1. real estate

Current Issues Concerning View Attributes in the Appraisal of Real Estate Patrick Brown, MAI, MBA, RPA and Beverley McCabe, RPA I. Introduction This presentation addresses real estate view attributes and their valuation significance on discounts and premiums. II. Definition & Characterization The first Dictionary of Real Estate Appraisal somewhat poetically defines a view to be the scene or prospect viewed from a site or property.1 More recently, the Appraisal Institute offers a more pragmatic definition: “the scene visible from a specific location, which may affect the value of the site or property.”2 Broker’s marketing brochures and conventional wisdom suggest that view attributes can significantly influence the value of real estate. Market studies furthermore support the premise, with one study concluding that – as to its Lake Erie submarket – “in addition to square footage and lot size, view is the most significant determinant of home value.”3 To the point, the Appraisal Institute affirmatively states that, in appraising land, an appraiser must consider – among the property’s physical characteristics ‐‐ view.4 Views that tend to command a value premium may be scenic: lake, mountain, river gorge, desert, ski slopes, natural areas, or golf courses. Other vistas that confer value may be symbolic: specific landmark structures (buildings, bridges, the Saint Louis Arch, Yankee Stadium, e.g.), or urban skylines. Sometimes views are distasteful, diminishing value and requiring negative adjustments or discounts in the appraisal process: highways, rooftops, vehicle salvage yards, high voltage lines and other utility infrastructures. Citing its status as an arts center, the Texas town of Clifton recently opposed (unsuccessfully) an electric transmission line proposed to be strung from 180‐foot towers sited one quarter mile apart, along the town’s outskirts. It was claimed that the lines would destroy scenic Hill Country vistas that inspire the area’s artists. 1
American Institute of Real Estate Appraisal, The Dictionary of Real Estate Appraisal (Chicago, Illinois: American Institute of Real Estate Appraisal, 1984), 322. 2
Appraisal Institute, The Dictionary of Real Estate Appraisal, 5th Edition (Chicago, Illinois: Appraisal Institute, 2010), 207. 3
Michael T. Bond, Vicky L. Seiler and Michael J. Seiler, “Residential Real Estate Prices: A Room with a View,” Journal of Real Estate Research, 2002, 23:1/2, 129‐137. 4
Appraisal Institute, The Appraisal of Real Estate, 13th Edition (Chicago, Illinois: Appraisal Institute, 2008), 360. View Attributes in the Appraisal of Real Estate 1 Travis Central Appraisal District The amenity afforded by a view is not only characterized in terms of the vista’s object (lake, building, bridge), but also by how well the object is seen. A panoramic view (breadth and/or depth in aspect) tends to command the ultimate premium. In some contradiction, a near view of a prized view object is preferred over a far view, while the ability to see a far distance is prized over a vista that is foreshortened. Other things being equal, an obstructed (or keyhole) view will draw a lesser premium. While an amenity, a view only visible from the upper floor of a single family residence likely draws a lesser premium; the upper‐floor view, however, is the norm in a high‐rise apartment or condominium building. A damaged view (a mountain view marred by overhead power lines or a junkyard in the foreground) will likely invoke a lesser premium. A transitory view draws a lesser premium ‐‐ the Capitol dome visible only in the winter when the leaves have fallen, the bridge obscured by atmospheric conditions such as mist or haze, or the lake view that will be obstructed when the elderly owner of the one‐story cabin next door finally dies and a mansion is built in its stead. View orientation can influence value. It is said that the view from the “back” of a residence (where family rooms and patios are often located) is significant, while the view from the front door is less significant. In most cases, we address the view attribute in terms of the view outside or beyond the subject property, as observed from the subject property. Context may determine whether a view is a positive or a negative attribute. A downtown skyline is often a prized view, and proximity to neighboring high‐rise office buildings is an expected and acceptable prospect from a high‐rise residential condominium unit. A multi‐story office overlooking a suburban backyard, however, is not. III. Specific View Types While view attributes can lend a premium to some commercial property, such as office and lodging properties, the appraiser most frequently encounters the view issue in the context of appraising residential property. In some residential subdivisions, virtually the only value‐influencing land attribute is view, as this amenity contributes to peaceful enjoyment of one’s domicile. Urban high‐rise residences (condominium, apartment) are especially sensitive to view attributes. Units on the higher floors in a building ‐‐ with more expansive views that are less obstructed by neighboring structures ‐‐ will usually command higher sale prices / rents than similarly‐oriented units on lower floors in the same building. In the urban context, view quality may be further influenced by unit orientation. A panoramic view of the highway flanking the Central Business District may be less View Attributes in the Appraisal of Real Estate 2 Travis Central Appraisal District desirable than the same‐height panoramic view of the lake and greenbelt that run through town. Though only 20% – 40% of property owners in golf course developments reportedly play golf5, golf‐course‐fronting properties typically draw a premium. While the view attribute is one of the amenities enjoyed by a golf‐course‐fronting property, the utility of golf‐course frontage (proximate access) is inextricably entwined with this frontage; and this adjacency may be impossible to differentiate with the value influence of the scenic attribute. Non‐adjacent properties in the same subdivision that view the golf course will tend to sell for less than the golf course lots; and non‐adjacent properties without views in the subdivision will tend to sell for even less than the ones with golf course views. Similarly, it is difficult to extract the portion which is view, and that which is due to proximity for waterfront properties. The same adjacency that may provide the property owner with immediate water access also provides the view amenity. Non‐waterfront properties with water views will tend to sell for less than waterfront properties; and the non‐fronting, non‐view properties will tend to sell for even less than those with views IV. Valuation Issues Discovery of view attributes often presents challenges for the tax appraiser. Most view attributes are not well‐identified from aerial imagery. Topographic maps are helpful, but are not informative as to view obstructions presented by trees or buildings. Even on‐site inspection may not be determinative if observation is blocked by buildings, fences, or houses. Without interior building access (or a marketing brochure mentioning the view), second‐story views are easily missed by the appraiser. In an attempt to address the discovery issue, a 2008 study6 developed a viewshed for each of several Omaha, Nebraska‐area lakes from topographic data. Using view classifications from MLS listings, from GIS frontages, and from GIS viewshed (combined with site visits), the study achieved more accurate results from the viewshed approach. The investigators stated, however, that “a viewshed can only be created if the elevation points of all the features in the landscape being evaluated are known” and concluded that better results would likely be had if partial and second‐story views were addressed. Quality of view has been shown to have market significance, and there is some art to ranking or quantifying the differences. A simple scenario is one in which the view 5
Sarah Nicholls and John L. Crompton, “The Impact of a Golf Course on Residential Property Values,” Journal of Sport Management 21, no. 4 (Oct. 2007): 555‐570. 6
Steven Schultz, PhD and Nick Schmitz, “Viewshed Analyses to Measure the Impact of Lake Views on Urban Residential Properties,” The Appraisal Journal , Summer 2008: 224 – 232. View Attributes in the Appraisal of Real Estate 3 Travis Central Appraisal District characteristic is a binary attribute: view or no view. Lake frontage in Florida’s Kissimmee River Basin contributes about 65% of the value to a residential lot, according to 1973 study.7 A 1978 study reported that a pond view contributed a 4 – 12 % premium to an eastern Massachusetts condominium.8 A 1982 study reported that lake view invoked a 7% premium on Chicago apartment rents.9 Using multiple regression analysis, a 1992 study of lot sales from Lands End Development at Emerald Isle, North Carolina, concluded that – along with distance to the ocean, lot shape, and length of beach frontage ‐‐ an ocean view is a value‐significant attribute.10 A 1994 study that also addressed view as a binary attribute (good view vs. lesser‐or‐no view), regressing data from Fairfax County, Virginia, estimated that a good view added about 8% to the value of a single‐family house.11 A 2002 view/no‐view study concluded that a Lake Erie view nearly doubled the price of a home.12 Numerous studies have shown that qualification of view attributes improves market analysis. Hierarchical view rankings might consider: the market importance of the view object (water body, Capitol dome, golf course, CBD skyline, hill country landscape), how well it can be seen (panorama, proximity, partial view), and the constancy/permanence of the view. A study13 of 1984 – 1993 data from Bellingham, Washington, found that a view tended to add a 25.9% premium to home value. When the views were differentiated, however, the study findings were more informative: poor partial ocean view (8% premium), good partial ocean view (29% premium), unobstructed ocean view (59% premium), and lake frontage (127% premium). When the view attributes were further differentiated by the properties’ distance from water, the following relationships were observed: Distance of Home from Bay Type of Ocean View 0.1mi 0.25mi 0.5mi 1mi 1.5mi 2mi 3mi Full view 68.31% 62.97% 55.63% 44.72% 36.79% 30.63% 21.47%
Superior partial view 56.21% 50.09% 41.78% 29.59% 20.86% 14.16% 4.35% Good partial view 37.03% 35.05% 32.38% 28.01% 24.8% 22.23% 18.29%
Poor partial view 25.64% 22.69% 18.61% 12.45% 7.89% 4.3% ‐1.12% 7
J. R. Conner, K. C. Gibbs, and J. E. Reynolds, “The Effects of Water Frontage on Recreational Property Values,” Journal of Leisure Research (Spring 1973): 26‐38. 8
Robert H. Plattner and Thomas J. Campbell, “A Study of Water View on Site Value,” The Appraisal Journal (January 1978): 20‐25. 9
R. Pollard, “View Amenities, Building Heights, and Housing Supply,” in D. Diamond and G. Tolley (Eds.), The Economics of Urban Amenities, Academic Press, NY: 105‐123. 10
Paul Wertheim PhD, Jon Jividen, Dave Chatterjee, and Margaret Capen PhD, “Characteristics that Affect the Market Value of Beach Lot Property,” The Real Estate Appraiser, August 1992: 59‐64. 11
Mauricio Rodriguez, PhD, and C.F. Sirmans, SRPA, PhD, “Quantifying the Value of a View in Single‐Family Housing Markets,” The Appraisal Journal, October 1994: 600‐603. 12
Michael T. Bond, Vicky L. Seiler and Michael J. Seiler, “Residential Real Estate Prices: A Room with a View,” Journal of Real Estate Research, 2002, 23:1/2, 129‐137. 13
Earl D. Benson, Julia L. Hansen, and Arthur L. Schwartz, Jr., “Water Views and Residential Property Values,” The Appraisal Journal, July 2000: 260‐271. View Attributes in the Appraisal of Real Estate 4 Travis Central Appraisal District A 1999 multiple regression analysis14 of lot values on Seabrook Island, off the South Carolina coast, found that golf course frontage conferred a 39% lot premium; creek or marsh frontage, a 115% premium; and ocean view, 147% premium. A 2010 study15 of lot sales in Lake Keowee, South Carolina in 2008 ranked lakefront properties to ascertain the following lot value premiums: cove lots (124%), deepwater lots (219%), and point lots (287%). A 1993 study16 reports that lots fronting a high‐end golf course tend to fetch a 20 – 60% premium over similar non‐fronting lots. Another analyst17, however, identifies golf course “hot spots” – tees, greens, landing areas, as well as especially scenic spots, dramatic course features, and overlooks – that draw additional premiums and provide a basis for ranking the golf course view attribute. This analysis is supported by Phoenix, Arizona, data from a 1991 study18: Lot Value Housing Value Base homesite* $50,000
$180,000
Golf‐course community Interior homesite $52,000
$185,000
Golf‐view homesite $60,000
$200,000
Fairway frontage $75,000
$225,000
Prime golf frontage** $100,000
$260,000
*An interior lot in a master‐planned community without golf.
**Homesites fronting on greens, lakes, and other particularly desirable features of a golf course.
Source: Economics Research Associates cited in McElyea et al. (1991). More recently, Lake Keowee, South Carolina data yielded the following hierarchical premiums for golf course lots: fairway view (42%), prime golf course view (85%).19 These considerations enter into course design in golf course communities, maximizing flanking residential lot frontage and providing “windows” (or strategically placed breaks 14
James R. Rinehard, PhD, and Jeffrey J. Pompe, PhD, “Estimating the Effect of a View on Undeveloped Property Values,” The Appraisal Journal (January 1999): 57‐61. 15
David Wyman and Stephen Sperry, “The Million Dollar View: A Study of Golf Course, Mountain, and Lake Lots,” The Appraisal Journal (Spring 2010): 159‐168. 16
Stephen R. Hughes and Kevin K. Nunnink, “Appraising Golf Courses for Ad Valorem Tax Purposes,” The Appraisal Journal (October 1993), p. 612. 17
David Jensen, “’Windows’ and ‘focals’ maximize golf community real estate values,” Resort Development (April 1990), p. 10. 18
J.R. McElyea, A. G. Anderson and G. P. Krekorian, “Golf’s real estate value,” Urban Land (February 1991): 14‐19. 19
David Wyman and Stephen Sperry, “The Million Dollar View: A Study of Golf Course, Mountain, and Lake Lots,” The Appraisal Journal (Spring 2010): 159‐168. View Attributes in the Appraisal of Real Estate 5 Travis Central Appraisal District between course‐flanking lots) to enable a value‐enhancing view to non‐flanking lots as well.20 In developing a model for view analysis in the appraiser’s jurisdiction, it may be necessary to test one’s hypotheses in terms of different units of comparison. Such units might include: price per square foot of site area, price per linear foot of water or golf course frontage, price per square foot of buildable area, price per lot.21 In attempting to isolate the value of a view per se, the appraiser should be mindful of the risk of collinearity (or “cross‐talk”) between the view attribute and other attributes – positive or negative ‐‐ that may accompany it. Examples include . terrain issues that tend to limit the building site, but which also confer the vista that gives the lot its value, . home construction quality that may tend to be better on higher‐dollar view lots, . recreational utility of golf course or water frontage that accompanies the view aesthetic, . high‐voltage power lines and auto‐salvage yards that, along with a distasteful view, invoke health concerns, . lake‐cove properties, whose scenic attributes diminish along with utility (lake access) when lake levels drop. Land valuation should recognize applicable viewshed protection law: view‐protection ordinances, land development codes, and deed restrictions designed to protect view attributes of and from selected sites. Some governmental jurisdictions invoke height restrictions to protect prized views of landmark structures or natural features or to protect vistas associated with selected roads, waterways, historic districts22. (Austin’s Capitol View and Principal Roadway Ordinances are examples.) Some subdivisions limit story height in order to maximize the number of properties with lake views. Extraction of Adjustments: Occasionally, clean paired lot or home sales or rents present themselves from which to extract the value of a view attribute. More often, these clean pairings are few and far between. Multiple regression analysis has been the underpinning of most of the studies cited herein and is the better tool for extricating the value of the view attribute from other value‐influential characteristics. 20
John L. Crompton, “Designing golf courses to optimize proximate property values,” Managing Leisure (2000): 5: 192‐199. 21
James H. Boykin, PhD, MAI, SREA, CRE, Land Valuation (Chicago, Illinois, Appraisal Institute, 2001): 96. 22
“Approaches to Viewshed Protection Around the Country,” Preservation Law Education Materials, National Trust for Historic Preservation, 2009. View Attributes in the Appraisal of Real Estate 6 Travis Central Appraisal District Application of Adjustments: Adjustments for view attributes might be percentage adjustments or dollar adjustments. Second‐ or fortieth‐story views might be considered attributes of the improvement, in addition to or instead of the land. While studies disagree as to whether percentage view premiums vary over time within a market, it is advisable to re‐visit the issue as new data becomes available in your market. V. Conclusions The market is the final arbiter of the value of a view attribute. As in any real estate analysis, ultimately the object of study is not so much physical (bricks, sticks, dirt, or distances) as it is the study of human beings and their responses to these qualities. The “view” attribute, though often highly value‐influential, is one of the most subjective components of real estate appraisal analysis. None of the study results cited here answers the question “What is the value of a view in your market?” These studies suggest ways of modeling the market activity in your area, however. The appropriate analytical approach is ultimately the one that models the market to be appraised, with the greatest accuracy. View Attributes in the Appraisal of Real Estate 7 Travis Central Appraisal District