Roofing CC&R: Property values

HOA case study in respect, Reality, and Reason

Part 1: Property values

Links to the other top-level parts of this discussion:

Part 2: Homeowners' opinions Part 3: What else?

The Roofers, Waterford's version of conspiracy theorists such as Truthers and Birthers, state that they opposes acceptance of dimensional composition roofing because it will harm neighborhood property values. One specific claim is that it will reduce the value of each home by $20,000.

Over the past 3 years, and still continuing, I have devoted intensive study to this issue, and incidentally to the question of what factors have been shown to affect property values, either positively or negatively. If anyone has additional objective evidence, especially any that differs substantially from these findings, please let me know by email.

The most intuitively clear case about specifically local property values is comparison of Waterford with the adjacent neighborhood of Lakehills Estates. Through 2010 Lakehills Estates has been recording generally higher property values than Waterford in both dollars per home sale and dollars per square foot in those sales.

Although the Roofers have claimed that Waterford would be the first in our part of El Dorado Hills to have dimensional composition roofs, such roofs are already present at least in these other villages in our area: Green Valley Acres, Lakehills Estates, Lakeridge Oaks, Marina Village, and Oak Creek Hills. In two of these villages dimensional composition is the dominant type of roofing Immediately south of Green Valley Road dimensional composition is also present at least in Franciscan Village.

Click on either of these images to see it at higher resolution. Many web browsers require two clicks to see maximum resolution.

Lakehills Estates and Waterford property value trends

Lot coloring is ...

Red: Low quality composition roofs, mainly dimensional
Orange: High quality dimensional composition roofs
Green: Tile (concrete or clay)
Cyan: Not surveyed (yet) or roof not visible from street
Other colors: See legend in the image

Composition quality judgment is by material thickness. Materials are judged high quality if thick enough to weigh at least 400 pounds per square and to have at least a 50-year warranty: The previously proposed minimum quality standard for Waterford.

This graph superimposes traces of property values based on sold home prices (not asking prices) in Lakehills Estates and in Waterford. The original graphic content was captured from www.redfin.com.

Areas shaded in orange show the difference in dollars per square foot when Lakehills Estates values have been higher than Waterford values.

Areas shaded in gray show the difference in dollars per square foot when Waterford values have been higher than Lakehills Estates values.

Stated in text for the benefit of Google and other web search engines:
Lakehills Estates has generally higher property values than Waterford and has composition roofing on 78% of all sampled roofs. 69% of roofs surveyed would be considered low quality composition under the standards previously proposed for Waterford.

The shortest summary of overall findings on property values is this:

	Objective Evidence	Subjective Evidence ₁
Neighborhood property values	Roofing of individual homes has no effect on neighborhood property values	Roofing of individual homes has no effect on neighborhood property values
Individual home value	Roofing type has no effect on home value. Roofing condition may affect home value₂	Roofing type generally has no effect on home value, but in some cases there could possibly be a minor effect. Roofing condition can affect home value when condition of an existing roof is sufficiently poor that reroofing will be necessary soon.

1: Subjective evidence noted here is limited to reports which are anecdotal but factual and comments by individuals with professional experience related to home valuation. No statements by manufacturers or distributors, especially in advertising, are considered as evidence; it is common if not normal for these to introduce bias on behalf of the writer's product(s).

Caution is necessary when considering subjective evidence: Even professionals are vulnerable to the human traits of bias and prejudice. It is best to cross-check among multiple credible sources to qualify opinions as being likely to represent fact.

2: At the time this is written the only clear objective evidence for roofing condition affecting the value of an individual property is a study of a locality with all wood roofs in a high fire danger area of Colorado. It found a maximum property value impact of 4.7%. Property values in the area were much lower than those in Waterford; 4.7% in that location may be a reasonable match for the cost of reroofing.

See Summary of Google Scholar research for a summary from the best sources of objective evidence.

These are examples of accepted subjective evidence:

Scott T, President of Woodside Homes of Northern California (a builder), reported that his company conducts marketing focus groups to sample public opinion in new-home markets. He reported that participants would pay up to $7,000 more for a home with tile roofing than for a home with dimensional composition roofing in his market area, which is not in El Dorado Hills. However, he said that this finding is specific to choices for new homes and would not be applicable to home resale markets. Furthermore, he said specifically that the type of roofing on any given house would not affect the values of nearby homes or of an entire neighborhood.
In at least 200 to 300 hours of research I have found no objective evidence from any source that choice of roofing type on individual houses affects property values of other homes, either positively or negatively. This true for all types of roofing: Not just dimensional composition.
The same research has produced no objective evidence that use of dimensional composition roofing affects the value of an individual house using that roofing material. This is true for other types of roofing as well, with some degree of uncertainty for particular types: Especially wood shake. One study showed roofing condition to be a factor for wood shake roofs in a high fire-danger area.
In the category of subjective opinions, the Lake Forest Waterford Owners Association surveyed licensed appraisers in four zip codes. Chosen zip codes included El Dorado Hills, Folsom, and Granite Bay. With 150 letters mailed, the HOA received 46 responses:

-- 7 said home values would increase
-- 32 said home values would not change
-- 5 said home values would decrease
-- 2 had no opinion
A personal phone check with each of three local realtors produced suggestions that dimensional composition roofing probably does not harm property values, but that wood shake roofing does. When I noted that about half of Waterford's homes had shake roofs, one emphatically said that we need to get ride of the shake roofs for the sake of property values.

This is significant in the current controversy: The Roofers are asserting enormous economic harm from dimensional composition, but has no complaint against wood shake. If the realtors are correct, such an ordering of values is most highly consistent with being either erroneous or hypocritical.

Wood shake roofing has two highly apparent problems: (1) Most existing shake roofs in Waterford have a Class B (not Class A) fire rating, and reroofing to produce a Class A shake roof is costly. (2) Almost all existing shake roofs in Waterford used wood of a lower quality than is needed to maintain good appearance after aging about 10 to 15 years. I have personally noticed only two shake roofs in the neighborhood that demonstrated good durability and quality. These probably are the neighborhood's only shake roofs built with Grade 1 materials.

Quoting a web source (www.inspectapedia.com), "Wood shakes and shingles soak up water through their end grain, dry unevenly in the sun, and slowly erode on the surface from a combination of ultraviolet radiation, wind, and precipitation. In humid conditions, wood shingles may become a breeding ground for moss, lichen, and decay fungi. To survive those harsh conditions, wood roofing should be made from a durable wood species that is either naturally decay-resistant or pressure-treated." It also notes that "New wood roofs set on solid sheathing have been known to fail in 10 years or less unless the installer takes adequate precautions to allow for good drainage and drying of the wood roofing materials."
Studying recent sales in El Dorado Hills, as well as other areas, is problematic because of the highly depressed real estate market: The number of sales is so low that it is not feasible to obtain a large enough sample set to assure that it accurately represents any particular neighborhood.

In Waterford there have been 14 home sales in the 6 months prior to October, 2010, as reported through sources accessing MLS information.

Roofing type Number of sales Average Price Average $/square foot
Shake 11 $469,273 $154
Tile 3 $505,000 $186

By mid-November two of the 11 homes with shake roofs had been reroofed by their new owners, changing to concrete tile. The numbers above give the appearance of shake roofing being disadvantageous to property values, but the actual factor could be roofing condition. As noted above, wood shake products are more vulnerable to condition problems than other materials.

A set of 14 sales is a very small sample set in a community which currently has 390 homes. Any attempt to extrapolate quantitatively from this sample set to Waterford as a whole would produce an enormous margin of error. Inferences should only be done on a much larger sample set, and interpretation needs to account for factors other than roofing type. Typically the most important factors cited by most sources as determinants of property values are location and floor area.
An additional study of interest is for 2010 home sales in Stonegate Village. Stonegate was chosen for examination because of the assertions that acceptance of dimensional composition roofing had decreased its property values. This village had 15 sales through mid-November, with sales involving homes with three different types of roofing. This is the summary of results, broken down by the type of roofing on each house:

Stonegate Village 2010-sold home values,
Dollars per Square Foot
Roof Type Count Median Average Minimum Maximum
Dimensional Composition 6 $189 $196 $163 $228
Tile 5 $202 $196 $176 $210
Shake 4 $181 $175 $154 $197

As with Waterford statistics, the size of this sample set is too small to consider as representative of the total neighborhood. However, it is at least consistent with a conjecture that roofing type does not affect home values in Stonegate. It is also consistent with a conjecture that the condition of roofing may have a small but measurable influence on the value of individual homes, with condition currently being an issue only for shake roofs.

Also, Stonegate property values as measured in dollars per square foot were slightly higher than Waterford's. Absolute prices were much higher in Waterford than in Stonegate because Stonegate homes generally have about half the floor area of Waterford homes.
The best objective data for analyzing factors in property values is in economic research in this area using "hedonic analysis", also called "hedonic regression".Papers reporting results of individual studies can be located through Google Scholar. See Summary of Google Scholar research for additional information.

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Roofing type	Number of sales	Average Price	Average $/square foot
Shake	11	$469,273	$154
Tile	3	$505,000	$186

Stonegate Village 2010-sold home values,
		Dollars per Square Foot
Roof Type	Count	Median	Average	Minimum	Maximum
Dimensional Composition	6	$189	$196	$163	$228
Tile	5	$202	$196	$176	$210
Shake	4	$181	$175	$154	$197