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. Today Todd speculates that Darwin was an appraiser. …Jonathan Miller

Here’s an Op-ed written by Todd last year, published by [The Journal News]( in their Community View section on October 1, 2005.

The debate over Darwin and the nature of the real estate market are more closely related than one might imagine. “Natural selection” is a Darwinian principle that applies not just to species evolution, but to real estate evolution as well. While Darwin’s theory is widely accepted, evolution in real estate is controversial. It wasn’t much of an issue until it reached into our neighborhoods and the terms “Teardown” and “McMansion” entered the vocabulary.

An imbalance in the supply and demand for vacant land is the primary reason teardowns occur. In recent years, demand for vacant land has been high and the supply is all but “extinct”. Land values have skyrocketed and the rate at which existing buildings depreciate in value has accelerated. This trend is by no means limited to residential property. Commercial properties improved with buildings that are not necessarily old or physically worn out, but have reached the end of their economic life, are redeveloped as market conditions warrant. Notable examples of demolished “newer” buildings include professional sports stadiums built as recently as the 1970’s and 80’s, and casinos of a similar vintage in Las Vegas.

“Highest and best use” is a principle that is integral to the real estate appraisal profession. It is also an evolutionary concept in that it involves change over time. The principle of highest and best use asks two questions. What is the ideal improvement that should be property that is currently improved? Consider the General Motors factory on the banks of the Hudson River in Sleepy Hollow, just twenty miles from New York City. When it was constructed in the early 1900s, the highest and best use for that 96 acre waterfront parcel was manufacturing. Obviously, that is no longer the case. How exactly that property will be redeveloped has not yet been determined but it certainly won’t be for manufacturing.

With regard to residential development trends, the post-war period in America ushered in the baby boom and the housing boom of the 1950’s. In response to the demands of a nascent middle class, Levittown style developments offered cookie cutter houses affordable to veterans and their families. The decade of the fifties witnessed the construction of more new single family houses than any decade before or since.

Many neighborhoods that were first developed so quickly fifty years ago are being re-developed today, thanks to the phenomenon known as the “teardown”. Perhaps you live in a neighborhood that is undergoing “suburban renewal”. Is your house a potential teardown? If it is located in a highly regarded school district and it was built after 1945 then the answer is quite possibly yes. In the parlance of real estate valuation, “natural selection” equals “highest and best use”. In many residential neighborhoods, teardown has become the answer to the question of what is the highest and best use for this property.

Why is it that so many 1950’s houses in high priced neighborhoods are being torn down while houses built in the 20’s and 30’s are renovated? Both pre-war and post-war houses have become obsolete in one way or another. Older luxury houses were designed for a more formal lifestyle. Rooms intended for use by the family did not include the kitchen, for example, which was the domain of domestic staff. The kitchen/family rooms of today, on the other hand, have become the focal points.

Although their room layouts are obsolete, many older houses have a quality of construction superior to what is possible today. Architectural traits such as stone or brick walls, slate roofs, and custom millwork, make these houses worthy of renovation. They have adapted over time by virtue of “gut renovations”, which cure their outdated floor plans while retaining their “good bones”.

Many of the post-war Split Levels and Ranches lack the high quality materials and architectural features of the pre-war houses. What these newer houses frequently have going for them however, are generously sized lots. These properties are adapting differently since their desirable traits are in the size and quality of the land rather than the significance of the building. Hence, “teardowns” are replaced with “McMansions”.

Clearly, it is in the neighborhoods where teardowns and massive additions are common that residents may rightfully question whether or not the new construction going on all around them is a good thing. Neighborhoods are being literally transformed. But the evolutionary concept of highest and best use recognizes that change is inevitable. In virtually every aspect of our lives, we expect and embrace new and improved products and technology. The Hybrid cars and High Definition flat screens of today are the offspring of the chrome bumpers and console televisions from the 1950’s. Is it reasonable to expect that our neighborhoods (and absolutely nothing else in our lives) should be exempt from the theory of evolution?

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2 Responses to “[The Hall Monitor] Real Estate Theory Of Natural Selection”

  1. Toni Scott says:

    This is a very insightful well-written article. I’m mentioning it and putting a link to it from my website.

  2. The Hall Monitor says:

    Toni, That’s very kind, thank you. Todd Huttunen