Appraising and trout in a time of drought - Adapt to change and adjust to new realities - by Bill Pastuszek

Bill Pastuszek, Shepherd Associates

It’s a hot dry summer. Trout thrive in cold water and when it gets warm they congregate in cold, oxygenated tributaries and pools away from their usual haunts. In the fall, when it cools off, they come back to the surface.

What do appraisers do? They hang around town on the surface and get hot.

I would rather be fishing. But hear me out.

How do climate change, global warming, and extreme weather events affect appraising? How do appraisers adjust? Have some of our unshakable beliefs been shaken by weather events? Consider these scenarios:

• Ocean front property being worth less than property one block inland if the ocean front property is on a cliff about to fall into the water, or if it sits on exposed dunes in danger of being swept away. The market will have its say but what happens when the cost of insuring these properties truly becomes prohibitive, or the properties simply become uninsurable?

• Rivers. Charming riverfront locations subject to more frequent large scale flooding events. Same thing: what happens to value when insurance is not available or only available at such a high cost as to make it financially infeasible?

• Drought. At the other extreme, what happens to an entire economy when the water everyone took for granted is no longer there and the entire (not to mention the recreational) economy is affected? Consider California and the effects of the long term drought there.

Suppose this drought here continues for a few more seasons. Think about how that will affect new and existing construction. Suppose watering bans become permanent and there go our green lawns, that symbol of suburban triumph over nature. Bring out those drought tolerant grasses and prepare to have everything look like Arizona!

What about golf courses? So now that thick New England  rough becomes a big sand box, just without the rattlesnakes. More Arizona in New England. Irrigation only where needed. (Potential benefit:  replacing those antiquated irrigation systems here becomes a moot point) There’s another article: “Golf’s Future!”

• Air Conditioning. Once considered an affectation and a sign of softness and lack of Yankee perseverance in New England, not having it results in a value penalty. Can you think of a spec construction that is not fitted out with central air? Further, consider the increasingly sophisticated systems going into new residential and commercial construction. On existing construction, is there a growing penalty for not having air conditioning?

• Solar Farms. If you have never done one, have a look at the Competency Rule of USPAP before accepting the assignment.

• Solar. As appraisers, we want to understand how solar installations in homes and buildings affect value. Some clever mathematical solutions have been proposed. It might be better to wait for the market to sort it all out and wait for some sales. When the solar becomes significant enough to sell in the market, see advice in preceding bullet. Some clients say ignore the solar: use a hypothetical condition. Can we do that?

• Green Buildings. Those knowledgeable persons that I have talked with say the NOI tells the story. Do green buildings get more rent and lower expenses? Does that equation justify spending that much more to build them?

Given generational differences (these enigmatic millennials are actually demanding that things change, including buildings), companies are simply going to not accept outmoded, inefficient spaces that don’t meet their needs at many levels. Those landlords and developers who can deliver an energy efficient product designed to meet the working requirements of a new generation of highly skilled and highly opinionated workers will thrive. The rest will rent to the rapidly becoming obsolete Old Economy.

Green Buildings, however they evolve, will simply become not the outlier but the norm--no longer the exception, but the rule.

Many market reactions to energy conservation, green construction, adaptations to climate change, and extreme weather will one day become the usual and the rest of the pack will have to catch up.

Appraisers don’t often react well to change. And they are not very good at predicting or measuring the future. I am not sure trout do that very well either, but they do know when to leave town. Don’t be like appraisers. Be like trout! Adapt to change, adjust to new realities, seek new ways to thrive, and congregate when necessary.

I’m going to Maine. They have cold water and trout up there. See you in September.

Bill Pastuszek, MAI, ASA, MRA, heads Shepherd Associates, Newton, Mass.