The effect of proximity to a registered sex offender's residence on single-family house selling price.

This study shows that a monetary burden must be borne by house sellers in close proximity to a registered sex offender's residence. Examining single-family house transactions that occurred in Montgomery County, Ohio, during 2000, a significant negative effect upon selling price is discovered due to a house's proximity to the residence of a registered sex offender. The effect is an increasing function of proximity that varies with the community notification system employed, which in turn depends on the risk the offender poses to the community. Limited disclosure is the notification system used for offenders deemed to present a relatively greater risk to the community. Under this system, the sheriff's office notifies owners of houses adjacent to the offender's residence and school officials (who sometimes notify the parents of students). Passive notification is the disclosure system used for offenders deemed to present relatively less risk. Under this system, interested parties must contact the sheriff's office to discover the location of an offender's residence.

It is intuitive that larger discounts would be associated with the proximity of a house to a more dangerous offender compared to proximity to a less dangerous offender. It also is a reasonable assumption that larger discounts would be associated with a notification system where authorities take an active role in the process compared to a system where they do not. Because we are unsure if the public distinguishes between offender classifications, we cannot be certain whether the difference in selling price effect discovered here is due to the relative risk posed by the offender, or if it is due to the notification system employed. If the public does not distinguish between offender classifications, differences in selling price effects should not be present when the same notification system is used for all offenders. Perhaps this could be tested in a state that employs the same notification system for all offenders.

The study results are consistent with both of the above possibilities. Where limited disclosure applies, significant selling price effects are greater and extend farther from an offender's residence than when passive notification applies. Where limited disclosure is employed, the significant negative effect extends to 0.3 mile from an offender's residence. Compared to comparable houses located farther away from an offender, on average, houses located within 0.1 mile of an offender sold for 17.4% less. Houses located between 0.1 and 0.2 mile from an offender sold for 10.2% less, and houses located between 0.2 and 0.3 mile from an offender sold for 9.3% less.

Where passive notification is employed, the significant negative effect extends to 0.2 mile. Compared to comparable houses located farther away, on average, houses located within 0.1 mile of an offender's residence sold for 7.5% less, and houses located between 0.1 and 0.2 mile from an offender sold for 5% less. Despite the relatively compact areas where significant price effects occur, a substantial number of the houses in the sample were located close enough to an offender that they may have been affected. Approximately 7.7% of the houses were located within 0.3 mile of an offender subject to limited disclosure, and approximately 25% of the houses were located within 0.2 mile of an offender subject to passive disclosure.

The study results may actually understate the true financial effect of proximity to an offender's residence because the model did not include a variable for time on the market. From the seller's perspective, extra time on the market lowers the present value of the selling price. The presence of an offender may motivate some owners to accept a low offer to consummate a sale, and the model employed here captures that effect. However, if the owners want an undiscounted price for their house, they may have to extend their search time because knowledgeable buyers will either refuse to make an offer or lower their offer to account for the presence of the offender. To the degree that owners wait for an undiscounted offer from an uninformed buyer, failure to include time on the market will mask the true effect of proximity to an offender on the effective selling price. An examination of additional markets with reliable time on the market data seems a logical extension to this research effort.

To keep the problem tractable, two important assumptions were made concerning the impact of offender proximity on the selling price of nearby houses: that the presence of a more dangerous offender dominates, and that the presence of the nearest offender dominates. This does not imply that the presence of additional offenders located farther away has no effect. Future research efforts could examine the effect of proximity to multiple offenders in the same classification as well as interaction effects between offender classifications.

Implications for Residential Appraisers

What are the implications of this study for residential appraisers? First, this problem is likely to become more widespread because the number of registered offenders is growing. As a result, appraisers may want to modify the appraisal process. As a prerequisite, it is suggested that the appraiser ascertain the local price effect, if any, attributable to proximity to a sex offender. If no effect is present, maintain the status quo. We suspect, however, that the findings presented in this article are not unique. If a price effect is discovered, it is suggested that when estimating value with the sales comparison approach, an adjustment to comparable selling price may be warranted to account for offender proximity. In certain cases, it also may be prudent to place more reliance on the cost approach.

In valuing a single-family house, many appraisers place heavy reliance on the sales comparison approach. In fact, it is not unusual for the final estimate of value to equal the indicated value derived from this approach (with the cost approach used primarily as a device to ensure the reasonableness of the sales comparison's indicated value). This practice can be maintained if the price effect due to offender proximity is identical for the subject property and each comparable property. If this is not the case, appraisers must modify their methodology to accurately estimate value using the sales comparison approach. The potential effect of proximity to an offender must be calculated for the subject property, as well as the effect included in the transaction price for each comparable. Then, each comparable's sale price should be adjusted to account for the difference in offender price effects between the subject and the comparable.

The actions of an appraiser in response to this study also depend, in part, on the purpose of the appraisal. For example, the adjustment described in the preceding paragraph is warranted if the purpose is to support a mortgage loan, or if the appraisal is being prepared for an individual contemplating the acquisition of a house for investment purposes. However, if the appraisal is to establish value for the origination of an insurance policy or for supporting an insurance claim, it is suggested that the cost approach be assigned more importance in arriving at the final value estimate. After all, if the above-recommended adjustment to the sales comparison approach results in a lower value estimate, this does not reduce the replacement cost of the property. Also, to the extent the offender proximity effect is reflected in the comparable sale prices, a lower value estimate could result whether or not the adjustment is made.

Finally, it should be noted that most of the offenders in this study did not change their residence during the study year. However, because offenders are free to move (and report to authorities their new location), the financial burden associated with an offender's presence may be transitory for a particular house owner. A determination of exactly how long it takes for the negative price effect to disappear after the offender leaves remains a topic for further research. Table 1 Descriptive Statistics of Sample Transactions

Standard Variable Mean Deviation Minimum Maximum Selling price (dollars) 83,075 56,662 10,000 595,000 Living space (square feet) 1,355 581 320 5,947 House age (years) 62 23 2 192 Lot size (acres) .361 .984 0.14 16.4 Bathrooms (number) 1.339 .563 0.5 5 Distance to nearest limited

disclosure 1.659 1.676 .004 13.284

offender (miles) Distance to nearest passive

notification 0.574 0.714 .002 10.318

offender (miles) Table 2 ANCOVA Results

Limited Disclosure Passive Noticification

Offenders (PROX set at Offenders (PROX set at

at > .2 & <= .3 mile > .1 & <= .2 mile)