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Nation's Housing

Appraising Effects of Sept. 11 on Property


WASHINGTON — Reacting to market uncertainties in the wake of Sept. 11, the nation's principal professional society for real estate appraisers has instructed its 20,000 members to take new precautions in valuing homes and commercial properties across the country.

The Appraisal Institute wants members to make clear to their clients--banks, home mortgage lenders and individual consumers--that it may still be too early to properly assess the impacts of the terrorist acts and economic aftershocks on the market values of real estate.

The institute suggests that appraisers consider going beyond their customary searches for "comparable" recent sales data in valuing properties, and talk with "market participants" such as realty agents and builders to get a handle on possible undercurrents affecting local values.

The institute also urges appraisers to attach a "prominent" disclosure to clients that, to the extent the sales data used in the report is from transactions preceding Sept. 11, the valuation may not reflect market changes after the events of that day.

Stephanie Coleman, the institute's national director of standards, says the group's unusual advisory to members does not imply that real estate values may decline in the wake of Sept. 11.

To the contrary, she emphasized, "What we're saying is that we simply don't know yet" what impacts there may have been, including ongoing ripple effects from fears over anthrax, postal service disruptions, air travel problems and high-profile buildings.

The impacts--if any--are likely to be strongest in areas or on types of properties directly touched by terrorist attacks. In Manhattan, for example, there are widespread doubts about the long-term fallout of the World Trade Center tragedy on the values of commercial real estate.

If tenants no longer want to pay high rents for offices in landmark buildings, or consider the city too risky, the market values of properties could be severely impaired.

Similar fears have been expressed elsewhere around the country about high-profile properties that could be terrorist targets.

Beyond those specific situations, though, say appraisers, there are uncertainties over the post-Sept. 11 national economy as a whole. Coleman noted that even Federal Reserve Chairman Alan Greenspan told Congress that "we do not know" how businesses and consumers will be affected by the aftershocks.

In certain key industries--airlines, travel, restaurant, and hotels--the answers are coming in and are not good.

Unemployment--already on the rise nationally well before Sept. 11--can have rapid and serious effects on real property values. In local economies with unusually large layoffs, home values could flatten out and even decline, especially if they had ballooned far beyond national norms in the last several years.

The Appraisal Institute's advisory to members serves to focus attention on the challenges currently facing real estate appraisers. In residential property transactions, appraisers typically search for comparable home transactions closed in the immediate vicinity within the prior six to 12 months. Then they make adjustments to value based on a wide range of factors, from square footage to property location and condition.

The problem faced by appraisers in the current marketplace is that Sept. 11 constitutes an "extraordinary" valuation event, much like an earthquake, hurricane or flood, in terms of potential impact on real property values. "Comparables" from the months preceding Sept. 11 may--or may not--have the same reliability for appraisal purposes as they normally would have.

"If the date of [the valuation] is later than Sept. 11," said the institute, then until there are more post-Sept. 11 sales transactions, "it will be extremely difficult to measure the effect of the event."

In such cases, the appraiser can render a value opinion with a prominent proviso that Sept. 11 and its aftermath are assumed to have no effect on value--a so-called "extraordinary assumption" in appraisal lingo.

But the client should be "cautioned that if this extraordinary assumption is incorrect, the value opinion and other conclusions expressed in the [appraisal] could be significantly different."

What's the upshot of the appraisers' cautionary advice for home buyers, sellers and refinancers? For starters, be aware that all appraisers can do is interpret the market, and the real estate market is still trying to sort out the ripple effects of Sept. 11.

The odds are strong that the value of your house has not been radically affected by the economic reverberations. But if unemployment rises in your community--either because of post-Sept. 11 economic disruptions or declines in consumer spending--then you should be concerned about potential ripple effects on your home value.

But keep this in mind: Through wars and recessions, owning a home in America historically has been a very solid bet. Terrorists won't be able to change that.


Distributed by the Washington Post Writers Group.

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