Since 2015, legislative officials of Boston have been developing legislation concerning residential evictions in the city. Even though that legislation has failed to advance in the Massachusetts legislature, its proponents continue to work on a revised version for 2019. Residential real estate values are likely to be affected whether or not the bill is ultimately enacted into law.
The demand for all types of real estate in New England reflects region-wide economic factors. While the national economy influences geographical real estate values, some 2019 trends unique to New England are especially important to buyers and investors. These trends include labor characteristics, financial considerations, and population behavior.
The digital age has disrupted many traditional businesses. Ridesharing has upset the taxi business; online marketplaces have, to a large extent, replaced newspaper classified ads. Residential real estate markets are flexing to accommodate fast-growing short-term rental companies such as Airbnb and VRBO. Owner-occupied homes now have the potential for limited rentals; houses purchased for investment may have alternative rental opportunities. Well-informed and competent real estate appraisers account for this new rental model in their residential appraisals.
The appraisal process includes the income approach to estimate the value of a property that an investor would ideally purchase for its annual income. The income approach assumes a relationship between a property’s average net income and the price an average investor would pay for the property. The first step to defining that relationship is estimating the amount of net income that would accrue to a property in a typical operating year after all expenses to produce that income are deducted. The resulting estimate is shown in a stabilized or reconstructed operating statement for the subject property.
It’s standard procedure for most commercial lenders to request all three approaches to value—sales comparison approach, income approach, and cost approach—be undertaken during an appraisal. Usually, there is a stipulation that an approach may be excluded from the valuation if such an approach is deemed dispensable. This omission can be a point of conflict between lenders and appraisers, as the necessity of one or more approaches is debatable in certain situations. This post attempts to clarify the instances where the cost approach is either relevant or extraneous to a property’s valuation. Being able to prudently determine the importance (or otherwise) of the cost approach to valuation increases efficiency and fosters understanding between lenders and appraisers.
The Market Analysis section in an appraisal report contains precious information that directly influences the value of a property and also provides priceless insight into a myriad of data relating to the financial feasibility of a property. It is common for many prospective users of an appraisal report to ignore various sections of the report and focus solely on segments that indicate property value. The downside of this approach to valuations is that the reader, therefore, misses key insights into the subject market that can benefit the owner, buyer, seller, or lender.