Matrix Blog

Guest Columnist:
Todd Huttunen

Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Matrix readers tongue-in-groove insight on appraisal and housing issues. View his earlier handiwork on my first blog, Soapbox

Jonathan Miller

Seasonality Should be Considered in Comp Selection

April 26, 2010

The Westchester numbers for the first quarter just came out today. Even with the turbulence we’ve seen in the last couple of years, there remains a consistent trend in the median selling prices as relates to “seasonality”.

Not unlike Metro-North or Hamptons rentals, there is a “peak” and an “off peak”.

Whether the overall market is trending up or down, houses that close in the second or third quarters sell for considerably more than those that close in quarters four or one.

Appraisals done “in season” (assuming 60 days from contract to closing, these would be valuation dates in the six months between February 1 and July 31) should rely, if possible, on sales that closed in the second and third quarters, if not from the year of the appraisal then on the prior year. Conversely, appraisals made between August 1 and January 31, or “off season”, should focus on sales from quarters four and one.

Adjustments are required for the difference in market conditions between “in season” and “off season” for single family houses in the New York metropolitan area. What those adjustments should be can be fairly easily calculated by looking at the historical data for median prices. Remarkably, in Westchester at least, the differences are pretty consistent either in upward of downward trending markets.

Check out that serpentine line on the Median Price chart – just for fun, print it out and draw a line connecting only quarters two and three to each other over the years. Then do the same to quarters four and one and watch how quickly that serpentine line straightens out into two lines with much more of a consistent trend to them.

I really don’t understand why appraisers are so stuck on this idea that only sales taking place within six months of valuation date should be used. Six month old sales can be the most misleading ones of all, insofar as market conditions are concerned.

p.s. I know I addressed this issue in a prior post but it bears repeating since it seems almost no one is paying any attention.

Tags: Seasonal Adjustment, Todd Huttunen, The Hall Monitor

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Guest Columnist:
Todd Huttunen

Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Matrix readers tongue-in-groove insight on appraisal and housing issues. View his earlier handiwork on my first blog, Soapbox

Jonathan Miller

In estimating the value of a house, appraisers are concerned with answering two fundamental questions.

1 – What is the value of the land, as vacant?

2 – What contribution, if any, does the existing improvement make to the underlying value of the land?

A recent study (pdf) conducted by the Lincoln Institute of Land Policy suggests that in the higher priced regions of the country, the land-to-value ratios range from 50% to 75%. In areas where “teardowns” are common, land values can actually exceed 100%, since the buyer looking to construct a new house has to add the cost of demolition to the price paid for the existing house before she can build the new one.

Although this is the reality in many parts of the New York metropolitan area, Boston, Southern California, and other regions, for a long time now banks and the appraisers who work for them have pretended otherwise. For some reason banks want to believe that the mortgages they make are on properties where the land represents between 25% and 35% of the market value and that the improvement represents the bulk of the value, 65% to 75%. Even as far back as 1985 when I started appraising and the land-to-value ratios were not as high as they are today, we were required to add a comment to our reports stating that “land values in excess of 30% of market value are common in this area,” whenever we estimated land value above that “magic number”.

Appraisers I’ve spoken to say the reason they estimate land values at say, 30 – 35% of overall value, irrespective of the fact that it may be much greater, is that they are under pressure from lenders and underwriters who won’t approve loans on properties whose land-to-value ratio is more than roughly one-third. Conventional wisdom says banks don’t want to make loans on land, so they instruct their appraisers to say the land is 30 – 35% of market value (the fact that it may really be 80 – 90% doesn’t seem to bother them, as long as the appraiser says otherwise). The reality however, based on this Land to Value Ratios study from the Lincoln Institute of Land Policy, is that in many of the country’s higher priced locations, it is the land which comprises 50% to 75% or more of the value of the property.

This is important for a couple of reasons, one of which is the fact that appraisal forms are geared toward the notion that most of the value is in the improvement, and not the land. The adjustment grid, wherein the appraiser compares the subject property to the comparable sales, gives short shrift to factors relating to the land value and focuses instead on the improvements such as square footage of the house, number of bedrooms and baths, condition, and on the amenities such as fireplaces, patios and pools. Most of the dollar adjustments appraisers make are for differences in the improvements and amenities. But if 75% of the value is in the land, then why are we bothering to make an adjustment for the fact that one property has a fireplace and the other does not? Shouldn’t the focus be on factors relating to the land instead? These would include site size, shape, views, elevations, topography, frontage, etc.

Appraisers have been subject to scrutiny in recent years, given their role in the mortgage lending process, and some have been implicated for their unethical participation in the sub-prime debacle. I believe most appraisers are ethical, professional, and serious about the work they do. But I do think it’s time to recognize reality when it comes to the allocation of value between land and improvements. If the land value represents 50% or 75% or 100% of the value of the property, as it does in many parts of the country, then appraisers have an obligation to their clients to say so in their reports. And if that means the appraisal form itself needs to be redesigned to reflect the market as it is now, and not as it was in 1930, so be it.

Editor’s note: I find it amazing how so few consumers realize that changes in value during a period like we just went through is in the land, not the building (improvements) – jjm.

Tags: Sub-Prime, Appraisal Institute, Todd Huttunen, The Hall Monitor

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Guest Appraiser Columnist:
Todd Huttunen

Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers readers tongue-in-groove insight on appraisal and housing issues. View his earlier work on Soapbox.
Jonathan Miller

Not unlike the wording found in real estate contracts prepared by lawyers – “The party of the first part…” etc., — fully 95% of what you read in a real estate appraisal consists of boilerplate language which is the same in every report. This is standard procedure, and there is absolutely nothing wrong with it. One would assume, however, that since the boilerplate language is only actually typed out one time and then copied verbatim ad infinitum, that the grammar and spelling would be correct. Now I realize that I am more sensitive to these things than most people (I’ve agonized for years over whether or not to use a hyphen with the phrase “anal-retentive”). But with tools like Spell Check that make it truly difficult to butcher the English language, one can only look on with “shock and awe” at the following examples of boilerplate, taken from actual appraisals prepared by licensed appraisers. As I was typing these comments my keyboard was practically smoking from all the mistakes, but — I assure you — every keystroke is a faithful reproduction of what was written in the appraisals.

THE EXTEND OF THE APPRAISERS INVESTIGATION INCLUDED (1) REVIEW OF PUBLISHED RECORD DATA FRO THE SUBJECT PROPERTY, WHERE AVAILABLE; (2) INTERIOR AND EXTERIOR INSPECTION OF THE PROPERTY IMPROVEMENTS AND INSPECTION OF THE SITE, UNLESS OTHERWISE STATED IN THE IS REPORT (3) INSPECTION OF THE NEIGHBORHOOD AND ANALYSIS OF REGIONAL CHARACTERISTICS; (4) RESEARCH OF SUBSCRIPTION SALES DATA, PUBLIC RECORDS AND OTHER PUBLISHED DATA SOURCES AND CURRENT LISTINGS; (5) ANALYSIS OF THE SELECTION COMPARABLE SALES AND LISTINGS INCLUDED VERIFICATION OF THE REPORTED DATA; (6) CONSIDERATION AND ANALYSIS OF THE HIGHEST AND BEST USE OF THE SUBJECT SITE; (7) CONSIDERATION AND APPLICATION OF THE APPLICABLE APPROACHES TO VALUE (ALL THREE APPROACHES TO VALUE WERE CONSIDERED AND USED EXCEPT WHERE NOT APPLICABLE OF OTHERWISE NOTED); (8) FINAL RECONCILIATION OF THE DATA TO ARRIVE AT THE ESTIMATED MARKET VALUE.

THERE APPEARS TO BE ADEQUATE FINANCING IN THE SUBJECT AREA AT COMPETITIVE RATHES AND TERMS. BASED ON ANALYSIS OF PREDOMINANT MARKET PATTERSN, EXPOSURE TIME FOR THE SUBJECT IS APPROXIMATELY 30 TO 180 DAYS WHEN PROPERLY MARKETED.

APPRAISER HAS REVIEWED THE CONTRACT, HOWEVER SINCE THE APPRAISER IS NOT AN LAWYER HE HAS NOT ANALYZE THE CONTRACTS.

WINDOWS WERE NOTED AT THE TIME OF THE INSPECTION.

THESE TOWNHOUSES ARE ON 4 LEVELS WHEN YOU INCLUDE THE TANDEM GARAGES. THEY ARE FOR THE MOST PART NARROW. CLIMBING THESE UNITS DOES APPEAR TO HAVE AN NEGATIVE IMPACT. THE INSTALLATION OF ELEVATORS APPEARS TO HAVE A BIG POSITIVE IMPACT. MOST LISTINGS WITHIN THIS COMPLEX HAVE COMMENTS THAT ELEVATORS CAN BE INSTALLED.

This next description of market conditions follows the appraiser’s checking boxes on the appraisal form indicating property values are declining, there is an over supply of homes on the market, and marketing time is over six months:

MLS RESEARCH INDICATES AN ACTIVE RESALE MARKET WITH A NORMAL SUPPLY OF AVAILABLE PROPERTIES. LOCAL MARKET CONDITIONS INDICATE MANY HOMES SELLING AT OR ABOVE THE LISTED ASKING PRICE. MARKETING TIMES ON AVERAGE ARE LESS THAN 90 DAYS FOR PROPERLY PRICED HOMES IN GOOD CONDITION.

COSMETIC REPAIRS ARE NOT REQUIRED; HOWEVER, THEY ARE TO BE CONSIDERED IN THE OVERALL CONDITION RATING AND VALUATION OF THE PROPERTY, WHICH THE APPRAISER VIEWED THAT THERE WAS NORMAL DEFERRED MAINTENANCE AND DID NOT RISE TO THE LEVEL OF A REQUIRED REPAIR.

My personal favorites are these last two, both of which were written by a self-proclaimed Notre Dame alumnus.

MARKET CONDITIONS ARE CURRENTLY APPEAR TO DECLINING AND FOR THE GENERAL MARKETING AREA SINGLE FAMILY DWELLINGS. THE GENERAL MARKET FOR LOANS APPEAR TO BE DIFFICULT TO OBTAIN RATES AT THE TIME OF THE INSPECTION.

MARKET CONDITIONS ARE CURRENTLY APPEAR TO HAVE SOFTENED AND FOR THE GENERAL MARKETING AREA CONDO’S OF REAL ESTATE SELLING AT A STABLE RATE, THE GENERAL MARKET FOR LOANS APPEAR TO BE DIFFICULT TO OBTAIN RATES AT THE TIME OF THE INSPECTION.

I wrote these selections in all caps because that’s how their authors wrote them. Perhaps it’s just a coincidence that the worst writing I found was from appraisals typed entirely in capital letters, but I don’t think so.

My wife Carol, an executive recruiter, suggested that, given these phrasings, the absolutely perfect candidate for a career in real estate appraisal would seem to be none other than Sarah Palin herself. If you saw William Shatner reading her “tweets” on the Tonight Show the other night, I’m sure you’d agree.

Tags: Todd Huttunen, The Hall Monitor

5 Comments

Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal and housing issues.
…Jonathan Miller

Much of the talk these days deals with the residential real estate market and the need for it to “find its bottom” before any kind of stability can take root in the broader economy. We all know, of course, that there is not “one” residential market and what’s happened most acutely thus far, in places like Florida, California and Arizona, over the last two years or so, is very different from what has transpired in other parts of the country. It seems fair to say, however, that prices are declining at varying rates everywhere, or almost everywhere. What we all want to know is how much further prices will fall.

Consider Westchester County, a wealthy New York City suburb. The Median Sale Price chart (for single family houses) shown here is based on statistics compiled by the Westchester County Board of Realtors from 1986 – 2008. The second chart, based on data compiled by H.S.H. Associates, tracks 30 year fixed rate mortgages over the same period.

The most glaring trend, and the one that appraisers in Westchester, and other places I’m sure, are grappling with, relates to the disconnect between the conventional wisdom about how far prices have fallen, and the fact that the median sale price in 2008 was $650,000, a decline of just 5.1% from the $685,000 seen at the height of the market IN 2007! What has declined, and declined precipitously, is the volume of sales, which is down by as much as 30%. But as to a “correction” based on these numbers I can only say – What Correction? To be fair, the fourth quarter showed a steeper decline as compared with the fourth quarter of 2007. But year over year, the numbers are not that bad not yet anyway.

The 2008 median price of $650,000 roughly equals the 2004 level of $645,000. But even if this market is destined to roll back just to its 2003 level, that would require a decline of 13.2% from its current level. And if 2002 represents the bottom then we have another 19.2% to go before reaching it, and a median price of $525,000.

As to mortgage interest rates, one would expect that lower rates would correspond with higher prices, which they do with a couple of notable exceptions. From 1991 through 1996 interest rates went down yet selling prices remained flat. However, from 1998 through 2000, both interest rates and selling prices spiked. Rates went from 7.09% to 8.43% at the same time as the median price increased from $320,000 to $407,000. Go figure.

So the question remains, where is the bottom of this market? After doing all the research necessary to write this, I still have no idea. But don’t hold your breath.

Tags: Todd Huttunen, Soapbox Blog, The Hall Monitor

1 Comment

Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal and housing issues. …Jonathan Miller

The pendulum has swung away from “Conspicuous Consumption” toward “Sustainable Living”. “Consumerism” is out and “Green” is in. A quick visit to the New York Times website and the words sustainable living typed into the search engine brought me links to 1,840 articles, 25 of which were published in the last 30 days. Have Americans made a conscious decision to reject our materialistic, “keep up with the Jones’s” way of living and embrace a simpler life with less stuff? Have we really turned against our Hummers and Starter Castles? Or are we simply feeling less wealthy given the recent downturn in the markets? It’s likely that both these things are true, to varying degrees.

Leaving aside the subjective value judgments however, there are demographic realities that suggest the future will not be kind to the more recently built outer-ring suburbs which are located further away from centers of employment, shopping and other amenities, and are thus more heavily dependent on the automobile as the primary means of transportation.

An article in The Real Estate section of the Times from December 28, 2008, “Housing Inventories on the Rise“, cites a report prepared by Jeffrey Otteau of the Otteau Valuation Group in Old Bridge, New Jersey.

From the Times article:

“Right now we are all focusing on how bad it is,” he said, “but what we are also seeing is a historic reversal of home-buying demand away from suburban and rural areas to cities and inner-ring suburbs that are more walkable than driveable.”

Mr. Otteau says the shift was partly because of higher energy prices. But the dominant reason is that the number of households with children living at home is on a persistent decline.

“In 1985,” he said, “50 percent of households had children at home. In 2000, that was down to 33 percent. Today it is 29 percent, headed to 25 percent.

“That means that 75 percent of homebuyers over the next 15 years will have childless households and within that group are empty-nester baby-boomers, or couples or singles buying a first house. And that means three out of four homebuyers will have no interest in a house in the suburbs with a good school system, which is pretty much what we’ve created over the last 50 years.”

Mr. Otteau’s reference to 1985 and the 50 percent of households with children at home points to the fact that baby-boomers at that time were smack-dab in the middle of the child-rearing phase of their lives. Well, the “pig in the python”, as the boomers are sometimes called, is about done with that part of their lives and this helps explain the decline in the number of households with children.

As Mr. Otteau makes clear, nearly everything we’ve built over the last 50 years was in response to this aging demographic, whose own future needs will not even be met by the very housing model created expressly for them, to say nothing about the appropriateness of the status quo for generations that follow.

Appraisers are trained to analyze the functional utility of improvements and various forms of obsolescence, as they relate to highest and best use. Just for fun, let’s consider the existing “suburban environment” as the subject. What are some of the factors on which its future viability depends?

1. Transportation: There can be no arguing that the automobile is central to the success of the built suburban landscape. In 1956 under President Eisenhower we began construction on the Interstate Highway System, without which the development patterns of the last fifty years would not have been possible. Keep in mind that the U.S. population was 169,000,000 in 1956. It is now 305,000,000 and is projected to grow to 400,000,000 by 2039. Even if you believe the existing network of roads, bridges, and parking is adequate to serve our current needs, can it possibly be expanded to meet the needs of an automobile reliant population 30% greater than ours thirty years hence? I, for one, think not.
2. Energy: The current low price of oil notwithstanding, it is unlikely that future oil production will be able to keep pace with worldwide demand as China and India continue to grow their economies. The viability of our suburban model is only possible because of the availability of cheap and abundant energy. The fact that, with only a few minor interruptions, we’ve had access to all the energy we’ve needed up until now is no guarantee that this trend will continue into the future.
3. Environmental Awareness: Detached single family houses on large lots in sub-divisions not located near jobs or shopping are the antithesis of the desire to “go green” – which seems to be more than just the latest fashion. As Mr. Otteau describes in the Times article, the move toward greater density and mixed use development, new urbanism, walkable communities whatever you wish to call it is already happening.

Ultimately however, it all comes back to the “Pig in the Python”. Boomers are getting on in years and the landscape that for fifty years was first built for them, and in more recent years by them, faces a stern test. For fifty years it’s worked pretty well, I think most people would agree with that. The question is will it work for the next fifty years?

Personally, I think we need to start making other arrangements.

Tags: Soapbox Blog, Todd Huttunen, The Hall Monitor

4 Comments

Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues. In this post Todd structures the building argument for a change in terminology. …Jonathan Miller

Improve v 1. To raise to a more desirable or more excellent quality or condition; make better. 2. To increase the productivity or value of (land or property). 3. To put to good use; use profitably.

Improvement n 1a. The act or process of improving. b. The state of being improved. 2. A change or addition that improves.

These definitions are from the American Heritage College Dictionary, fourth edition, published in 2002. This same dictionary does not include an entry for “teardown”, as this is a relative “arriviste” in the lexicon of real estate. However, the term teardown has become ubiquitous among people living in the many places across the country where they are common. The New York Times, in an editorial on July 1, 2008 entitled Holding Back the Wrecking Ball, makes reference to a Westport, Conn. Web site featuring Teardown of the Day.

The Appraisal of Real Estate, thirteenth edition, has recently been issued (so says Jonathan Miller in Soapbox) but I’m still working from the twelfth edition and I have no plans to buy the new one. The index in my book does not include a reference to “teardown”. I am genuinely curious as to whether or not the thirteenth edition does. Consider this a plea to those of you who have the new book. Does the word teardown appear in the index, or doesn’t it? In my opinion it absolutely belongs there. What no longer belongs there is the word “improvement”, or any derivation thereof.

From this point forward, in appraisal parlance the word improvement should be replaced with the word structure. (or perhaps you have a better word) “As improved” should be “as structured”, “unimproved” becomes “unstructured”, you get the idea. The reason should be obvious. The very definition of the word improvement carries with it the implication that the “structure” always adds value to the land. And until fairly recently that was generally true but it is no longer necessarily so. An “improvement” that does not enhance the value of the land IS NOT AN IMPROVEMENT. If it were then “teardown” wouldn’t have become the commonly used word that everyone understands.

In the case of a teardown, not only does the structure not add value, it diminishes the value of the land, as unstructured. The word “structure”, which makes no premature judgment as to any contributory value of an existing building, allows for the critical question to be asked in a way that the word “improvement” does not. Does the existing structure enhance the value of the land, or does it diminish it? In places where teardowns are common the answer is clear the value of the land, as vacant, is greater than its value, as structured. It’s misleading, ridiculous even, to call these buildings “improvements”.

In real estate appraisal the word “improvement” is an archaic term reflective of an early 20th century truism land was cheap (dirt cheap) and most of the value (75% or more) was in the building. In the early 21st century, in many urban and suburban places this notion is demonstrably false. In these areas the land component may account for as much as 50% of total value and that’s with new construction! The best way to acknowledge this reality is to replace the heavily biased word “improvement” with the more neutral “structure”.

Tags: Soapbox Blog, Todd Huttunen, Appraisal Process, The Hall Monitor

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Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues. This week Todd applies oil to the squeaky news. …Jonathan Miller

We cannot drill our way out of $4 per gallon gasoline. It is a simple matter of supply and demand. This is something appraisers understand. Unlike the real estate market these days, in terms of energy, Demand is growing and supply is shrinking.

The United States comprises 4.5% of the world’s population and consumes 24% of the world’s oil. We use 20.8 million barrels of oil a day. The next largest consumer is China which has more than four times our population but uses only one third as much oil.

If China used as much oil as we do, per capita, they alone would be consuming 89,000,000 barrels a day (more than the world is currently producing), which is of course impossible. If they purchased every barrel produced everywhere they still wouldn’t have enough for themselves they’d be short about 2.8 million barrels a day – and there would be not one drop for anyone else on the planet!

And then there is the little matter of India, which has 1,100,000,000 people, nearly as many as China and 3.5 times more than the United States. Much the same as China, they have a rising standard of living and they want cars too. It is difficult for me to understand those – particularly the morons on Fox News – who claim that all we need to do is start drilling for oil off the coasts and in Alaska and we’ll be fine. Our leaders suggest that our standard of living is not negotiable. Well I’m sorry but “Houston, we’ve got a problem” and it’s not going to be solved by sticking more straws in the ground nor is the answer to be found in ethanol, wind farms, nuclear power or used french fry oil. The American way of life will have to change, whether we like it or not.

You may ask what kinds of changes can any one person make in their own life. I think it starts, in this political season, by redefining what is meant by the word “patriotism”. Instead of, or at least in addition to symbols like “Support the Troops” bumper stickers and politicians wearing flag lapel pins, why not make a more tangible statement by riding a bike to work or school instead of driving a car. Or if you really want to reduce your carbon footprint, try a vegetarian diet (personally, I’m going to switch to a bike commute but I’m not ready to give up hamburgers just yet).

Tags: Todd Huttunen, Soapbox Blog, The Hall Monitor

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Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues. This week Todd argues that we bought the ranch when we learned that smaller size does matter. …Jonathan Miller

McMansion, Starter Castle, Hummer House these are just a few of the nicknames that have been given to big new houses (by their critics) in existing neighborhoods of smaller houses. No one can argue that the “teardown” followed by the super-sized new house has not altered the suburban landscape in recent years. But the principle of highest and best use, which made the 1950’s Split Level an endangered species in many affluent communities, lives on. And the brand new Starter Castle next door is no more immune to the passage of time than was the Split Level it replaced.

In fact, if recent history is a harbinger of things to come then the economic lifespan of all our buildings, both residential and commercial, will be shorter in the future than it was in the past. Look at the ages of the buildings being demolished. With houses it’s nearly anything built after 1950. Many municipal buildings, sports stadiums, and the like have had, or will have, shorter lives than did Mozart (who died at 35 years of age).

Might Peak Oil and $4 plus gasoline do for outsized houses in outlying suburbs what PETA did for the fur industry? This is not to say that there won’t be big houses anymore inasmuch as there are still lots of people who like wearing fur coats and eating meat. Unfortunately, the newer McMansions are not usually located in the most desirable areas, within walking distance of shopping, train stations, etc. That’s where the “real” mansions are, and have been for 75 years. The newer big houses are mostly located in the outer ring suburbs, where they’re much more automobile dependent.

A story in the May 18, 2008 New York Times entitled Imagine No Possessions addresses ‘voluntary simplicity’, a movement which is the antithesis of the culture of the McMansion. A less affirmative “movement” based on the more mundane and difficult economic reality heading our way might be called ‘involuntary simplicity’. We may not be able to afford to maintain the McMansions, once they are no longer new. Big houses cost more to acquire and more to maintain. They have higher taxes due to their higher values (at least for the time being). But bigger houses are not always worth more than smaller houses.

There is a neighborhood in the Village of Bronxville known as Lawrence Park. Bronxville is a wealthy suburb just north of New York City and “The Hilltop”, as Lawrence Park is also known, was developed by William Van Duzer Lawrence in the late 1800’s as an artist’s colony. The houses are quite large, uniquely styled and sited on steep slopes along very narrow cobblestone roads. In recent years these houses have been renovated and they are today, some of the most valuable houses in Bronxville. But for decades following WWII this was a neighborhood in physical decline, based on historical assessment records. A longtime Hilltop resident once described it to me as a “slum” when she built her house there in the 1950’s.

If you walk through that neighborhood now it seems hard to believe but you have to consider how the world was looking in the 1950’s. As we all know, the 1950’s was a boom period for suburban construction and if you were buying a house you had the choice of a brand spanking new Ranch or Split Level with all the latest amenities, or one of these “old fashioned”, drafty dowagers then approaching 60 years old. Modern was “In” and late 19th century was definitely “Out”. The assessment records from that era reflect the fact that the newer, albeit smaller houses had higher values than the older ones.

There may come a time in the not so distant future when the adjustments appraisers make for differences in living area reverse themselves and the larger house is adjusted downward. It won’t be the first time that smaller houses will have been in greater demand, and more valuable, than larger ones.

Tags: Soapbox Blog, Todd Huttunen, The Hall Monitor

6 Comments

Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues.

This week Todd adds some seasoning to the time adjustment concept.

…Jonathan Miller

Here is a comment you will find in many residential appraisals “A lack of more recent sales required the use of sales which are more than six months old”. The apologetic nature of this comment implies that “recent” (meaning sales occurring within six months of the valuation date) are always better indicators of value than those which took place more than six months prior. The “logic” of using the most recent sales available would be sound if market conditions (i.e. price levels) changed on a straight-line basis over time as opposed to on a seasonal basis. But in many, if not most, residential markets that logic is flawed and the six month “guideline” should be thrown out.

The graph below is from the Westchester County Board of Realtors Sales Stats and it clearly demonstrates that for single family houses in Westchester County selling prices in the second and third quarters were significantly and consistently higher than in the first and second quarters over the last five years. Property values did not increase in a straight line with prices every month higher than the month before. Even during this “boom” market, prices went up AND down during the year depending on the season.

The seasonally based serpentine line of one quarter followed by the next straightens out remarkably if you connect the dots from first quarter to first quarter, second quarter to second quarter, etc. Any adjustment for market conditions must be based, first and foremost, on seasonal differences between the valuation date and the dates of the comparable sales. The appraiser must also consider that the “meeting of the minds” between buyer and seller precedes the closing date by sixty days give or take, and comparable sales should, to the extent possible, reflect similar seasonal conditions. If the subject property is being valued as of June 1, 2008, I would argue that in terms of market conditions, the sale which closed August 1, 2007 (ten months old) is a more reliable indicator of value than the one which closed February 1, 2008 (four months old).

So the next time your client insists on your using more “recent” sales, take the opportunity to explain the seasonal fluctuations in selling prices (if indeed they occur in your area) in defense of why your ten month old comparable is more reliable than the four month old sale you didn’t use.

Tags: Soapbox Blog, Todd Huttunen, Adjustments, The Hall Monitor

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Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues.

Todd’s suggested changes for USPAP (with tongue in cheek) simply…rules…

…Jonathan Miller

As a fan of “Real Time” with Bill Maher, especially New Rules I think it’s time to rewrite USPAP into something USEFUL. Let’s start by getting rid of the term USPAP and replacing it with something simpler, like New Rules!

New Rule: Use different size fonts and/or typeface.
Let’s face reality. When it comes to writing, most appraisers are somewhat challenged. That’s why most of the report consists of boilerplate identical to that found in every other report. So the first new rule is that the boilerplate must literally be written in fine print and the two or three statements that are actually unique to that report must be oversize. I don’t think it’s fair to ask the user of the appraisal to read something the appraiser himself didn’t proof read before he (electronically) signed the report. The fine print makes it more likely that the client won’t notice the myriad misstatements that appear in the addenda of most every appraisal. Who has not sent out a report, at least once, with the statement “this appraisal is intended for financing purposes only” when in fact it was written to settle an estate? Such oversights as “the client is ABC Bank” rather than “the client is John Q. Public” will more likely be forgiven if they’re only in the fine print. Why? Because, since you didn’t read it when you wrote it, your client shouldn’t have to read it either! After all, your clients are just as busy and stressed out as you are.

New Rule: Fewer words, more pictures.
There are way too many words, especially adjectives, in appraisals and not nearly enough pictures. Think about it words like fair, average, good, modern, updated, or deferred, are totally subjective. So instead of narrative description that doesn’t describe anything, all appraisals will have interior photographs of every room and bathroom in the house. The appraiser’s words should be limited to a caption underneath a photograph, like “kitchen”. Wouldn’t that be easier and more informative than a statement like, “The kitchen, which was renovated in 2006, has cherry wood frame and raised-panel cabinets and black granite counters?”

New Rule: Photographs will be “maximally productive” and not misleading.
Most houses have a front, rear, and two sides to them. With detached houses in suburban neighborhoods, the picture of the front of the house should illustrate – not just the front – but the front and one of the sides of the house. Ideally, the rear photo should illustrate – not just the rear – but the rear and the other side of the house. These days, when so many houses have been expanded to twice their original size and the expansion has been out the back, a front view without the context provided by the elongated side is indeed misleading. Granted, due to site conditions or topography it is not always possible to show two sides of the house with one photo. In that case, take another photo.

New Rule: The “Street Scene” is not supposed to be a picture of the street, and nothing but the street, taken by some schmuck standing on the double-yellow line in the middle of the street!
Everybody knows what pavement looks like. The focal point of the street “scene” photo should be the improvements alongside the street, and not the vanishing point.

New Rule: There must be at least one declarative sentence in every appraisal.
So much appraisal verbiage consists of what the appraiser is not. “The appraiser is not” an expert in environmental contamination, an engineer, a surveyor, etc. For reasons of building self-esteem if nothing else, every appraisal must include a declarative statement. It shouldn’t have anything to do with the appraisal. But it must say something about what the appraiser is, versus what he is not. It can be as simple as “the appraiser is tall.”

As the original USPAP was the result of a collaborative effort, so too should be its successor, “New Rules” and in that spirit I welcome reader’s suggestions.

Tags: Todd Huttunen, Soapbox Blog, USPAP, The Hall Monitor

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Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues.

When you mix oil and water, you can see a rainbow. …Jonathan Miller

Contrary to what you’ve been told, oil and water do mix, at least in regard to the deleterious effect that a shortage of one and/or the other will have on the future viability of suburbia. In his 2004 documentary film The End of Suburbia, Canadian director Gregory Greene examines the history of suburban development in North America and questions its future sustainability. The basic premise of the film is that the North American suburban model, which is based on the automobile as the primary mode of transportation, is predicated on cheap and abundant energy. And a phenomenon known as “Hubbert’s Peak” or “Peak Oil” argues that the days of cheap and abundant energy, specifically oil, are behind us. “Peak Oil” basically suggests that we have reached, or soon will reach, the point at which half of the world’s oil reserves have been exhausted. It will not be possible to increase productivity beyond current levels, indeed future extractions of oil will be more expensive and less efficient. Combine this leveling off in supply with the increasing demand generated by China and India as their economies grow and you get increasing energy prices worldwide.

As to supplies of water, well (no pun intended), this is clearly an issue in the southeastern and southwestern United States, which are both currently experiencing severe drought conditions. Until the recent downturn in the market, these areas were also among the fastest growing, in terms of new housing construction, in the country. From a recent article in the New York Times Magazine, The Future is Drying Up

A report by the National Academies on the Colorado River basin had recently concluded that the combination of limited Colorado River water supplies, increasing demands, warmer temperatures and the prospect of recurrent droughts “point to a future in which the potential for conflict” among those who use the river will be ever-present. Over the past few decades, the driest states in the United States have become some of our fastest-growing; meanwhile, an ongoing drought has brought the flow of the Colorado to its lowest levels since measurements at Lee’s Ferry began 85 years ago.

For most of us water is something we don’t even think about – turn on the tap and there it is. As a child I remember watching my father go around the yard with the garden hose watering the plants and lawn. And once the green things had their fill he would finish up by hosing down the sidewalks and the asphalt driveway! Then he might announce, “let’s all go for a drive” and we would pile into the station wagon and head out with no particular destination in mind. Yes, this was forty five years ago but I’m sure mine was not the only family doing this, and I don’t think very much has changed in terms of how we value these precious resources. Certainly not when you look at the sizes of our cars and houses. Gas prices in this country, while now averaging over three dollars a gallon, are still a bargain when compared with those in Europe (over six dollars a gallon in Switzerland) and most of the rest of the world.

“The End of Suburbia” is, as you might expect given the title, more Cassandra than Pollyanna but it holds out hope for a solution in what it refers to as New Urbanism. And if nothing else, the issues of oil and water might put the “crisis” of sub-prime mortgages in its proper perspective.

Tags: Soapbox Blog, Todd Huttunen, The Hall Monitor

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Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues.

Two sure things: death and school taxes. …Jonathan Miller

The median price of a single family house in Westchester County – $285,000 in 1996, had increased 139% to $680,000 by 2006. There have been no complaints in our (Assessor’s) office from homeowners who were along for that ride. School taxes however, have also increased during that ten year span, though not quite to the same extent. For the twenty school districts comprising lower Westchester County, the increase in the school tax rate (less any reduction in the taxable assessed value for the district) averaged 105% with a median increase of 110%. I’m still waiting for the first person to come in to our office and say “Although my school taxes have more than doubled, I understand that the value of my house has gone up be even more than that, so I can’t really complain”. The fact is they can complain, and they do!

I do not have the statistical data to support this statement, but there has been a significant increase in student enrollment, the result of a recent “baby boomlet”, which is at least partially responsible for the double-digit annual increases in the school tax rates. This however, is no comfort to those struggling beneath the weight of ever increasing tax bills, particularly those on a fixed income, which is to say senior citizens. Fortunately, there are exemptions available to seniors, depending on their income, (Enhanced Star and Senior Citizens) which can lessen their tax burden to a significant degree. Unfortunately, whatever reductions they may see in their burden are merely re-apportioned to the rest of us. There is a certain amount of money that has to be raised and this is the tax levy. And if one taxpayer’s bill is reduced by one dollar, everyone else will see an increase to the extent necessary to make up that one dollar. It is a zero-sum game.

The most common argument I hear from people, usually but not always seniors, goes like this “I don’t have any children in the school district so why should I have to pay school taxes?” My answer has two parts. Part one is “there was a time when you did have children in school, and others didn’t, and yet they paid for yours.” But I think the more accurate answer is that there is a societal cost to the raising of each new generation. In supposedly advanced societies such as ours, we pay school taxes. We don’t have to pay school taxes – we don’t even have to have public education at all! Let those who can afford it send their children to private school and to hell with the rest of them! However, NOT educating children has a cost as well, a societal cost. Not paying, it seems to me, is not one of the choices. We can pay for schools, or we can pay for jails, and the fear of a group of young people walking by, or the frustration of day to day life interacting with store clerks who can’t make change for a dollar. But not paying is not one of the choices.

I am not an apologist for the status quo. Clearly, the cost of providing the services we expect in our communities has reached a tipping point and will, at some point, affect our ability to compete in a global marketplace, where one’s geographic location is less important than ever before. But for this to happen, people living in our communities have to take responsibility, as citizens, and participate more fully than they have in the past. As one who works with “the public” every day, I’m not hopeful. The old adage goes, in reference to a question posed to the average citizen “Which do you think is the greater problem today, ignorance or apathy”, to which the citizen answers “I don’t know, and I don’t care.”

Tags: Todd Huttunen, Soapbox Blog, The Hall Monitor

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