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The Second Avenue subway penalty: An appraiser's view

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Construction on the Second Avenue subway line is scheduled to be completed in 2016, and as any seller or real estate broker will tell you, the current mess isn't exactly helpful to sales:   Four years, after all, is a long time to live in a construction zone.

But with most U.S. homes changing hands every 7 years on average, do appraisers take a longer view when evaluating an apartment on the market today?

Not exactly, says Manhattan appraiser Jonathan Miller of Miller Samuel Inc. 

"As appraisers," says Miller, "we would only adjust for proximity near the subway construction if we see evidence of its impact in the sales data for a specific assignment, either positive or negative."

In other words, appraisers focus on the current value of an apartment. Prospective windfalls would affect the result only if recent buyers built them into the prices they agreed to pay for comparable apartments.

At the moment, says Miller, "lower floor apartments that face active work sites are more likely to be impacted because buyers may not be able to see through to the eventual completion or not be willing to endure the multi-year hassle without some sort of financial incentive."

As the completion date draws closer, he says, "that penalty could evaporate as the market begins to realize the upside to values as the convenience of public transportation is greatly enhanced."

While rentals in the area will no doubt become pricier then too, they are more vulnerable than co-ops and condos to near-term pain, for the simple reason that a one- or two-year lease factors in all of the misery and none of the upside of subway construction.

When Miller recently analyzed the impact of the Second Avenue subway project on rents for The New York Times, he found that median rents in construction-heavy areas fell 1.7% from 2010 to 2011, while rents in adjacent areas rose around 2-3%. 

On the bright side, Miller predicts that the subway project will have a halo effect that transcends the immediate geography.

"I see the new subway line as an amazing longterm benefit to the housing market on the Upper East Side, not just along the Second Avenue corridor," says Miller.

Access to public transportation "has always been one of the keys to establishing market value in a neighborhood," he says. "The Second Avenue subway will help ease congestion on the existing Lexington Avenue line providing a benefit to residents in the western half of the neighborhood and reduce the commuting time for many on the eastern half of the neighborhood. These improvements would likely enhance property values of the neighborhood in the long run."

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