glenn walker
Elite Member
- Joined
- Oct 11, 2006
- Professional Status
- Certified Residential Appraiser
- State
- California
The role of perception and value is easier when evaluating commercial property. Lets say a piece of commercial property in downtown Miami genuinely worth more than a similar-sized building in Davie ? It will cost more, but that doesn’t mean it has more value to a specific investor or tenant. However, since Miami is a more prestigious location, it’s perceived as being more valuable and, therefore, is more expensive. Only the buyer and a set of economic and need-based considerations can come up with a good answer. By researching the fundamentals of a property and applying them to your situation, it’s possible to find investments that are more valuable in the real world than their market prices suggest. Now we shift to residential that if being purchased for owner occupancy which in general has no economic benefits outside of writing off mortgage interest and taxes. Value in residential and price aren’t the same because changes in perception can alter prices and sometimes in very short periods of time. In my market area where I am currently living Zillow ( don't laugh i my neighborhood its spot on +/-3% ) it shows my home went up by almost 5% in may and on another one I own in a different are at about 4% now believe me nothing has changed in these two neighborhood in years. No new companies moving in and no announcements that Disney is buying up land or houses around us. In fact if I was selling and told a potential buyer the truth I would have to list more negatives than positives. Since Covid-19 we have experienced more crime- more auto accidents more traffic and at much higher speeds and numerous other less desirable things happening. The only thing I can get anyone to agree on is 2.5% rates and low inventory are causing the herd mentality. Almost all say a 4% rate in these high cost areas would be a fatal heard shot. So most buyers perception is a 2.5% to 3% rate =Value. When in a year or two we look back suddenly all the talking heads will be saying the lo rates were undue stimulus because they were not normal and typical and were used as an-inducement by the Feds to keep markets from declining in a potential up and coming high unemployment environment. NOTE: 2.5% rates are not undue stimulus because undue stimulus can rarely be measured until the event has run full circle. In 2005 when everyone was getting NINJA loans that could not be called undue stimulus because everyone was on a level playing field yet 3 years later the experts and talking heads suddenly declared those loans as undue stimulus. NARs Chief economist said it was stimulus but not undue stimulus. Uncle Billy says I don't know but it sure felt good.
Exiting Covid-19 appears to have altered many peoples perceptions. Irrational exuberance which is unfounded market optimism that lacks a real foundation of fundamental valuation, but instead rests on psychological factors. In my opinion the last 6 months in SO CA fits right into irrational exuberance. We are not seeing this in Commercial because-no matter how Goofy you are you have to be able to secure good long term leases and some buildings will either have to be repurposed or raised. In residential the buyer and appraiser are anchoring their opinion of market value based on Sales Prices and low 2.5% rates . Many will argue they don't appraise sales prices but when you ask them if those 6- Comparables they used were closed and recorded Sales Prices or Values ? They get that glassy eyed look and many have no idea. The truth is in extremely heated markets appraisals are worthless pieces of paper and only used to facilitate a mortgage. Angry-Cat says 2.5% mortgages are stimulus today and when SO CA markets sober up all th talking heads will add the word Undue to Stimulus.
