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February 17, 2009
Ocracoke Real Estate: A change in the weather
By B.J. OELSCHEGEL
I have been approached a number of times about my opinion on the rate
of decline in the market prices for real estate on Ocracoke. I always
find this to be a difficult question.
Do you start at the peak of the market prices? Do you start with the
difference since last year? To complicate the issue further, there are
a number of categories of property on this tiny island, each with a
rate all its own. There is waterfront, canalfront, water view, high-end
interior houses, low-end interior houses, vacant lots, and
subcategories of these major headings. People make major changes to the
house that they purchase, therefore complicating the question at hand.
There is no a simple answer. We can all sense that there has definitely
been a “change in the weather.” At one point, we saw
ourselves as millionaires -- on paper. We were property rich and cash
poor. It is painful to watch the loss in value of one’s home. I
think that the real question, the question that strikes at the heart of
our worst fears, is just how low will those values go?
We recently had an office visit from John Hunter, a local appraiser,
and we all jumped at the chance to get an answer to this very question.
He felt that waterfront and water-related properties were holding their
appeal, but that it is the interior parcels that are part of “the
declining market.”
We do not very often have a house that sells and then turns around a
year later and comes back up on the market. Late 2008, marked a first
for this event and might provide a part of the answer to the question
of the degree of decline in our market.
This property sold in 2007 for $562,000 and has just gone to closing in
early March, for $525,000. This property saw a decline in value of
between 6 and 7 percent. In another closing last fall, a house sold for
$695,000, a year and a half after it had been appraised for $795,000.
The sellers were willing to accept this drop in value of 12 to13
percent, because this rate of decline was being quoted in the
newspapers as a national rate and made the offer seem reasonable to
them.
This second example is not as clean as the first one because the
starting point is an appraisal of value and not an actual sale.
Appraisals are professional opinions of value, extrapolated from
comparable sales. It would have been cleaner had that very property
recently changed hands. It doesn’t help that the appraisal was 1
1/2 years old.
In hindsight, it seems obvious now, that we were living in a bubble of
housing prices. They were the lucky ones, those who sold during that
bubble. John Hunter, the appraiser that I quote frequently, believes
that the market is righting itself -- getting back to realistic price
ranges consistent with “what more buyers are willing to pay and
more sellers will be willing to accept.” Sellers are tired of
waiting around. Buyers have access to very low interest rates, if the
banks will let go of the money. There are buyers out there, and as our
house prices come back down to earth, their dream looks more
affordable.
I asked a developer friend once, “When will the prices stop
dropping? His answer was, “When the people with the money think
that the prices are as low as they are going to go.”
The $64,000 question and the crux of our fear is, “How low will they go?”
Where is the bottom?
I’m sorry that I do not have a crystal ball. We will have a
better handle on those answers, once the flow of tourists starts up
again. The national economy, job losses, and access to credit are
looming out there as factors in this discussion. Closer to home, I know
that it is disconcerting to see foreclosure notices popping up around
the island. I’m sure that there is a question, in all of our
minds, as to the effect of this kind of sale.
According to the N.C. Real Estate Licensing Board’s textbook,
“North Carolina Real Estate for Brokers and Salesmen,”
market value is defined by the American Institute of Real Estate
Appraisers and the Society of Real Estate Appraisers as “the
highest price in terms of money which a property should bring in a
competitive and open market under all conditions requisite to a fair
sale, the buyer and seller each acting prudently, knowledgeably, and
assuming the price is not affected by undue stimulus.”
Not every sale has influence in determining market value. For example,
if you were to sell to a friend and reduce the sale price by a
commission you would have had to pay, had you used an agent, this would
be called a “closed market” transaction. If a parent sold
to a child, you would expect a lower price because of the relationship.
These are not good comparables in the market. These sales do not follow
the quoted definition of market value. They have not been exposed to
the light of an “open-market transaction,” which is
competitive and open to the public.
There are foreclosures and “desperately close to
foreclosure” sales which folks fear will skew the picture of real
estate values. The phrase “undue stimulus” applies to the
situation where a homeowner can no longer make the payments and the
bank wants to get out from under the burden of owning this collateral.
The bank would be motivated to drop the list price on this property
just to get it sold and remove this property from its books. Any real
estate appraiser worth his or her salt should be aware of closed market
sales by researching further when a comparable sale appears to be lower
than the appraiser would have expected. The only time that foreclosures
will affect the market is when the majority of sales are due to
foreclosure.
The bad news is that many of us have mortgages and equity lines, based
on the inflated values, established during the bubble. The good news is
that we have buyers who have never lost their love of the island. It is
not a dead market. The island still has the ability to magnetize
buyers, with our history, sense of community, love of the arts,
pristine setting, and small town feel.
There are many factors in this crisis which are out of our control. As
we sit patiently waiting for government efforts to kick in and
reestablish the common trust in the system, it might benefit each of us
to look for the positive. It’s not perfect, but our appeal to the
buying public may be the best resource that we have.
(B.J.
Oelschlegel has lived on Ocracoke Island for 30 years and has worked in
the real estate business for 26 years. She is a broker with
Ocracoke’s Lightship Realty and a real estate columnist for The
Ocracoke Observer. You can reach her by e-mail at
bj@ocracokelightshiprealty.com)
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