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Archive for June, 2012

9 Feet Under: Some Thoughts About Valuing Basements and Cellars

June 22, 2012 | 2:16 pm | curbed |

I’m not sure what’s in the water these days but I am receiving a growing number of emails and calls about the valuation of basement space from real estate agents so I thought I collect my thoughts and cobble together a post to point people to.

First, a few definitions for the sake of clarity and in order of depth:

At Grade Ground level
English Basement Brownstones in New York City (and perhaps elsewhere) where the first floor is partially below grade on the street side of the building and opens at grade in the rear.
Basement The area underneath a building that is partly or fully below grade.
Cellar Usually the lowest part of a building. Located below an English Basement
Sub-Cellar Rare but when exists it becomes the lowest part of a building. Located below a cellar.

The valuation of below grade space, whether its a co-op, condo or house uses the same principals we use when appraising outdoor space. I see it as an amenity “add on” because not all properties have them.

When appraising, we attempt to establish the value of the above grade space on a per square foot basis. The below grade space, ie a basement or cellar, can be viewed as a portion or percentage of the value of the above grade space – “cents on the dollar”. In other words, the value of basement area is proportional to the value of the residence that sits above it. It’s worth more in a home that is of high value than a home with a lower relative value.

“Technically” Below Grade, The “English Basement”
Many of the old brownstone floorplans in NYC public record refer to the first level as the “basement” and the floor below it as the “cellar.” That is because many brownstones were constructed with a stoop from the street to the “parlor” (2nd) floor which was the entertaining space with the highest ceiling height and most decorative detail. The first floor is usually a few steps down from the sidewalk yet it opens at grade to the rear and contains the kitchen and has the same finishes and ceiling height as the upper floors of the building. Market participants see English Basements as equivalent to the above grade space and therefore it should be included in the square footage. Here’s a recent Q & A:

Question is it legal to count basement space as part of the sq. footage when selling a town home? This particular house has a 9-ft ceilinged finished basement but no windows. My buyer wants to know for resale purposes.

Answer For suburban homes, a traditional basement is below grade and would not be included in overall square footage even if it is finished and has rooms. In NYC brownstones, the same rule applies EXCEPT a basement could be included if it is a few steps below grade in the front and opens at grade in the rear (aka “English Basement”) AND the space has the same finishes, ceiling height as the floor above and includes a key room like a kitchen. If the space isn’t considered the equivalent to living area on the floor above it is NOT included in total sq ft but adjusted for separately. In the case of a brownstone with an “English Basement”, the space below is referred to as a “cellar” and is never included in the sq ft.

Condos and Co-ops With Basements
Many ground floor loft and non-loft apartments and tenement walk-ups have direct access to the building basement. I can’t tell you how many wrought iron circular stairways I walked (aka squeezed) down while appraising ground floor co-op walk-ups with below grade space during the 1980s co-op conversion boom. It was a great way for developers/sponsors to maximize the value of underutilized space, calling them “recreation rooms” even thought they are used as bedrooms. Here’s a recent Q & A:

Question I’m the sellers broker for a ground floor duplex loft space. We are currently in contract and we marketed the space as a one bed because the lower level is used as just that. The lower level is beneath ground without windows. The appraiser tells me that the C of O for the space calls for the lower level as a recreation space not a bedroom. Should this have a significant impact on the value of the apartment. Can’t is be viewed as loft space, period. Thank you for any insights you may have.

Answer Technically, the below grade area shouldn’t be called a “bedroom” and the sqft should not be included in the total sqft in an appraisal. However it contributes value and is handled as a separate line adjustment in the appraisal. The value of the space is usually something less than the ppsf of the ground floor if there was no basement. That applies to room count as well. The logic follows that if this space was a 1st and 2nd floor duplex instead of ground floor + basement, it would be worth more, everything else being equal. I’m not sure about “significant impact” but it makes it worth less than a fully above grade similar sized space. If the selling price is consistent with that relationship of competing properties, then there should be no problem with purchase price. The appraiser problem is really what you are referring to. Unfortunately, there is nothing you can do at this point since they have already inspected the property and are impossible to contact. Hopefully it will work out.

How Appraisers (Should) Handle It
As a rule, ie Fannie Mae guidelines (page 564), appraisers can’t include below grade space in the total square footage of a building (or the room count). In other words, the location, quality and configuration of the space is viewed by consumers as something less than above grade space in the same property.

Here’s Fannie Mae’s take (May 2012):

Basement Sleeze During Boom
During the housing boom when banks and mortgage brokers (well, really everyone) lost their minds, it was quite common for unethical appraisers, working in conjunction with mortgage brokers or lenders, to include basement space in the square footage because the space opened to grade in the rear of the house and was finished. A 2-story house that was 2,000 square feet when purchased, suddenly was 3,000 square feet when subsequently refinanced.

The Math (Market Derived)
Here a some possible ways (there are always exceptions and outliers) to approach the valuation of below grade space (in order of literal depth):

English Basement No adjustment – I’ve never observed an impact on a brownstone’s “English Basement” square footage – it is simply part of the gross building area of the brownstone.
Basement 50%-75% of the above grade ppsf – In our NYC experience, below grade space, whether it is within a brownstone, co-op or condo, their basement areas are often worth 50% to 75% of the above grade space on a per square foot basis. In a typical suburban detached house, the value is often worth less than that.
Cellar 50%-75% of the above grade ppsf – A NYC cellar (located below an “English Basement”) is handled same way an actual (i.e. suburban) basement is, something like 50% to 75% of the above grade space because it is basically the same thing.
Sub-Cellar 20%-35% of the above grade ppsf – A sub-cellar (usually located below the cellar located below an “English Basement”) is usually valued at 20% to 30% of the above grade space but this obviously depends on what the market data shows.

That’s all the dirt I can think of. Hope this helps clarify things.


[Terra Logic] Understanding The Value of Manhattan Apartment Outdoor Space [Matrix]
Fannie Mae Selling Gude “Appraisal Guidelines” [eFannieMae]

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[Ellen Show Video] Super Awkward Realtor Branding

June 21, 2012 | 1:58 pm | Videos |

Tom Royce over at Real Estate Bloggers – who always has interesting things to check out – posted a video that will make you “squirm.”

How NOT to brand yourself as a professional.

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[The Atlantic] 2000 Years of Economic Power Measured by GDP

June 21, 2012 | 1:08 pm | Charts |


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I was sent this chart via my friend who saw it in The Atlantic who sourced it from prolific blogger Paul Kedrosky. Given all the US real estate demand coming from foreign buyers I really liked the context this chart provides.

…dive into 2000 years of economic history, this time through the lens of GDP per capita around the world. This metric helps us identify where growth in wealth occurred, as opposed to just growth in population (e.g.: India and China had thee-quarters of world GDP in 1 AD because they had three-quarters of the world’s population).

Developed countries are taking market share from the US but I like how it illustrates how large the US economy really is. Was surprised to see the Russian share so small, especially over the past decade.

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[Three Cents Worth NY #197] Closing ‘Em Is The Hardest Part

June 19, 2012 | 3:47 pm | curbed | Charts |

It’s time to share my Three Cents Worth (3CW) on Curbed NY, at the intersection of neighborhood and real estate in the capitol of the world. And I’m simply here to take measurements.

Read today’s 3CW post on @CurbedNY:

I thought I’d share a metric I haven’t presented before since I’ve only been collecting it for two years. It sort of measures the efficiency of the closing process, i.e. the number of days between the contract date and the closing date. I’ve got a few disclaimers on the chart and it is also broken out by re-sale and new development transactions. [read further]

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Curbed NY : Three Cents Worth Archive
Curbed DC : Three Cents Worth Archive
Curbed Miami : Three Cents Worth Archive

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[Manhattan Absorption] May 2012, Faster Pace Than Last Year

June 18, 2012 | 1:43 pm | Charts |

Absorption defined for the purposes of this chart is: Number of months to sell all listing inventory at the annual pace of sales activity. (The definition of absorption in my market report series reflects the quarterly pace – nearly the same)

I started this analysis in August 2009 so I am able to show side-by side year-over-year comparisons. The blue line showing the 10-year quarterly average travels up and down because of the change in scale caused by some of the significant volatility seen at the upper end of the market. The “blue” line for average changes very little year to year but the scale of the chart does frequently.

Side by side Manhattan regional comparison:

May 2011 v. May 2012

[click images to expand]

Thoughts on the year-over-year comparisons

  • Manhattan All price segments below $3M experienced noticeable increases in pace of absorption – the lower the price segment that faster the pace.
  • East Side Condo market continues to see faster pace.
  • West Side Virtually all markets below $10M continue to accelerate pace.
  • Downtown Below $3M moving faster, $5-9.9M

Note: This chart series does not include shadow inventory (properties ready for market but not yet listed for sale) so this analysis somewhat understates the pace of condo absorption. The Uptown (Northern Manhattan) data set is too thin for a reliable presentation.

 


Manhattan Market Absorption Charts 2012 [Miller Samuel]
Manhattan Market Absorption Charts 2011 [Miller Samuel]

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CNBC Street Signs – Is Miami Forming a New Housing Bubble?

June 18, 2012 | 1:10 pm | Public |


[click to play video]

Reporter Robert Frank spoke with me and pens a good piece on the Miami phenomenon and provides an interview for Street Signs. It’s worth a look.

No, not in the same way we saw one formed in the middle of the last decade.

In other words, Miami’s boom is not a broad-based market recovery driven by local families needing a home. It’s being fueled by a tiny top slice of super-rich overseas buyer looking for the latest hot investment.

They’re not buying their first home, or even their second or third. They’re investing in a stock with an ocean view.

25% of foreign investment of US real estate in Florida, most of it is in Miami.

“Most patient” capital

“Very discretionary”


Is the Miami Mansion Boom Becoming a Bubble? [CNBC]
Is there a bubble in Miami? [CNBC Street Signs]


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Bloomberg Surveillance Midday with Tom Keene 6-15-12, On The Housing Market

June 18, 2012 | 12:41 pm | bloomberg_news_logo | Public |

Got to join Tom Keene on his Bloomberg Surveillance Midday to talk housing – national and NYC metro, credit, distressed and donuts. I love the show structure, one of the few networks that provides a longer interview format for more substantive conversations in their programming.

Ironically I rode in on the train with Tom that morning:


















Jonathan Miller on Housing Market [Bloomberg TV]

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Treasures of New York: “Building Stories” Profile of Architect Costas Kondylis

June 14, 2012 | 3:36 pm | trdlogo | Videos |

Watch Treasures of New York: Building Stories on PBS. See more from THIRTEEN Specials.

If you missed this show on TV, it is now available in its entirety online. It’s an excellent collaboration between WNET/THIRTEEN and The Real Deal on the noted architect. I loved the way the assemblage of development air rights – basically a high stakes secret chess match – was presented.

Note to self: ask Amir Korangy, TRD’s publisher to do a doc on me someday – it would be brief, boring and attract little interest, but hey, who wouldn’t want their own doc?



  • Treasures of New York: Building Stories reveals the private life and the creative process of Costas Kondylis [WNET/THIRTEEN]

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[Three Cents Worth Miami #196] Miami Sees Wave of Tightening Negotiations

June 13, 2012 | 3:34 pm | curbed | Charts |

It’s time to share my Three Cents Worth (3CW) on Curbed Miami, at the intersection of neighborhood and real estate in the Magic City. And I’m simply here to take measurements.

Read my most recent 3CW post on @CurbedMiami :

There has been a lot of attention paid to Miami’s high end market and the idea that foreign buyers are turning the market around. All the coverage has zeroed in on sales and price trends. I thought I’d present what some of the other metrics are saying.

Two of the most neglected stats in Miami’s housing market discussion have been days on market and listing discount. My data included all distressed and non-distressed properties in the market report we prepare for Douglas Elliman. I prefer to use days on market that measures from the last time the list price was changed to the contract date. In my view this is a better reflection of when a property actually (not technically) enters the market. I apply the same reasoning to the listing discount, the percentage difference between the list price at time of contract and the contract price. The closer the spread is, the less negotiable the transaction becomes so it really matters when the property “actually” enters the market. [read further]


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Curbed NY Three Cents Worth Archive
Curbed DC Three Cents Worth Archive
Curbed Miami Three Cents Worth Archive

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[Three Cents Worth NY #195] The Kitchen (Sales and Listings) Sync

June 13, 2012 | 8:02 am | curbed | Charts |

It’s time to share my Three Cents Worth (3CW) on Curbed NY, at the intersection of neighborhood and real estate in the capitol of the world. And I’m simply here to take measurements.

Read my most recent 3CW post on @CurbedNY:

Coming off of last week’s listing theme and my near obsession with figuring out what is normal these days, I thought I’d compare listing and rental trends over an extended period of time. My in-house rental listing data only goes back to 2002 so I began both series with 2003 to get the year-over-year trend.


[click to expand]



Curbed NY Three Cents Worth Archive
Curbed DC Three Cents Worth Archive
Curbed Miami Three Cents Worth Archive

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