I was recently engaged for an assignment in a local beach town. A former resident is suing, well, everybody, for damage done to his home during Superstorm Sandy. It seems a boat rear-ended his house. Or failed to yield, or something like that. Let’s call it a moving violation.
My client requested that I analyze market values before and after Sandy. The Before Sandy value is simple enough, gather comparable pre-Sandy sales, adjust, conclude a value.
The After Sandy value is trickier. Sandy had moved on by daylight on October 30, 2012. Obviously, there were no sales on that date. So I took this approach: look at market statistics and paired sales (the sale of the same property) in the two years before and the two years after Sandy.
Like any good scientist I had a hypothesis. My official hypothesis, originally published on May 1, 2013, was this: the waterfront market will decline, but it will rebound by the Spring of 2015. People’s memories are short, I thought, so they will forget about Sandy and the market will recover. Further, unharmed and rebuilt (and presumably elevated) homes will be perceived by the market as “safe” and will garner premium prices.
First, I looked at statistical data. In this small beach town there was a lot of Sandy damage. The median sale price dropped 21% in 2013, as expected. But in 2014, the median sale price rocketed up 34%!
Huh, that’s weird. Ok, let’s look at waterfront property sales in all of Monmouth County. Sure enough values declined 8% in 2013. But then values lept up 21% in 2014.
I found seven paired sales that met my criteria. This is extraordinary by itself, because in this small town and there are only about 35 sales per year total. Of those seven properties, six sold for the same or a higher price after Sandy.
I bit of drilling down and it became clear why the sale prices were higher. Virtually all of the homes had been renovated or replaced entirely.
But there was one sale that stands out. The same broker handled both sales of the same home. The first sale closed in May 2012 for $1,200,000. The second sale closed in January of 2014 for $1,700,000, an increase of 42%. The language in the two listings was a bit of a cut-and-paste job, except for this phrase, “High and dry property-untouched by Sandy-NO Flood Insurance Required!”
They don’t call me The Property Prophet for nothin’.
– Bob Gagliano
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