We are still in a real estate recession aren’t we?
Yes, the nation is still suffering from the withdrawals of the nearly total collapse of the real estate market of 5 years ago.
Across the board, with the exception of a few shining sectors like the current multifamily rental market, residential, commercial, industrial and agricultural real estate continue to struggle finding their individual landing ground for the next upward movement in value.
Most experts agree that real estate values over the next 5 or even 7 years across the United States will sputter along with occasional declines and increases, which will likely show a modest upward trend. The general consensus is also that the stability of the market is significantly tied to job creation.
But with that said, there are always exceptions to the “declining” or at best “stagnant” value label.
In recent months, MacRo, Ltd. has been able to beat the odds for a few of its clients. In one recent sale of an agricultural property, we were able to yield a sales price that exceeded a recent bona fide estate appraisal by nearly 10.5%.
Interestingly, the sale also closed at a price of nearly 2% above the marketed listing price.
In an industrial real estate transaction for an improved property with nearly 6 acres of land MacRo, Ltd. was able to secure a buyer at a price that exceeded a three month old bank ordered appraisal by 14%.
So how can this be happening in a market that has found optimism in reports that show real estate value trends of 1% to 3% increases over previous years?
While real estate appraisers do not make markets or set values, consider the following:
In their valuation process appraisers typically place strong emphasis on recently closed comparable sales. In this market they often have fewer good comps to choose from and tend to dig deeper into the past or expand their geographic search area. When there are fewer closed comparable transactions the appraiser may determine that the market in such sectors either has limited product or limited demand. In the case of the latter that could mean stagnant value opinion.
While commercial real estate appraisers are trained to look for both positive and negative trends, they can be very risk adverse in pushing the envelope forward with values unless there is solid proof to the contrary. The primary client base of most are financial lenders, who are also more risk adverse than they have ever been in recent decades.
In most cases, if an appraiser’s opinion of value does not meet the contract price, especially when a buyer is seeking a higher loan to value ratio, the price will be negotiated downward or the deal may die.
So to a degree it stands to reason that appraisers are having some impact on the ability of the market to accelerate in some sectors.
However if a well qualified buyer’s demand is so strong and that individual or business sees a value in the land or commercial real estate that is unique to its use, the weighted risk decision to move forward by such buyers is what in fact moves markets forward despite trends to the contrary.
The ironic part of such transactions is how quickly those same commercial real estate appraisers are excited to have a new comparable sale to use in future valuation reports for other properties – a real positive for the next deal down the line.
For land and commercial real estate owners who are contemplating placing a property on the market, the question is what is it that they can do to increase the chances of beating the odds and reeling in a buyer who will pay above the perceived market value?
In the next post on this topic, we’ll reveal a few secrets to the success that MacRo, Ltd. has used for our clients.
Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He is an appointed member of the Frederick County Charter Board. He also writes for TheTentacle.com.