I don’t have a lot of answers, but questions are piling up - by Shaun Fitzgerald

Shaun Fitzgerald, Fitzgerald Appraisals

I can’t say that I have a lot of answers in this writing, but the questions are really piling up. Certainly, any good appraiser knows that the right combination of formulas and good data tempered with a reasonable amount of judgment should result in a pretty reliable opinion of value.

So, here’s the good news. The market looks pretty darn good. Generally speaking, sales volume and selling prices are on the rise – and have been for five years or more. Single family residential properties seem to be enjoying a prosperous spring; we are even seeing bid prices in excess of asking prices. This solid single family market experience is occurring despite competition from a tremendous amount of new apartments coming online. Despite the considerable increase in supply, increasing apartment rental rates seem to be staying competitive with the demand for single family purchases. This is happening in an improving economy with surprisingly restrained mortgage interest rates. At the same time, people are investing in small non-residential properties.

Perhaps things are good because interest rates are so low. Or it might be because the stock market is now more than double what it was in 2008. It could also be that so many foreign conflicts are driving international money to the relative safety of the American economy. These things give us a feeling of relative comfort. I’m really happy that things feel so good, but I’m also old enough to have experienced the euphoria of a strong market; more than a few times, it has ended badly. I don’t think that we will see a crash anytime soon, but I do worry about a slow uncomfortable drift in the wrong direction.

Appraisers are not required to predict the future. However, we are expected to constantly monitor the market for those issues and conditions that might foretell a downturn in real property values. We are supposed to be asking the right questions. So here are some of the questions we might want to think about asking. In appraisal terminology, these are the potential externalities.

Flint, Michigan. Will communities all over the nation start to question the quality of their ancient infrastructure? When we think of infrastructure as road and bridges, many of us could argue either side of the debate; better roads and bridges might just create more suburban sprawl. But when we think of infrastructure as water quality and proper waste disposal, the conversation is a lot more serious. Do we invest and raise taxes? Do we fix everything while we have the road opened up – water, sewer, gas, underground electric, new sidewalks – everything? Do we fix nothing? Will the improved infrastructure increase property values more than the increased taxes will depress them? Will the cost of replacing infrastructure drive suburban residents back to the city?

Uber, Lyft, electric vehicles, driverless cars? When these technologies are fully developed, will they impact property values? If I can go anywhere I want whenever I want, will I decide to live somewhere else? Will commuting become so easy that all business concentrates in the large cities? Will I move to the city to shorten my commute?

Will the suburbs wither because there is no commercial or industrial tax base to help support the costs of maintaining the services that people expect? Will city dwellers move back to the suburbs, because the commute is less stressful? Will properties in communities located on fixed rail lines increase in popularity or decrease?

That’s just two situations that generated so many questions. I’m not sure I can accurately answer any of those questions. But, it is the responsibility of the appraisal profession to constantly be asking those questions. More importantly, it is our responsibility to look for the data sources that will provide us the answers. Oh yeah, one more question.  Donald or Hillary – what will that mean for real estate values?

Shaun Fitzgerald is the owner of Fitzgerald Appraisals, Easton Mass.