Map of Proposed Kakaako Developments

Last week I posted the Hawaii Community Development Authority’s updated list of project activity in the Kaka’ako Community Development District (KCDD).

A PDF copy of the list can be downloaded here (Current Kakaako Project Activity).

The following link takes you to an interactive map of the projects:!336

The map below can be saved as a png file:

Map of Proposed Kakaako Developments

Map of Proposed Kakaako Developments

Please read my disclaimer.

A New Study on Photovoltaic Home Premiums

A new academic study titled “Exploring California PV Home Premiums” has been prepared for the U.S. Department of Energy.

You can download it here:

California PV Home Premiums

The study uses a regression analysis to conclude that premiums are paid for PV homes at a rate of $5,911 per kW in size–larger systems command higher premiums.  They additionally find that premiums decrease by $2,411 for each year of system age–older systems provide smaller premiums.

According to the U.S. Energy Information Administration’s January 2014 report, the average retail price of electricity for residential customers in California was 16.4 cents per Kilowatthour in November 2013.  At the same time, Hawaii’s average residential rate was 37.0 cents per Kilowatthour.  More than double the rate!

While an appraiser would need to investigate the local Hawaii market to test sensitivity, it seems logical that the Hawaii market might command even higher premiums for its installed PV base.

Please read my disclaimer.

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

Maui Million Dollar Home Sales ($1.0M+) – Day 3 of 10 – “How Big Are They?”

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 3 of 10 – Maui Million Dollar ($1.0M+) Single Family Homes By Living Area

Consider the following graph and chart:

Maui Million Dollar Sales By Living Area

Maui Million Dollar Sales By Living Area

Maui Million Dollar Single Family Homes By Living Area
Sold From 1/1/2012 through 9/16/2013
Living Area in SF # of Sales % of Total
0-999 5 2.2%
1000-1999 32 13.9%
2000-2999 68 29.4%
3000-3999 75 32.5%
4000-4999 28 12.1%
5000-5999 17 7.4%
6000-6999 2 0.9%
7000-7999 2 0.9%
8000-8999 1 0.4%
9000-10000 1 0.4%
Total 231 100.0%

Luxury homes having between 2,000 and 4,000 square feet of living area represent the “sweet spot” of the Maui luxury market, comprising more than 60 percent of the Valley Isle’s million dollar home sales since the beginning of 2012.

Bottom Line: Bigger Isn’t Necessarily Better

97.4 percent of all “million dollar plus” single family homes sold on Maui since 2012 have 6,000 square feet of living area or less.  While it is certainly possible to build larger residences, and some very wealthy individuals have, if you’re building much larger than 5,000 square feet, you might be going beyond what the market prefers.

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

Aloha, Chris

Bonus  – Superadequacy

The data above suggests that building much larger than 5,000 square feet may not be consistent with market preferences.  If true, real estate appraisers refer to this phenomena as a “superadequacy”, which is defined below:


An excess in the capacity or quality of a structure or structural component; determined by market standards.

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

Sales Comparison, Adjustments, and Paired Sales

This video looks at the sales comparison approach that appraisers use as the primary method to value real estate.

A few appraisal terms that are used in the video are:

Sales Comparison Approach
A comparative approach to value that considers the sales of similar or substitute properties and related market data and establishes a value estimate by processes involving comparison. In general, a property being valued (a subject property) is compared with sales of similar properties that have been transacted in the open market. Listings and offerings may also be considered. A general way of estimating a value indication for personal property or an ownership interest in personal property, using one or more methods that compare the subject to similar properties or to ownership interests in similar properties. This approach to the valuation of personal property is dependent upon the Valuer’s market knowledge and experience as well as recorded data on comparable items.

Mathematical changes made to basic data to facilitate comparison or understanding. When dollar adjustments are used, individual differences between comparables and the subject property are expressed in terms of plus or minus dollar amounts; with percentage adjustments, individual differences are reflected in plus or minus percentage differentials.

Paired Data Analysis
A quantitative technique used to identify and measure adjustments to the sale prices or rents of comparable properties; to apply this technique, sales or rental data on nearly identical properties is analyzed to isolate and estimate a single characteristic’s effect on value or rent. Often referred to as paired sales analysis.

Adjustment Grid
A table used to display comparable data and facilitate adjustment of differences in elements of comparison.

A shortened term for similar property sales, rentals, or operating expenses used for comparison in the valuation process. In best usage, the thing being compared should be specified, e.g., comparable sales, comparable properties, comparable rents.

All Definitions Sourced From: Appraisal Institute, The Dictionary of Real Estate Appraisal, 5th ed. (Chicago: Appraisal Institute, 2010).

If you have any questions or comments, please leave them in the comments box below.

Aloha, Chris

New Book – The Appraisal of Real Estate, 14th Edition

The newest edition of the appraisal bible, “The Appraisal of Real Estate, 14th Edition” is being released in mid-September 2013.  It’s a book that will act as the Gold Standard for real estate appraisers worldwide.

According to the Appraisal Institute, it will be available for the first time in digital formats: as a PDF in September 2013 and in E-pub and Kindle formats in January 2014!

It is an essential text if you are in the appraisal field, or engage appraisers in your practice:

The Appraisal of Real Estate - 14th Edition

UPDATE: The Appraisal Institute just released the table of contents for the 14th Edition.

You can download the PDF here: The Appraisal of Real Estate 14th Edition – Table of Contents

I’m looking forward to Chapter 14, “Statistical Analysis in Appraisal”–it appears to be new in this edition.

Table of Contents
Foreword – ix
Acknowledgments – xi

PART I Real Estate and Its Appraisal
Chapter 1 Introduction to Appraisal – 1
Chapter 2 Land, Real Estate, and Ownership of Real Property – 11
Chapter 3 The Nature of Value – 19
Chapter 4 The Valuation Process – 35

PART II Identification of the Problem
Chapter 5 Elements of the Assignment – 49
Chapter 6 Identifying the Type of Value and Its Definition – 57
Chapter 7 Identifying the Rights to Be Appraised – 69

PART III Scope of Work Determination
Chapter 8 Scope of Work – 87

PART IV Data Collection and Property Description
Chapter 9 Data Collection – 95
Chapter 10 Economic Trends in Real Estate Markets and Capital Markets – 129
Chapter 11 Neighborhoods, Districts, and Market Areas – 163
Chapter 12 Land and Site Description – 189
Chapter 13 Building Description – 219

PART V Data Analysis
Chapter 14 Statistical Analysis in Appraisal – 275
Chapter 15 Market Analysis – 299
Chapter 16 Highest and Best Use Analysis – 331

PART VI Land Value Opinion
Chapter 17 Land and Site Valuation – 359

PART VII Application of the Approaches to Value
Chapter 18 The Sales Comparison Approach – 377
Chapter 19 Comparative Analysis – 397
Chapter 20 Applications of the Sales Comparison Approach – 427
Chapter 21 The Income Capitalization Approach – 439
Chapter 22 Income and Expense Analysis – 463
Chapter 23 Direct Capitalization – 491
Chapter 24 Yield Capitalization – 509
Chapter 25 Discounted Cash Flow Analysis and Investment Analysis – 529
Chapter 26 Applications of the Income Capitalization Approach – 541
Chapter 27 The Cost Approach – 561
Chapter 28 Building Cost Estimates – 581
Chapter 29 Depreciation Estimates – 597

PART VIII Reconciliation of the Value Indications and Final Opinion of Value
Chapter 30 Reconciling Value Indications – 641

PART IX Report of Defined Value
Chapter 31 The Appraisal Report – 649

PART X Appraisal Practice Specialties
Chapter 32 Appraisal Review – 671
Chapter 33 Consulting – 683
Chapter 34 Valuation for Financial Reporting – 689
Chapter 35 Valuation of Real Property with Related Personal
Property or Intangible Property – 703

Appendix A Professional Practice and Law – 717
Appendix B Regression Analysis and Statistical Applications – 733
Appendix C Financial Formulas – 753
Bibliography – 797
Index – 819

Is that thing a “fixer upper” or a “tear down”?

Today a friend asked me how real estate appraisers value properties that are in “below average” condition.  He wanted to know if we valued them in their “as is” condition, and whether or not repair costs were factored in.

In essence, how do you know if a property is a “fixer upper” or a “tear down”?

In a nutshell:

  1. If a property is in poor condition, an appraiser considers whether or not the value of the real estate, in its “as is” condition, exceeds the value of the underlying land.
  2. An appraiser determines this by analyzing the cost to repair the building to typical/average condition, and comparing the net value against the value of the underlying land, less demolition costs.

In detail:

It’s a relatively simple process, the appraisal buzzwords associated with this valuation method are “highest and best use” and “cost to cure”.

To demonstrate the analysis, I went on the Honolulu MLS and found a commercial property built in 1959, the same year Hawaii became a State.

Here, in all of its glory, is the poor condition (according to MLS)  office / retail property known as “1339 North School Street”:

1339 North School Street

1339 North School Street, Honolulu, Hawaii

A bunch of appraiser math/mumbo-jumbo below, skip to the chart at the end to see the answer.

For our purposes, the asking price is irrelevant, especially because the listing includes additional land parcels.  The figures used below are part of a simplistic appraisal demonstration only.

Let’s assume an appraiser determines that vacant land in the subject neighborhood is worth $100 per square foot.  Similarly, let’s assume average/typical commercial buildings are selling for $300 per square foot of building area.  The values would compare as shown below.

Item Area in Square Feet Value Per Square Foot Total Value
Vacant Land 20,000 $100 $2,000,000
Less: Demolition Costs     -$100,000
Equals: Property Value   $1,900,000
Average Condition Building 7,500 $300 $2,250,000
    Difference $350,000

Since the value of an average condition building “as improved” is worth more than the property “assuming demolition”, we proceed to the next step: determining the value of the building in poor condition (its “as is” condition).

Item Building Area
in Square Feet
Building Value
Per Square Foot
Total Value
Average Condition Building 7,500 $300 $2,250,000
Less: Cost to repair to average condition   -$500,000
Equals: Poor Condition Property Value   $1,750,000

Let’s assume a reputable contractor estimated the construction/repair cost necessary to renovate the subject building to “average” condition to be $500,000.  This amount is deducted from the “if in average condition” building value to arrive at the value of the overall property in poor condition of $1.75 million.

So, where are we at?

How does land value (assuming demolition) compare to property value (assuming renovation)?

Item Total Value
Land Value Assuming Demolition $1,900,000
Poor Condition Property Value $1,750,000
Yep, it's a tear down.

Yep, it’s a tear down.

In this hypothetical scenario, the value of the underlying land, even after deducting demolition costs, exceeds the value of the poor condition property “as is”.  Therefore, the highest and best use of the property is demolition of the built-in-1959 (54 year old) improvements to make way for new development.

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

Aloha, Chris

Resort Homesites – Front Row vs. Second Row – A Big Island Paired Sales Analysis

Hawaii real estate appraisers are often asked to value residential properties that have spectacular ocean views.

Not a bad gig, I admit.

I recently did some appraisal work in Maniniowali, a luxury subdivision in the Kukio membership community on the Big Island of Hawaii.

I was valuing a front row lot, and this time, fortunately, there were several recent sales of similar properties to analyze.  But this is not always the case.  In high-end resort subdivisions, sales occur relatively infrequently–as such, quality comparables are sometimes hard to come by.

When appraising oceanfront or front-row properties, it is common to have no recent front-row sales in the subject subdivision.  But often times, there are timely sales of second row lots that can give an appraiser a better sense of values in the front row market.

Consider these two properties at Maniniowali:

Manini Paired Sale AerialImage Source: Bing Maps  (Click to Enlarge)
Manini Paired Sales Tax MapHawaii County Tax Map  (Click to Enlarge)

The aerial photo and tax map show a front row homesite, Lot 14, and a second row homesite, Lot 6.

For persons interested in real estate analysis, especially appraisers, these transactions are a stroke of analytical luck because they:

  • Closed just six days apart, in early May 2013
  • Both have ocean views
  • Are similar in size
  • Have the ability to purchase a membership in the same exclusive club (Kukio)

In short, a perfect opportunity for a pure paired sales analysis! (An appraiser geek term that speaks to the ability to test the value impact of a single, isolated variable)

The chart below shows a paired sales analysis for this set of comparables:

Manini paired saleSource: Chris Ponsar. MAI  (Click to Enlarge)

As shown, the second row lot at Maniniowali sold for approximately 27 cents on the dollar compared to its front row counterpart.  Said differently, Lot 14 sold for 3.6 times the price of Lot 6.

As an appraiser, I use relationships like this to help me in situations where I am challenged for data.  Obviously, this is only one pairing, and I’ll post similar paired sales of front row and second row lots as I come across them, but to the extent this relationship becomes a consistent trend, an appraiser may be able to check the reasonableness of their value conclusions for a front row lot against sale prices of second row lots, and vice-versa.

Comments and/or Questions?  Please leave them in the comments section below–I’d be happy to clarify or expand.

Aloha, Chris