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August 19, 2016

Verified, With Higher Ceiling Heights


Because my value system (remember, I’m an appraiser) tends to skew towards the shallow, I was pleasantly surprised that my Twitter account was verified [1] this week. I’m not sure how this helps me navigate life, but I tend to get excited about trivial details like blue lobsters [2] and flying cockroaches [3] and the value of high ceilings [4], so this helps.

I love Twitter [5] but am not so crazy about Facebook [5]. Perhaps its because I can be more succinct and abstract on Twitter with so little room for details in 140 characters. My friend Nathan Pyle [6] has articulated [7] my Facebook view perfectly:

thanks fb [8]

A photo posted by Nathan W Pyle (@nathanwpyle) on

Ceiling height matters

One of the things I’ve always wanted to do was trend entire markets by cubic feet versus square feet.

Width X Length X Height

Area volume has the potential to better incorporate the height amenity into the value of a property. As appraisers, we can generally observe the premium when trying to compare apples to apples in an analysis of this amenity. Certain types of housing stock may sell for a premium simply because one of the baked in amenities includes above average ceiling height. We saw higher ceiling height appear during this recent U.S. new development boom that has been skewed to the luxury market.

It makes sense since developers, especially those focused on urban towers, have a zoning envelope to build within. Higher ceiling height means fewer floors that can be installed within the development envelope. Since the developer is attempting to create the most value in this “window” of opportunity to realize the highest return, this development trend makes a clear statement about the perceived value add of the high ceiling amenity. There was a great article in last week’s Wall Street Journal Mansion section by Stephanos Chen about this amenity called: For Ceilings, What a Difference a Foot Makes [4]. My RAC appraisal colleague in Chicago makes the point:

While ceilings are rising throughout new luxury towers, the tallest ceilings are typically found in the highest, most expensive apartments, says Michael Hobbs, the owner of PahRoo Appraisal & Consultancy in Chicago. Since zoning rules can limit unit density, he says developers try to eke out more value from top-floor units with better views and more prestige.

A legal argument

A while back I used a “high ceiling” argument as an expert witness litigation that involved a noise problem. The owner of an apartment was suing the owner of the apartment above them because of excessive noise. During a renovation, the defendant had removed the sound barrier beneath their hardwood floors, but had no carpeting and seemed to encourage their kids to play soccer and field hockey in wooden clogs at all hours of day and night. We looked at remediation as a way to value damages. The plaintiff had 9 foot ceilings. After installing a hypothetical remediation solution throughout the apartment, they would have had 8 foot ceilings. I was able to come up with an analysis of the impact to value with the reduced height ceilings in a straightforward empirical way.

Cash Breakdown

Back in early 2014, I read an article in the Washington Post that jarred me: 8 in 10 Manhattan home sales are all-cash [9]…except that the premise was not accurate. I knew the source data was wrong immediately and contacted Realtytrac, who upon further review, realized that the data feed they had for co-ops, was wrong. They were very transparent in resolving this with me and we figured out what happened.

I explained why the 80% figure was incorrect in a followup post: Manhattan Home Sales Are NOT 80% All-Cash (They Are 45%) [10].

I revisited the topic of cash sales with a cool table for the New York Times [11] a few weeks ago in Buy It With Cash, Mortgage It Later [12]. I did my calculations using Douglas Elliman data and the found the overall market was comprised of 44.3% cash buyers (pay all cash for the purchase).

Afterwards I wanted to break out the market by property type and then by price point. The use of cash for purchases dovetailed perfectly with the new development boom and the over emphasis on luxury sales since those buyers were thought more likely to pay with cash.

Yesterday I wrote a blog post on Curbed New York: More than half of Manhattan condo sales this year were all-cash deals [13] which thankful confirmed my anecdotal observations through our appraisal firm’s interactions with market participants.

Here are the charts I came up with. The first presents the year to date share of cash sales by price and property type. The second chart shows the change in overall results by price point on a year over year basis. Interpretation of the results can be found my ‘Three Cents Worth [13]‘ column on Curbed New York.

2016-8-18cashbytype [14]

Paying a premium for Playboy proximity

The sale of the Playboy Mansion finally closed for $100 million – the highest price home sale in Los Angeles history. From a valuation perspective, it would be quite a challenge to come up with the number. It would appear that the price doesn’t necessarily represent value because it is not a clean deal. Here’s why:

Price history – $1.05 million – 1971 – $200 million list price – January 2016 [15] – $110 million contract but was reported to be falling apart at last minute August 2016 [16] – $100 million closed price – August 2016 [17]

The three highest LA high sales after the Playboy Mansion – with the 2 more recent sales in far superior condition, similar sized lots but having double the square footage:

The buyer would appear to be paying a significant premium to reconnect the lots considering the life estate, maintenance cost, indefinite lack of access and dated condition, no? This sale will be used as a “comp” to price other sales without considering this premium.

Pumpkin House

Not sure I would want to appraise this house on a cliff [18].


Aspen as proxy for top of housing, is soft

Since I report on the Aspen housing market [19], I read a recent Denver Post piece with great interest. In fact so much so that I dusted off Matrix and wrote a long over due post on the way the market was presented: Aspen Sales “Nosedive” as U.S. Luxury Market Returns to Sea Level [20].

While I enjoyed the SEO [21]-worthy keywords in the article:

I viewed the sharp drop in sales as more of a reflection of the record sales volume of the prior year. If you removed 2015 from the chart, the trend shows gently rolling sales rather than a 50+ percent drop. Within the 18 sales markets I report on across the country, many saw heavy high end volume in recent years and volume is returning to more normalized levels rather than at a level that is unsustainable. That excess demand appears rot be largely tapped out.

2Q16pritkinsalesvolume [20]

By definition I don’t think there are any SEO terms that would reflect this more accurate interpretation in the right context, do you?

Manhattan rental charts

Here are a bunch of rental charts to trend the Manhattan market, updated from the results of last week’s Elliman report [22]:

2016-7MBQ-MaverageNONL [23]

2016-7MBQ-MluxNONlux [24]

2016-7MBQ-MmedianNONL [25]

2016-7MBQ-MmedianYOY [26]

2016-7MBQ-MvacConcess [27]

2016-7MBQ-Mconcessions [28]

2016-7MBQ-MdiscDOM [29]

2016-7MBQ-MmedianAVG [30]

2016-7MBQ-Mvacancy [31]


Flooded with support

While many appraisers across the U.S. are simply swamped with work (thanks to Brexit for lowering mortgage rates and bringing us refinance assignment), some aren’t so fortunate right now. Instead of making hay, well known Baton Rouge Louisiana appraiser Bill Cobb [32] has 3 feet of water in his living room thanks do the heavy flooding that has occurred in the region (and not so widely reported). Our friend and appraiser colleague Ryan Lundquist has thoughtfully set up a go fund me [33] page to help Bill and his family in time of need.

Just when you think about giving up on the appraisal profession by feeling isolated, overlooked and beaten down by the post-financial crisis rules that have incorrectly decimated it, you see an outpouring of support for an appraisal colleague in time of need. I scrolled through the names of the donors and know or have heard of many which lifts my spirits. We wish Bill and his family all the best in this tough time. Please go to Bill’s page and help out right now [33] if you can.

RAC Conference in Frisco Texas

As the incoming president of RAC, I am really excited about this appraisal organization [34]‘s recent growth and branding focus on complex residential appraisals which include relocation work, rather than only be exclusive to relocation work. We’re going to build on this momentum and hope you’ll join us at the conference [34] and consider becoming a member [35]. This conference [34] is chock full of information and insights that appraisers can use in their practice.

For the last time, there is NOT an appraisal shortage<

This type of reporting [36] is – for the lack of a better word – dumb. This news outlet interviews a real estate broker who sees slow turnaround times for appraisers and describes this as a shortage. But it is like looking at a sale through the eyes of the seller only. The only reason there are a few appraisers in this scenario is that the lending industry has relied nearly exclusively on appraisal management companies who take as much as half the appraisal fee paid by the applicant under the guise of “managing the process.”

I’ve said this here before, but there is an appraiser shortage of appraisers who are willing to work for as little as half the market rate. Lets keep that in mind when someone brings uno this topic. Dodd-Frank has reduced appraisal quality by removing the incentive to appraise at all. It’s called making a living.

A Brilliant Idea

If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, sign up here for these weekly Housing Notes [37]. And be sure to share with a friend or colleague if you enjoy them. They’ll become your pumpkinseed, you’ll get a higher ceiling and I’ll get my blue lobster.

See you next week.

Jonathan Miller, CRP, CRE
Miller Samuel Inc. [38]
Real Estate Appraisers & Consultants

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