FOLLOW THE MONEY

FOLLOW THE MONEY
SOUTHEASTERN CONNECTICUT DISCOVERED

Recession, sub-prime meltdown, foreclosures, real estate values plummeting. (Sound familiar?) Many people are waiting for the bottom to fall out before they make a move…especially with regards to the purchase and sale of real estate. Unfortunately, the Mystic Country portion of CT is lumped in with national statistics that don’t account for the local activity. Here are two compelling reasons for a different perspective.

New Retail Construction
Frequently analysts will point to activity within the retail sector of a region to forecast the economic health of that market. As a rule of thumb, we can follow patterns of growth in an area by looking at the amount of retail space currently under construction in comparison to surrounding areas. In particular, we can look at the big box stores such as Wal-Mart, Lowes, & Home Depot who hire firms to predict the feasibility of a store and the likelihood that the store will thrive. Are you aware that the majority of retail space currently under construction in this state (not including Fairfield County) is being built right here in our backyard?

Approvals have been obtained to develop 73.7% of the study area (CT – Fairfield County) or 1,322,272 square feet of retail space with more than 800,000 square feet pre-leased. Preliminary to these approvals, very expensive studies were commissioned. (This does not include casino expansions, the Preston state hospital proposal, the Norwich hotel proposal or the “Gateway” proposal in East Lyme).

Homes Selling for $750,000+
The number of people purchasing homes with sale prices greater than $750,000 rose 22% in 2007 over 2006 in New London County while sales in the 6 communities along Long Island Sound rose 28% with Stonington leading the charge at 71%. These buyers typically have significant personal assets and they are demonstrating a confidence in this market and its future.

Now Is The Time To Invest in Southeastern Connecticut
Look to the future like the investors do. Most investors use the less active real estate markets to position themselves for the future.

Gross Living Area – A Critical Valuation Factor

It seems every time we go through a growth spurt in a real estate cycle, very bad habits are developed by the market participants. Over the most recent up-tick, if you have refinanced or purchased a residence, there is a high probability the Gross Living Area of your home was improperly identified if the tax record was relied upon. Furthermore, a very high percentage of real estate agents, appraisers, and lenders use the tax record as their source for the GLA. As proof of this statement, I ask you, “Was your house measured the last time it was inspected by an agent or an appraiser?”

The text, “Mastering Real Estate Appraisal”, used in the required coursework for real estate brokers and appraisers in Connecticut and many other States around the U.S, identifies Gross Living Area (GLA) to be:
“The above-grade, heated areas of finished space, measured from the exterior walls”. This definition is generally accepted by Federal regulatory agencies, the Appraisal Institute, and the legal profession.

Here is the problem. Real estate agents and appraisers seldom measure a home and then use the corrected number to perform their market analysis or challenge the number reported in the tax record. This is the case in spite of the fact that square footage is the single most-important factor used to calculate the value of a home other than perhaps location. The excuse used is that we are not qualified to measure the residence and make such a calculation. (remember the methodology is taught in required coursework) The reality is that many real estate people are too lazy or uncaring to perform the necessary due diligence. The public deserves better. Agents and appraisers are paid well for their services and their clients deserve to be informed.

Why is the reported GLA for tax purposes frequently wrong?
1. Defined GLA not calculated/reported properly.
2. No access to structure.
3. Unreported improvements.
4. Mistakes go uncorrected.

I am suggesting assessors, appraisers, and real estate agents be required to measure and adopt the same standard for calculating GLA so that the consumer can understand the methodology used to estimate the assessed value/market value of their home.