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Weekly UpdatesThe 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.
The authors thank the Ohio Link and the Paul Lawrence Dunbar Library at Wright State University for their generous support by providing the ESRI software through a site licensing arrangement. We also thank the Ohio GIS-Net for providing GIS advice, the Department of Urban Affairs and Geography at Wright State University for their assistance in this study, and the reviewers who commented on this paper.
(1.) In general, previous studies find that if an externality is perceived as favorable, it has a positive effect on the value of the subject property; if the externality is perceived as unfavorable, it has a negative effect. Negative price effects have been demonstrated for houses in close proximity to other negative externalities including a variety of environmental hazards. For a review of the environmental hazard literature, see Melissa A. Boyle and Katherine A. Kiel, "A Survey of House Price Hedonic Studies of the Impact of Environmental Externalities," Journal of Real Estate Literature 9, no. 2 (2001): 117-144.
(2.) John Q. La Fond, "The Costs of Enacting a Sexual Predator Law, Psychology, Public Policy and Law 4 (1998): 468-504.
(3.) P.L. 104-145, [section]1, 110 Stat. 1345. One of the stimuli for this law was the case of Megan Kanka, who in 1994 was raped and killed by a repeat sex offender who, unknown to Megan's parents, lived across the street from her home.
(4.) Ohio Revised Code [section] 2950.01; offenses included in this statute are rape, sexual battery, gross sexual imposition, kidnapping, abduction, unlawful restraint, criminal child enticement, corruption of a minor, compelling prostitution, endangering children (under age 18), pandering obscenity, pandering sexually oriented material involving a minor, and illegal use of a minor in nudity-oriented material. Sexual predators must report to the sheriff's office every 90 days for life.
(5.) Habitual sex offenders must report to the sheriff's office once annually for 20 years.
(6.) Sexually oriented offenders must report to the sheriff's office once annually for 10 years.
(7.) Unlike in some other states (e.g., Alaska), house sellers in Ohio are not required to report the presence of sex offenders on the mandatory seller disclosure form.
(8.) See for example, Dennis M. Doren, "Recidivism Base Rates, Predictions of Sex Offender Recidivism, and the 'Sexual Predator' Commitment Laws," Behavioral Sciences & the Law 16 (1998): 97-114; D. M. Greenberg, "Sexual Recidivism in Sex Offenders," Canadian Journal of Psychiatry 43 (1998): 459-465; Michael P. Hagan and Karyn L. Gust-Brey, "A Ten-Year Longitudinal Study of Adolescent Rapists Upon Return to the Community," International Journal of Offender Therapy and Comparative Criminology 43, no. 4 (1999): 448-458; R. K. Hanson, R. A. Steffy, and R. Gauthier, "Long-Term Recidivism of Child Molesters," Journal of Consulting and Clinical Psychology 61 (1993): 646-652; R. A. Prentky, et al., "Recidivism Rates Among Child Molesters and Rapists: A Methodological Analysis," Law and Human Behavior 21 (1997): 635-659; V. L. Quinsey, M. E. Rice, and G. T. Harris, "Actuarial Prediction of Sexual Recidivism," Journal of Interpersonal Violence 10 (1995): 85-105; and M. C. Seto and H. E. Barbaree, "Psychopathy, Treatment Behavior, and Sex Offender Recidivism," Journal of Interpersonal Violence 14 (1999): 1235-1248.
(9.) U.S. Department of Justice, Office of Justice Programs, Bureau of Justice Statistics.
(10.) These figures were obtained by personal communication between the authors and employees of the Bureau of Justice Statistics, United States Department of Justice.
(11.) The local real estate board reports days on the market only for the most recent listing contract; time for expired listings is not included in the figure they report.
(12.) Not all of the offenders lived in Montgomery County for the entire year. Twenty-five of the 26 offenders where limited disclosure applied lived in the county at year-end. Ten of this group did not live in the county at the beginning of the year. All 223 offenders where passive notification applied lived in the county at the end of the year, but 61 of this group did not reside in the county (or had not yet become registered sex offenders) at the beginning of the year.
(13.) The Dayton Area Board of REALTORS[R] reported 5,614 single-family home sales during the study period. Ambiguous geocoding resulted in 115 observations being discarded from the sample. The remainder were eliminated because of incomplete data.
(14.) Tele Atlas can be found at www.geocode.com. Tele Atlas provides the "Block Face Match" (BFM), which represents the best match rather than parcel level accuracy. In essence, rather than specifying the latitude and longitude at a particular point on each property (e.g., front center) the geocode derived from a BFM is actually a geometric estimation. Tele Atlas stores the beginning and ending address range for a block, and knows the number parity (odd or even). For example, the geocode assigned to 150 Eagle Street, would be roughly halfway between the presumed beginning and ending address range of 100 and 198. The interactive web site for Tele Atlas was used in this study for the geocoding because it provides a high level of location confidence. It can accurately position every point in the data set to six decimal points of a degree, and in the Montgomery County, Ohio area, this accuracy translates to less than 20 inches. It is also fast, repeatable, commonly used in geographic information systems (GIS) work, and accessible to anyone conducting a study. There is a charge for the service, but the cost per address is low.
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