Whether you are a buyer, seller, broker, banker, or appraiser no doubt the recent decline in Cape Cod commercial real estate sales has made pricing or valuing a property much more difficult. As we entrench deeper in the current market cycle, many practitioners needing a continuous finger on the pulse of prices and values will creatively apply alternative methodologies. In our market area, in lieu of an appraisal or other formal analysis the leading and most time honored proxy for real estate pricing or valuing is the property’s municipal assessment.
I thought it would be interesting to see how this anecdotal alternative has measured up recently by comparing recent Cape Cod commercial property sale prices with their respective assessed value. The data sets included sales prices from 93 transactions completed between January 2008 and June 2008 and their Fiscal Year 2008 assessments. The properties sold were located throughout all areas of Cape Cod. This is what the analysis revealed:
- Nearly 30% of the recorded sale prices were below the assessed value and the remaining 70% were transacted at sale prices above the prevailing assessed value.
- In 17.4% of the transactions, the sale price and assessed value fell within 10% above or below 100% of the assessed value.
- Among all transactions, sale prices were on average 128.5% higher than the Fiscal Year 2008 assessments. The median was 120.5% higher.
As the analysis shows, property assessments are often an unreliable proxy for establishing a reasonable price or market value of Cape Cod commercial real estate. The analysis doesn’t suggest the assessments are flawed or established superficially. Additionally, assessing professionals I have encountered throughout the region are among the most astute, capable and concientious practitioners I have encountered in my 25 years in the real estate business. What’s more, assessed values are established for a unique purpose incorporating special criteria, specific time frames and statutory guidelines.
In a market cycle where the number of Cape Cod commercial property sales are trending down, price levels are in a state of flux and property assessments provide inconsistent guidance, where do we turn?
In short, I suggest doing what always produces superior results in a challenging market: adopt a back to the basics mindset where there is no substitute for well developed, comprehensive market intelligence and a willingness to devote more time investigating and truly understanding key market nuances.Joseph P. Egan is a MA Certified General Real Estate Appraiser with over 25 years of professional valuation experience. Through a specialization in commercial real estate and closely-held businesses, since 1991 he has completed over 600 appraisal, brokerage and consulting assignments concerning all types of commercial real estate assets and going concerns located on Cape Cod, Nantucket, and Plymouth County, MA. Clients served generally include attorneys, banks, corporations, developers, investors, and owners of closely-held and family businesses. Prior to relocating to Cape Cod, Joe worked in the New York Metro Area and throughout CT with leading regional and national appraisal firms such as Cushman & Wakefield. Please contact Joe here.