John Mello, Appraisal Institute

The speed of what once was dubbed “The Information Super Highway” now appears to have eclipsed from the somewhat manageable 65 m.p.h. to what has become the speed of light. The internet “in-box” routinely overflows with solicited and unsolicited information from multiple sources. Identifying information that is relevant and meaningful to the practice of appraisal is vital to the quality of professional service. But simply finding time to manage the flow, let alone evaluate and absorb its content, it is an expanding daily task. With that context in mind, I looked back at appraisal-related information that reached me in the past month. True to form, its volume, diversity and (in certain cases) complexity give pause. What follows is a much-abbreviated internet-delivered compilation of current appraisal-related trends and topics whose senders claim require appraisers’ close attention and/or action.

From the Appraisal Institute, nationally, it was learned that over half of global assets now consist of real estate, so its professional valuation truly is of fundamental economic importance. As evidence of this magnitude, Manhattan Island’s aggregated land value is estimated to exceed $1.4 trillion. Commercial real estate, generally, is expected to expand moderately while the rate of price increases is expected to taper. Excess demand for commercial office space, with decreases in new construction and vacancy rates, is reported as is the expected slowing of asset value appreciation for hotel properties. Of interest in residential appraisal, mortgage rates were reported to have declined in January, residential property prices are expected to appreciate and properties with negative loan-to-value ratios have declined. Residential property prices are forecasted nationally to increase 4.5% in 2016 while affordability is forecasted by FNMA to decline as prices rise for lower-priced homes. The CFPB’s more stringent TILA-RESPA disclosure regulations are reported to be slowing mortgage processing.

Of growing interest to both commercial and residential appraisal is the highly varied information flow about the valuation of leased (as contrasted to owned) solar PV electric, thermal and other alternative energy installations. Banks and federal lending agencies, such as FNMA and V.A. among others, reportedly do not want the contributory value of such leased installations included in total property valuations because the inclusion of leased components’ contributory values in banks’ loan amounts and agencies’ guarantees is undesirable. Yet, these installations secure what are in most cases, by definition, capital leases. Unlike a fracking lease for example, which can be separated from a primary commercial or agricultural property use, or an in-ground backyard swimming pool, which is not integral to a primary residential property use, installations such as solar PV electric panels and grid switching infrastructure are physically and functionally integral to primary commercial or residential property uses. In very recent years the combination of rapid technology advances, governments’ foresightful use of tax revenue for the commonweal in support of expanded energy efficiency (SOREC’s, etc.) and assertive marketing by the rapidly-emerging alternative energy industry has made and will continue to make such installations an influence in real estate pricing and valuation. This appears to be an instance where, for the moment, the conundrum of legal ownership and regulatory impasse confound the reality of technological advances and the recognition of decisions that are being independently made in the market about the value of those technologies. While excluding these technologies’ influences on value appears to be inappropriate in theory and practice, no clear resolution appears to be emerging on an effective and professional approach to this question.

Meanwhile, with due appreciation for the keyboard’s “delete” button, it’s well-advised to keep an eye on the information superhighway “in-box” wheat and chaff for confirmation or refutation of the above trends and valuation question!

John Mello, SRA, is the 2016 president of the MA/RI chapter of the Appraisal Institute.