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REALTY PRICE COLLAPSE IN 2009 NOT ADEQUATELY REFLECTED IN JANUARY 1, 2010 COOK COUNTY ASSESSED VALUATIONS
As new assessments are coming out for the January 1, 2010 triennial, it has become abundantly clear that the Assessor continues to significantly underestimate the level of property value declines thus substantially overestimates property values. Property values declines in 2009 alone are approaching 20%. In defense of the Assessor, they must use historical data to set the assessments. The historical data may be skewed, however, that substantial over assessments occur.
In one of the charts below we show actual quantitative drops from a specific sale date to January 1, 2010 (based on national averages). It is clear from this data that THE MOST IMPORTANT APPRAISAL ISSUE WILL BE THE QUANTIFICATION OF THE ADJUSTMENT FOR CHANGING MARKET CONDITIONS (OR TIME). An appraisal using a qualitative downward adjustment for time such as a simple plus or minus does a great disservice to the property owner. In order to insure a fair assessment we use a well supported quantified adjustment for this critical variable.
Ideally, in a changing market an appraiser would like to use sales comparables occurring as close to the appraisal effective value date as possible. With the recession, contraction of credit markets and disconnect between asking and bid prices for real estate, the volume of sales has dried up. The number of properties sold in 2009 was 55% below the number transacted in 2006. Due to a scarcity of recent sales appraisers are often forced to use older sales comparables which must be adjusted for the decline in realty markets since the 2005-2007 peak period. Determining the amount of the adjustment is especially challenging. Significantly, as we will show, even sales occurring in 2009 that appear at first blush to be fairly close to the January 1, 2010 assessment date, may still require substantial adjustment. Similar issues will affect the January 1, 2011 assessment date.
The Moody's/ REAL Commercial Property Price Index (CPPI) tracks sales and re-sales of investment properties in the four major sectors— office, apartment, industrial, retail— using the Real Capital Analytics, Inc (RCA) database of completed transactions in the U.S. over $2,500,000 in value. It indicates the following changes:
Jan 1, 2010 & 2011 Assessments Don't Fully Reflect Value Declines
Article:
REALTY PRICE COLLAPSE IN 2009 NOT ADEQUATELY REFLECTED IN JANUARY 1, 2010 COOK COUNTY ASSESSED VALUATIONSAs new assessments are coming out for the January 1, 2010 triennial, it has become abundantly clear that the Assessor continues to significantly underestimate the level of property value declines thus substantially overestimates property values. Property values declines in 2009 alone are approaching 20%. In defense of the Assessor, they must use historical data to set the assessments. The historical data may be skewed, however, that substantial over assessments occur.
In one of the charts below we show actual quantitative drops from a specific sale date to January 1, 2010 (based on national averages). It is clear from this data that THE MOST IMPORTANT APPRAISAL ISSUE WILL BE THE QUANTIFICATION OF THE ADJUSTMENT FOR CHANGING MARKET CONDITIONS (OR TIME). An appraisal using a qualitative downward adjustment for time such as a simple plus or minus does a great disservice to the property owner. In order to insure a fair assessment we use a well supported quantified adjustment for this critical variable.
Ideally, in a changing market an appraiser would like to use sales comparables occurring as close to the appraisal effective value date as possible. With the recession, contraction of credit markets and disconnect between asking and bid prices for real estate, the volume of sales has dried up. The number of properties sold in 2009 was 55% below the number transacted in 2006. Due to a scarcity of recent sales appraisers are often forced to use older sales comparables which must be adjusted for the decline in realty markets since the 2005-2007 peak period. Determining the amount of the adjustment is especially challenging. Significantly, as we will show, even sales occurring in 2009 that appear at first blush to be fairly close to the January 1, 2010 assessment date, may still require substantial adjustment. Similar issues will affect the January 1, 2011 assessment date.
The Moody's/ REAL Commercial Property Price Index (CPPI) tracks sales and re-sales of investment properties in the four major sectors— office, apartment, industrial, retail— using the Real Capital Analytics, Inc (RCA) database of completed transactions in the U.S. over $2,500,000 in value. It indicates the following changes:
| Sector | Peak | % Change 4Q 2008/4Q 2009 | 1-yr 4Q 2008/4Q 2009 |
| Apartment | 1Q 2007 | -35.28% | -20.38% |
| Industrial | 4Q 2007 | -33.87% | -23.16% |
| Office | 2Q 2007 | -31.21% | -19.75% |
| Retail | 3Q 2007 | -28.47% | -18.97% |
As of year end 2009, coincident with the January 1, 2010 valuation date for the current triennial, realty values have plunged in the neighborhood of 28 to 35% from peak values according to these indices. Of particular note is the precipitous drop in prices in 2009 from between 19% and 23% so that even a comparable sale occurring in 2009 and appearing relatively recent may require a significant adjustment for market conditions. These same issues will impact the January 1, 2011 valuation date for the next triennial. Graphically, the trends are illustrated as follows:
These statistics reflect conditions at the national level; nevertheless, the overall trends are quite clear. Inasmuch as Chicago is fairly representative of the national average with respect to real estate investment patterns, these indices are reasonable benchmarks for the local market in the absence of similar locally produced indices.
With general market declines of as much as 35% since the 2007 Triennial, it is absolutely critical for appraisers to strive to quantify adjustments for changing market conditions to better assure a fair assessment. Everyone knows that property values have dropped over time although many people don't realize that value declines of 20% to 23% have occurred in 2009 alone in the apartment and industrial sectors.
With general market declines of as much as 35% since the 2007 Triennial, it is absolutely critical for appraisers to strive to quantify adjustments for changing market conditions to better assure a fair assessment. Everyone knows that property values have dropped over time although many people don't realize that value declines of 20% to 23% have occurred in 2009 alone in the apartment and industrial sectors.