I hate rules of thumb. With a passion.
It’s never quite that easy, you know. Yes of course you can make an assumption based on something like, for example, hand size. But unless you have done the research (oh myyy) you really can’t know how good the conclusion might be.
The same holds true in other endeavors. Consider the process of evaluating real estate. As I alluded to in my last column, as well as in my other writings, most neighborhoods are no longer seeing the sorts of double-digit year over year price increases that we had in 2012-14. Some neighborhoods have declined in price.
It’s easy to say, if you are getting a mortgage, “oh the appraisal will tell us”. When prices have started to drop, appraisals will remain strong for a while. They are a look-back in tine and will always be a lagging indicator of actual market conditions. And with the large number of cash buyers in our market, buyers don’t always get an appraisal but depend on the opinion of their Realtor.
I cringe – Cringe! – every time someone mentions “price per square foot”. My research over several years has shown, and continues to show, that price per foot is at best a fair measure of valuation.
I have long argued that the data exists to develop far better assessments. Taking the time, or finding the resources, to do this evaluation is becoming more important, not just as a marketplace differentiator in a market space of 65,000 Realtors (between Miami and West Palm), but also as prices start to oscillate and diverge from a straight path upward.
It is especially difficult to assess true core valuation changes when properties are dissimilar in quality over time. For example, say you bought a single family house in Center WilMa in mid-2011 for $200,000 (believe it or not you could at that time), and just sold it for $400,000.
Prices doubled, right? Price per foot jumped!
Well yes, naively, that is so. But suppose (as is most often the case) the owners performed substantial improvements – the most common of which being a kitchen remodel with stainless appliances and stone counter tops (please use quartz; granite is so 2004).
Well they didn’t sell the same house they bought, clearly. But how can you back out the improvements made and determine core price changes over time?
By analyzing more than 1,000 closed transactions of single family homes in the Island City and several other nearby neighborhoods, I have determined not only the real value the market places on certain sorts of improvements, but what prices have been doing on a completely normalized basis (apples to apples).
The chart shows the actual core improvements since the market trough in mid 2011. Yes, prices have been tracking upward, even adjusting for improvements in quality and the types of homes sold. Of particular note is the strong increase over the past year in East Wilton. Valuations in the rest of the city have, however, become less robust.
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