtained from the Berks County website.

While Laureldale Borough does require a U&O permit, inspections are solely limited to the exterior of the property, focusing on sewer lines and sidewalks. New Morgan Borough, with an estimated 12 total households, was unable to produce reliable housing or sales information due to a small sample size, and was excluded from individual borough results.

For more information, please contact the Reading-Berks Association of REALTORS® at johns@realestateinberks.com.