The Appraisal of Real Estate, 14th Edition – New AI Video

The Appraisal Institute recently published the 14th edition of The Appraisal of Real Estate, the premiere textbook in the real estate valuation field.

The Appraisal of Real Estate - 14th Edition

2013 Appraisal Institute President Rick Borges, MAI, SRA discusses the new book in this video:

Appraisal research and reference are now much more efficient when using the PDF version of the book.  Words and phrases are easily searchable and citations from the text are straightforward.

Thank You Rick!

The Hawaii Chapter of The Appraisal Institute was honored to host Mr. Borges and Fred Grubbe, MBA, CAE (CEO of The Appraisal Institute) in Honolulu earlier this year–it was a wonderful event that will be talked about for years to come.   A shameless photo-op with the 2013 President and yours truly:

Richard L. Borges, II, MAI, SRA and Chris Ponsar, MAI

Richard L. Borges, II, MAI, SRA and Chris Ponsar, MAI, SRA

Oahu Neighborhood Tour – Launani Valley

Launani Valley:  The Central Oahu neighborhood you’ve never heard of.

Launani Sign (2)

Located in Central Oahu, just behind Mililani Mauka, is Launani Valley, a peaceful and inspiring neighborhood that was developed in the mid-90’s/early 2000’s.  Longtime Mililani residents describe Launani Valley’s climate as being similar to “Wahiawa Weather”, meaning cool enough in the summer to not need air conditioning, and frosty enough in the winter to require a full complement of blankets and sweatshirts.  It ain’t the arctic circle, but by Oahu standards, it can get COLD (in the mid-50’s).

The Launani Valley Community Association (LVCA) is a master association that is comprised of 833 homeowners in 6 condominium projects.

Launani Valley Aerial
Launani Valley – Aerial View of its 6 Condominium Projects
Project Year Built 2 Bed 3 Bed 4 Bed Total
Gardens at Launani Valley 1993 206 32 238
Ridge at Launani Valley 1992 138 44 182
Streamside at Launani Valley 1996 / 2000 60 24 84
Terraces at Launani Valley 1995 / 2000 100 50 150
Woodcreek 2000-2003 56 46 102
Woodcreek Crossing 2003-2004 39 38 77
  Totals 504 245 84 833

As shown, most of the condominium units in Launani Valley have either two or three bedrooms.  The Woodcreek and Woodcreek Crossing developments have a total of 84 four-bedroom units.  While many of the Woodcreek and Woodcreek Crossing units have single family designs–like the rest of the homes in Launani Valley, they are legally condominiums.

AVERAGE UNIT SIZE IN SQUARE FEET
Project 2 Bed 3 Bed 4 Bed Overall
Gardens at Launani Valley 792 925 810
Ridge at Launani Valley 772 893 801
Streamside at Launani Valley 833 927 860
Terraces at Launani Valley 1,095 1,289 1,160
Woodcreek 1,260 1,450 1,346
Woodcreek Crossing 1,200 1,531 1,363

The Gardens, Ridge, and Streamside units have floor areas that are typically in the 800 to 860 square foot range. The Terraces units are larger, averaging over 1,100 square feet.  Woodcreek and Woodcreek Crossing host a mix of single family condo and duplex units–each project averages about 1,350 square feet of living area.

The following amenities are available to Launani Valley residents:

  • Two Tennis Courts
  • Basketball Court
  • Children’s Playground
  • Paved Jogging Path
  • Comfort Station
  • Extensively Landscaped Greenbelts
  • Full Time Site Manager
Launani Valley Amenities

Launani Valley Amenities

LVCA Rec Center

LVCA Rec Center

In a future article, I’ll discuss details of each condominium project.

Questions or comments?  Please leave them in the comment  box below, I would be happy to clarify and/or expand.

Aloha, Chris

Please read my disclaimer.

Replacement Cost vs. Reproduction Cost: What’s the difference?

Even seasoned appraisers can sometimes confuse the terms “Replacement Cost” and “Reproduction Cost”.  What do these terms mean and why do they matter?

Moana Pacific Under Construction

Moana Pacific Under Construction

replacement cost
The estimated cost to construct, at current prices as of the effective appraisal date, a substitute for the building being appraised, using modern materials and current standards, design, and layout.

Source: Appraisal Institute, The Dictionary of Real Estate Appraisal, 5th ed. (Chicago: Appraisal Institute, 2010).

reproduction cost
The estimated cost to construct, at current prices as of the effective date of the appraisal, an exact duplicate or replica of the building being appraised, using the same materials, construction standards, design, layout, and quality of workmanship and embodying all the deficiencies, superadequacies, and obsolescence of the subject building.

Source: Appraisal Institute, The Dictionary of Real Estate Appraisal, 5th ed. (Chicago: Appraisal Institute, 2010).

The key difference is the type of improvement being considered.  Are we looking at a new building with modern materials, or an exact replica?

The main idea is to use one or the other consistently throughout the analysis.

Questions or comments?  Please leave them in the comment  box below, I would be happy to clarify and/or expand.

Aloha, Chris

Please read my disclaimer.

Big Island Sales Data: Hualalai Resort – Velocity / Absorption

Hualalai and Kukio Membership Communities

Hualalai and Kukio Membership Communities – Photo Source: Bing Maps

The Hualalai Resort is a 625-acre membership community that includes a world class hotel, the renowned Four Seasons Resort Hualālai at Historic Ka‘upulehu, and two golf courses: the Hualālai Golf Course, designed by Jack Nicklaus, and the Ke‘olu Course, designed by Tom Weiskopf.

In addition, the project district is entitled for eventual development of up to 700 residential units, and has been selling single family homesites and luxury low-rise condominium units since 1996.

This graph tracks the number of single family, condominium, and vacant lot sales at Hualalai Resort since the onset of the worldwide financial crisis in late 2008 .

Hualalai Resort Sales Per Year

As shown, absorption in the early part of the recovery period 2009-2011 was relatively stable, with a total of 25 to 28 sales per year.  2012 saw a meaningful bump up to 34 sales, and as of October 1, 2013, the 2013 calendar year is on pace for more than 50 sales in the prestigious community–nearly one a week.

Questions or comments?  Please leave them in the comment  box below, I would be happy to clarify and/or expand.

Aloha, Chris

Please read my disclaimer.

PBN: “Chinese buyers have ‘insatiable appetite’ for Hawaii real estate”

Hawaii resort brokers have long talked about the potential for Chinese buyers to enter the second home market in a big way.  So far, at least on the neighbor islands, we haven’t seen it, but the speculation continues” – CP

Chinese Flag

Link to story here.

Chinese buyers have ‘insatiable appetite’ for Hawaii real estate

Oct 2, 2013, 2:56pm HST UPDATED: Oct 2, 2013, 4:04pm HST

Reporter-Pacific Business News 

Wealthy Chinese buyers have an “insatiable appetite” for Hawaii real estate, and there is a group that is looking to purchase larger projects and is even in discussions with local developers, a Canadian entrepreneur and co-founder of a New York and Shanghai-based company that offers lifestyle and travel opportunities to its private network of high net worth and emerging wealth Chinese members said Wednesday.Derek Muhs, co-founder of Affinity China and the keynote speaker at the “China Ready Real Estate Investment” seminar held at the Ala Moana Hotel, told a group of real estate industry stakeholders and others, about what the Chinese are buying in Hawaii, why they are buying it and how to connect with Chinese consumers.

Chinese real estate investors are expected to spend more than $175 billion during the next few years acquiring residential and commercial properties around the world and Hawaii is on the list of desired investment places, according to Affinity China.

The Chinese are buying single-family homes in high-end areas ranging in price from $500,000 to $1.5 million, and 70 percent of them pay cash, Muhs said.

“They buy it because they can afford it and they are looking for deals, like distressed assets and when the economy slows,” Muhs said. “They come to top locations like New York City, Los Angeles, San Francisco with central locations and good schools, but Hawaii is there in the top 10, sometimes in the top five.”

He also pointed out that Chinese buyers like new, or newer, projects and look for infrastructure, such as shops and other amenities.

The Chinese also like it when businesses adapt to them.

For example, Muhs said, one of his clients bought in San Francisco instead of Hawaii because, besides pointing out that properties are dated, the city by the bay seemed to have more restaurants with menus in Chinese.

Muhs noted that the Chinese are buying in Hawaii because it’s a good investment for them.

“There are many trust issues they have in China, so they want to get some money out and diversify,” he said. “They have a lot of cash and they don’t want it all in the same bucket. It is part of their DNA and culture to own tangible assets, real estate.”

Trust is one of the bigger challenges when trying to connect with Chinese consumers and Muhs said that many people in China struggle with this challenge.

For instance, they’ll often trust a family member or friend, rather than a professional.

“One of my clients bought in Greece because a family member bought there too,” Muhs said. “They expect a relationship to commence. This ‘hit it and quit it, get the deal done’ stuff won’t work.”

Maui Million Dollar Home Sales ($1.0M+) – Day 10 of 10 – “Ocean Frontage”

From January 1, 2012 through September 16, 2013, a total of 231 “million dollar plus” homes sold in Maui County, generating total volume in excess of $525 million.  There are many ways that Hawaii real estate appraisers analyze sales statistics for luxury homes.  Because a proper market study for this segment would run many pages, I am posting one article per day for ten days.

Today marks the last day of my series on Maui’s high-end luxury homes.  I had to testify in a ground rent arbitration yesterday, so this article is coming a day late.  Thank you so much for reading along with me.

Day 10 of 10 – Maui Million Dollar ($1.0M+) Single Family Homes By Ocean Frontage Type

Consider the following graph and chart, which categorize Maui million dollar home sales by their ocean frontage (or lack of it):

Maui Million Dollar Home Sales By Ocean Frontage Type

Maui Million Dollar Home Sales By Ocean Frontage Type

Maui Million Dollar Single Family Homes By Frontage
Sold From 1/1/2012 through 9/16/2013
Frontage Type # of Sales % of Total
None 183 79.2%
Ocean Front/Beach Front 25 10.8%
Across Street from Ocean 23 10.0%
Total 231 100.0%

As shown, just over ten percent of the million dollar plus home sales on Maui front the ocean while another are located across the street from it.  But the balance of the Maui luxury residential market is located mauka, or toward the mountains.

Bottom Line: Not every million dollar home on Maui is on the beach–the large majority are located on interior lots.

I hope you’ve enjoyed reading this “mini-series” of posts, it was fun to assemble and provided a few insights that I wasn’t expecting, particularly the days on market figures that showed reasonably fast absorption of most Maui high end properties.

Questions or comments?  Please leave them in the comment  box below, I would be happy to clarify and/or expand.

Aloha, Chris

 

 

Maui Million Dollar Home Sales ($1.0M+) – Day 9 of 10 – “How Long Did They Take To Sell?” (Days On Market)

From January 1, 2012 through September 16, 2013, a total of 231 “million dollar plus” homes sold in Maui County, generating total volume in excess of $525 million.  There are many ways that Hawaii real estate appraisers analyze sales statistics for luxury homes.  Because a proper market study for this segment would run many pages, I am posting one article per day for ten days.

Day 9 of 10 – Maui Million Dollar ($1.0M+) Single Family Homes By Days On Market (DOM)

Consider the following graph and chart, which categorize Maui million dollar home sales by the amount of time they were on the market before being sold (converted to months):

Maui Million Dollar Home Sales By Days On Market (converted to months)

Maui Million Dollar Home Sales By Days On Market (converted to months)

Maui Million Dollar Single Family Homes By Days on Market
Sold From 1/1/2012 through 9/16/2013
Days On Market # of Sales % of Total
0-6 Months 114 49.4%
6-12 Months 74 32.0%
12-18 Months 23 10.0%
18-24 Months 5 2.2%
24-36 Months 3 1.3%
36-42 Months 7 3.0%
42-48 Months 1 0.4%
48-54 Months 3 1.3%
54-60 Months 1 0.4%
Total 231 100.0%

I was a little surprised by the results of this analysis.  My experience with the high end residential market is that marketing times of over one year are not uncommon (and at 18.6 percent, its not exactly unheard of, but certainly not the norm).  I suspect two elements are at play: (1) the “under 3.0 million” market is probably responsible for the majority of quick sales, and (2) the Maui luxury market has been heating up, especially since January 1, 2013–fueling absorption.

Bottom Line: Price your Maui million dollar+ home right, and it should sell in under a year.

Questions or comments?  Please leave them in the comment  box below, I would be happy to clarify and/or expand.

Aloha, Chris

Bonus: Marketing Time

marketing time
An opinion of the amount of time it might take to sell a real or personal property interest at the concluded market value level during the period immediately after the effective date of an appraisal. Marketing time differs from exposure time, which is always presumed to precede the effective date of an appraisal.

Source: Appraisal Institute, The Dictionary of Real Estate Appraisal, 5th ed. (Chicago: Appraisal Institute, 2010).

Maui Million Dollar Home Sales ($1.0M+) – Day 8 of 10 – “How Many Bedrooms Do They Have?”

From January 1, 2012 through September 16, 2013, a total of 231 “million dollar plus” homes sold in Maui County, generating total volume in excess of $525 million.  There are many ways that Hawaii real estate appraisers analyze sales statistics for luxury homes.  Because a proper market study for this segment would run many pages, I am posting one article per day for ten days.

Day 8 of 10 – Maui Million Dollar ($1.0M+) Single Family Homes By Bedroom Count

Consider the following graph and chart, which categorize Maui million dollar home sales by the number of bedrooms in their floorplans:

Maui Million Dollar Home Sales By Bedroom Count

Maui Million Dollar Home Sales By Bedroom Count

Maui Million Dollar Single Family Homes By Bedroom Count
Sold From 1/1/2012 through 9/16/2013
Bedrooms # of Sales % of Total
1 2 0.9%
2 20 8.7%
3 88 38.1%
4 82 35.5%
5 29 12.6%
6 9 3.9%
7 1 0.4%
Total 231 100.0%

Bottom Line: No Need To Remake Buckingham Palace

The vast majority of million dollar homes sold on Maui have just 3 or 4 bedrooms.  Maybe not impressive on MTV Cribs, but obviously enough for hundreds of wealthy second home buyers.

Questions or comments?  Please leave them in the comment box below, I would be happy to clarify and/or expand.

Aloha, Chris

Maui Million Dollar Home Sales ($1.0M+) – Day 7 of 10 – “When Were They Built?”

From January 1, 2012 through September 16, 2013, a total of 231 “million dollar plus” homes sold in Maui County, generating total volume in excess of $525 million.  There are many ways that Hawaii real estate appraisers analyze sales statistics for luxury homes.  Because a proper market study for this segment would run many pages, I am posting one article per day for ten days.

Day 7 of 10 – Maui Million Dollar ($1.0M+) Single Family Homes By Year Built

Consider the following graph and chart, which categorize Maui million dollar home sales by the year of their construction:

Maui Million Dollar Home Sales By Year Built

Maui Million Dollar Home Sales By Year Built

Maui Million Dollar Single Family Homes By Year Built
Sold From 1/1/2012 through 9/16/2013
Year Built # of Sales % of Total
1920-1929 1 0.4%
1930-1939 4 1.7%
1940-1949 1 0.4%
1950-1959 10 4.3%
1960-1969 3 1.3%
1970-1979 18 7.8%
1980-1989 35 15.2%
1990-1999 40 17.3%
2000-2009 107 46.3%
2010-2019 12 5.2%
Total 231 100.0%

More than 50 percent of the Valley Isle’s million dollar home sales have been built since 2000, with 84 percent constructed since 1980.

Bottom Line: Newer is better, no surprise here.

As wealthy buyer preferences for residential real estate evolve over time, the luxury segment is quick to adapt.  For example, solar energy and “great rooms” are in, rear projection television nooks and galley kitchens are out.

Although they are usually built to high construction standards, an appraiser often observes that residences in the high-end/second-home market can have economic lives that are are shorter than less expensive dwellings–sometimes meaningfully so.  A future article will identify a case study or two where ultra-high end oceanfront homes in Hawaii were torn down for land value/redevelopment, despite being less than 20 years old!

Questions or comments?  Please leave them in the comment box below, I would be happy to clarify and/or expand.

Aloha, Chris

Bonus: Economic Life

economic life

The period over which improvements to real property contribute to property value.

Source: Appraisal Institute, The Dictionary of Real Estate Appraisal, 5th ed. (Chicago: Appraisal Institute, 2010).

Maui Million Dollar Home Sales ($1.0M+) – Day 6 of 10 – “How much land do they have?”

From January 1, 2012 through September 16, 2013, a total of 231 “million dollar plus” homes sold in Maui County, generating total volume in excess of $525 million.  There are many ways that Hawaii real estate appraisers analyze sales statistics for luxury homes.  Because a proper market study for this segment would run many pages, I am posting one article per day for ten days.

Day 6 of 10 – Maui Million Dollar ($1.0M+) Single Family Homes By Land Area

Consider the following graph, which categorizes the Maui million dollar home sales by their lot sizes:

Maui Million Dollar Home Sales By Land Area

Maui Million Dollar Home Sales By Land Area

If you are unfamiliar with the luxury home market in Hawaii, the data presented on this graph might be counter-intuitive.  As  shown, most million dollar home sales are on lots that are smaller than half an acre in size, and only a handful of transactions are on tracts larger than ten acres.

Bottom Line: Once Again, Bigger Isn’t Necessarily Better

Not many people would argue that, all things being equal, more land area is usually better.  But on Maui and throughout the Hawaii high-end residential sector, an experienced real estate appraiser understands that beach frontage and ocean views are the primary drivers of market value.  Since near-ocean properties are typically subdivided into smaller land area configurations, it is easy to see how the most common high-dollar sales have smaller lots.

Questions or comments?  Please leave them in the comment  box below, I would be happy to clarify and/or expand.

Aloha, Chris