Tuesday, December 29, 2009

Embrace Open Space Study is Flawed

December 14th, 2009
"Embrace Open Space" Study" is Flawed.

Embrace Open Space claims that their study proves that in Washington County
there was a $16,570 per home open space premium for their 2007 study and in
Hennepin County for the 2009 there was a $16,300 per home open space
premium. They claim that this open space premium is true of homes as far
away as 500' from the open space.

In evaluating any study you need to put on your critical thinking hat and
ask these 4 questions:

1) Who paid for the study and what is their addenda?

2) Who conducted the study and what are their qualifications?

3) What was the data used and the methodology?

4) Does the data support the conclusions?

1) Who paid for the study and what is their addenda?

"Embrace Open Space" is a collaborative among Twin Cities organizations
concerned about protecting open space in our region.

2) Who conducted the study and what are their qualifications?

Was it the University of Minnesota? The real estate department at the
University of St. Thomas? No. It was Edward Moscovitch , a private economist
from Massachusetts with no stated experience in real estate, let alone real
estate in Minnesota.

3) What was the data used and the methodology? Data was collected from the
county assessors. A regression analysis was conducted to isolate open space
as the factor. Sounds impressive, right? But this is the BIG flaw: the data
simply measured the assessed value versus the sales price.

First of all, the study data doesn't indicate whether this economist dude
from Massachusetts understands that assessed valued in Minnesota lags the
market by two years. These studies were conducted using data from 2001
through 2006: most of those years saw home price inflation. If he didn't
adjust for the time lag on the assessed value it could easily account for
the total difference.

Second, even if he accounted for the time lag, all his study shows is that
the assessors undervalued properties-which was fairly common during this
time frame. When it comes to valuing a 3 bedroom 1950s rambler in Richfield
the assessors are typically dead on with their values. When you get to the
custom homes that typically back golf courses or lakes or parks --valuation
becomes more subjective for both county assessors and private appraisers.
But this ratio of sold value to assessed value says NOTHING about the value
of open space.

3rd. Washington and Hennepin Counties are on the higher end of values for
Twin City homes. Yet the conclusions are expressed in dollars, not
percentages. $16,000 on a $500,000 home is only 3.2%.

4th. The study did NOT isolate city versus suburbs or new construction. Yet
they use the data to advocate for changes to new construction suburban
development patterns.

As an appraiser, the methodology I would use to test this hypothesis is a
"paired sales analysis". Take two homes or lots where everything is the same
except the open space and extract the difference. This methodology takes
time to thoroughly study each property to discern all other factors are
really equal. And it also takes knowledge to know what you're looking at. A
study of thousands of properties that was lead by an out of state economist
with no real estate experience is not the same as a local appraiser familiar
with the market and product type.

4) Does the data support the conclusions? A basic conclusion and
recommendation for the Embrace Open Space study is that open space values
have more impact on smaller lots-so we should have smaller lots with more
open space. And they also claim that the open space premium is valid for
homes that were as much as 200' -500' from the open space amenity. But
higher values on smaller lots and open space premiums as far as 200' to 500'
away are NOT supported by this study. NOTHING is supported by this study
because the researcher is unqualified to conduct it and the methodology is

Its inappropriate to include urban areas like the Lake Calhoun neighborhood
in Minneapolis and extrapolate these findings to new suburban development in
Medina. Its not the same real estate buyer.

What is important on size in suburban lots is the lot WIDTH. My appraisal
experience shows a significant drop in suburban single family lot value when
the lot is less than 80' wide, which affords a 3 car garage as well as some
elbow room from your neighbor. The Embrace Open Space study is trying to
convince you that size doesn't matter - it does.

As an appraiser market data has shown me that lots that back open space
typically do have a premium. But I have NOT seen data that supports this
premium extends 200'-500' feet from the open space. For example, a lake lot
sold in Maple Grove at a LOT price that was more than double the HOUSE value
across the street.

The Embrace Open Space study promotes a development pattern of small lots
adjacent to large open space, like Jackson Meadow. But this study only takes
into account homes that have SOLD so their Washington County study missed
most of Jackson Meadow. Jackson Meadow in Marine on St. Croix is a
development built in 1999 that has all the principals this study claims to
prove will increase property values--small lots in the suburbs surrounded by
large open space. Jackson Meadow had a lot of press and won awards for its
design. Coming on the market in 1999 it was there for the real estate boom
where almost anything sold. Except Jackson Meadow. Of the 30 lots, only 15
have sold since 1999. An absorption rate of 1.36 lots per year does not
spell success.

I see that Embrace Open Space recently presented their study to the Medina
City Council. If they make their way to your community ask them about
Jackson Meadow.

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