Historic Facade Easements Decrease Value More than Tax Credit is Worth: The Appraisal Journal
CHICAGO (Nov. 17, 2009) – A historic facade easement decreases the value of a home far beyond the benefits of the related tax deduction, according to a new study in The Appraisal Journal’s fall issue.
The Appraisal Journal is the quarterly technical and academic publication of the Appraisal Institute, the nation’s largest real estate appraisal association.
“The Impact of Historic Facade Easements on Condominium Value,” by Kimberly Winson-Geideman, Ph.D., and Dawn Jourdan, Ph.D., J.D., examines the resale of condominium row houses in Savannah’s National Historic Landmark District. The study found that historic facade easements decreased the sale price by 2.85 percent each year, or 57 percent over a 20-year period.
Homeowners in recognized historic areas may grant control of their home’s historic facade (an easement) to a government entity or nonprofit organization such as a historic preservation society and in return receive a tax deduction for the charitable contribution.
“At the time of the issuance, each of the easements held by the Historic Savannah (Ga.) Foundation was valued at 5 percent to 15 percent of market value, figures consistent with Internal Revenue Service guidelines regarding valuation of preservation and conservation easements in place during the study period,” the article states. “Clearly the loss is much greater, indicating that the prescribed limits by state and federal governments were not based on market reality.”
The authors suggest that the price discount is related to the loss of rights to change the property and the increased expense of maintaining historic features. They emphasize that while the owner granting a historic facade easement receives an initial tax deduction, the negative impact on value will affect all subsequent owners of the property.
Winson-Geideman has a Ph.D. in urban affairs and currently teaches in the College of Business at the University of North Texas. Her research focuses on residential property valuation especially in relation to preservation and economic development.
Jourdan has a Ph.D. in urban planning from Florida State University and a J.D. from the University of Kansas. She currently teaches in the Department of Urban and Regional Planning and the College of Law at the University of Florida. Her research focuses on how government policies impact development of cities.
Other articles in The Appraisal Journal’s fall issue include:
“Home-Buyer Sentiment and Hurricane Landfalls,” in which authors Robert T. Burrus, Jr. Ph.D., J. Edward Graham Jr., Ph.D., William W. Hall, Ph.D., and Peter W. Schuhmann, Ph.D., study the effects of repeated hurricane landfalls on home sales in North Carolina’s Cape Fear region. They found that after successive hurricanes, days on the market increased and sale prices decreased for an 18-month period, but eventually began to improve with the passage of time.
“Defining and Supporting Entrepreneurial Profit, Entrepreneurial Incentive, and External Obsolescence” by Mark Pomykacz, MAI, which looks at the different types of incentives that exist for developers in strong markets and in weak markets.
“Deriving Capitalization Rates and Other Valuation Metrics from the REIT Market,” by Gary S. DeWeese, MAI, which presents a method for extracting cap rates from publicly traded REIT information when there is a market slump and private market transactions do not exist.
“The REO Supplemental Addendum—Square Pegs and Round Holes,” by William G. Steinke, SRA, shows how to modify appraisal forms in a post-foreclosure appraisal to expand the analysis and reflect the limitations inherent in REO sales.
“Research Design, Hypothesis Testing, and Sampling,” by Marvin L. Wolverton, Ph.D., MAI, explains how to design and implement statistical market studies to ensure the reliability and validity of the research results.
The Fall issue also includes the “Law and the Appraiser” column by Martha W. Jordan, J.D., looking at how the tax courts value donations of preservation easements for charitable contribution deductions. The “Financial Views” column by James R. DeLisle, Ph.D., analyzes the latest economic conditions, especially the continuing erosion of the commercial real estate market. The “International Appraising” column by Jörg Quentin looks at the concept of long-term value used by German mortgage banks — instead of current market value used by U.S. lenders — which significantly lessens mortgage lending risk.
To read The Appraisal Journal’s Fall 2009 cover article on historic easement facades, click here.
The Appraisal Institute is a global membership association of professional real estate appraisers, with 26,000 members and 91 chapters throughout the world. Its mission is to advance professionalism and ethics, global standards, methodologies, and practices through the professional development of property economics worldwide. Organized in 1932, the Appraisal Institute advocates equal opportunity and nondiscrimination in the appraisal profession and conducts its activities in accordance with applicable federal, state and local laws. Members of the Appraisal Institute benefit from an array of professional education and advocacy programs, and may hold the prestigious MAI, SRPA and SRA designations. For more information regarding the Appraisal Institute, please visit www.appraisalinstitute.org.