John M.

Crafts, MAI, SRA

Impact of Commercial
Development on Adjacent
Residential Properties

In the town of Henniker, New Hampshire, a proposal to build a 9,800-square-foot

pharmacy at the edge of a commercial zone met significant opposition from
the community, especially abutting residential property owners. A study re-
quested by the Henniker Planning Board to assess how the project might influ-
ence the values of adjacent residential properties resulted in the development
of two empirical models based on data within the subject neighborhood. The
models employed comparative analysis and demonstrated that in Henniker,
commercial development does not have a measurable impact on abutting resi-
dential properties less than $100,000 in value.

I n New England, communities are assess-

ing the economic impact that commercial de-
velopments have on the community at large.
Will a commercial development have a nega-
tive influence on adjacent residential prop-
erties, for instance.
When the town’s planning board of
Henniker, New Hampshire, requested a
study on the influence that a proposed de-
velopment for a pharmacy would have on
the values of adjacent residences, two em-
pirical models were used. The study consid-
ered zoning, existing developments, prop-
erty sales, and assessments. The neighbor-
hood’s boundaries, zoning, uses, and the
subject lot proposed for development are
shown in figure 1.
Boundaries
For purposes of the study, the neighborhood
is defined by the properties in close proxim-
ity to the subject lot identified as 187-A. Resi-
dential properties along Hall Avenue to the
west and south of the subject site were evalu-
ated for potential diminution in value be-
cause of the proposed development. The
northern section of the neighborhood is
bound by east/west U.S. Route 202/9. Route
114 extends in a north/south direction, bi-
secting the neighborhood. Route 114 is a pri-
mary artery extending to Henniker’s busi-
ness center one-half mile south of the pro-
posed development site.
Zoning
Two zones govern the subject neighborhood:
residential zoning (RV for village proper) and
commercial zoning (CM for medium com-
mercial). The boundary lines for these two
zones extend along the western and south-
ern portions of the subject site. Permitted
uses in the RV district include single-family
homes, home rentals of up to two apart-
ments, two-family dwellings, and home

John M. Crafts, MAI, SRA, is president of Crafts Appraisal Associates, Ltd., Bedford, New Hampshire. He
received his master’s in business administration from the University of New Hampshire, Durham. His work
has been previously published in The Appraisal Journal. Contact: 4 Bell Hill Road; Bedford, NH 03110. (603)
472-2444. Fax (603) 472-9856.

6 The Appraisal Journal, January 1998

FIGURE 1 Subject Neighborhood’s Village Proper and Commercial Zones

202/9
Route

187 189-CL HILLSIDE

Post Office Shopping
SUBDIVISION

Route 114
Center

G
Hall St
. Ext.

E 187-A
Subject
Property
187-B
F
ve.

CM ZONE
D
Hall A

191
Fire Station

C
RV ZONE

businesses. Permitted uses in the CM district
include commercial/retail, commercial/ser-
vices, commercial/professional, and com-
mercial/light industry. The subject property
is in the CM zone.
Uses
Extending south from the intersection of
Route 114 and U.S. Route 202/9, the neigh-
borhood has existing commercial develop-
ment. These developments include:
• On lot 187 is a one-story, wood-frame,
5,899-square-foot post office. It stands on
1.14 acres on the northwest corner of
Route 114 and Hall Street Extension and
abuts the subject site.
• On lot 189-CL, across Route 114 and to
the northeast of the subject site is a shop-
ping center that has been subdivided
into a one-story, 1,305-square-foot
branch bank building with a brick exte-
rior; a one-story, wood-frame 1,800-
square-foot veterinary clinic; a one-story,
wood-frame 3,360-square-foot restau-
rant; and a one-story, wood-frame 6,500-
square-foot hardware store.
• Abutting the eastern border of the shop-
ping center is the Hillside residential
subdivision of approximately 45 homog-
enous homes (see figure 2).
• Other residential properties in the neigh-
borhood are located along Hall Avenue
and Route 114.
• On lot 191, abutting the CM zone but lo-
cated in the RV zone is a two-story, wood-
frame, 10,332-square-foot fire station.
The neighborhood, including Hall Av-
enue, Route 114 and the Hillside subdivision,
is serviced by municipal water and sewer.
Subject Property
The subject (lot 187-A) is an L-shaped, 1.75-
acre lot with 272 feet of frontage along Route
114, 207 feet on Hall Avenue, and 150 feet on
Hall Street Extension. The proposed devel-
opment is a one-story, 9,866-square-foot co-
lonial-style building with a wood clapboard
exterior and a shingled parapet roof.

Crafts: Impact of Commercial Development on Adjacent Residential Properties 7

 FIGURE 2 Hillside Subdivision

202/9
Route

A14
In the
A13
assessment
analysis of
Hillside 189-CL
A12
Shopping
properties, no Center A42
differentiation
in values is A23

apparent
between
properties with a A45

commercial
Paired Sales
influence and A12 and A42
A14 and A23
those without. A13 and A45

ANALYSIS Pairings from the two groups were made

To the east of the neighborhood shopping
center is the Hillside residential subdivision
with its 45 homogenous homes of similar
construction and age. Comparative analysis
was conducted on the sales and assessments
of these properties using two models. Assess-
ments were considered because the neigh-
borhood was recently revalued, and the
community’s assessments have a very rea-
sonable coefficient of dispersion, as sup-
ported by the data presented in the models.
Model 1
The Hillside subdivision contains residential
properties that abut the back of the neigh-
borhood’s shopping center and properties
located east of the shopping center that do
not have any commercial influence (see fig-
ure 2).
Properties that abut and/or are directly
visible from the shopping center are identi-
fied as group 1. Sales of residences within
the Hillside subdivision without any com-
mercial influence or are not visible from the
shopping center constitute group 2.
based on their purchase dates, eliminating
price variations that can occur over time. Dif-
ferences in the paired sales were attributable
to the presence or absence of commercial in-
fluence and minor discrepancies in the con-
figuration or amenities available in the
homes. It is worth noting that the shopping
center does not have any landscaping to
serve as a buffer for the abutting residences.
Table 1 presents a summary of the sales
comparisons (Each sale is identified by the
lot number shown in figure 2). To avoid bias
in the study, no subjective adjustments were
made to the paired sales, but important dis-
crepancies between the paired properties
were noted.
The paired sales show a price variance
ranging from -5% to +9% in favor of the prop-
erties without the commercial influence. The
properties without commercial influence had
characteristics that justified the price discrep-
ancy. Given the minor differences in values
and characteristics, the Hillside development
has not demonstrated measurable differ-
ences in residential property prices with or
without commercial influence.

8 The Appraisal Journal, January 1998

TABLE 1 Sales Analysis of Hillside Properties (Model 1)
Sales Analysis
With Commercial Without Commercial
Influence Influence
Pairing Date Property Sale Price Property Sale Price Difference Comments
I 1992 A12 $87,524 A42 $95,048 9% A42 is 6% larger and has a
brick flue for a wood-
burning stove.
II 1993 A14 $90,000 A23 $94,300 5% A23 is 14% larger.
III 1995 A13 $87,000 A45 $83,000 –5% A45 is 17% smaller and
has a two-car garage
and a fireplace.

Model 2 two groups, properties with commercial influ-

The second model contains an evaluation of
the same properties’ assessments (see table
2). The purpose of this model is to identify
the valuation differences that the town of
Henniker recognizes for properties with and
without commercial influences. All assess-
ments in this study were reviewed by town
representatives in 1995.
Because in a homogenous residential sub-
division, such as Hillside, a consistency in lot
values is generally recognized despite minor
differences in frontage and size, the assess-
ments are based on land and overall property
values. By segmenting the land value, discrep-
ancies in building sizes and amenities are elimi-
nated. Any differences in land values would
be attributable to the influence of the commer-
cial development. In the pairings between the
ence (lots A12, A13, and A14) had higher land
assessments than those without the commer-
cial influence. Total property assessments re-
flected minor building discrepancies and were
consistent with the sales prices.
No differentiation in values is apparent
between properties with a commercial influ-
ence and those without. The minor differ-
ences in assessments reflect discrepancies in
building sizes or amenities, such as a garage
or a fireplace.
MARKET STRATIFICATION ANALYSIS
A final test was conducted to evaluate any
market stratification between the properties
in the Hillside subdivision and the Hall Av-
enue properties (see table 3). Market stratifi-

TABLE 2 Assessment Analysis of Hillside Properties (Model 2)

Assessment Analysis
With Commercial Without Commercial
Influence Influence
Pairing Property Assessments Property Assessments Differences
I A12 Land $29,700 A42 Land $29,500 Land Less than 1%
Total $86,000 Total $90,600 Total 5%
II A14 Land $32,300 A23 Land $32,000 Land Less than 1%
Total $92,900 Total $95,900 Total 3%
III A13 Land $32,300 A45 Land $29,500 Land –9%
Total $85,900 Total $85,200 Total 1%

TABLE 3 Assessment Comparisons of Residential Properties

Hall Avenue Properties Hillside Comparisons
Lot Assessment Lot Assessment
G $94,100 12 $86,000
E $88,900 42 $90,600
F $95,000 14 $92,900
D $80,900 23 $95,900
C $92,000 13 $85,900
187-B $80,900 45 $85,200
Mean assessment $88,633 Mean assessment $89,417

Crafts: Impact of Commercial Development on Adjacent Residential Properties 9

 cation is concerned with the price compat-
ibility of the two property groups. For ex-
ample, because commercial development
may impact a $250,000 home differently from
a $100,000 home, it was important to com-
pare the valuations of the Hillside subdivi-
sion properties with the Hall Avenue resi-
dences. Table 3 shows that the mean assess-
ment for the Hall Avenue properties is very
similar to that of the Hillside groups, elimi-
nating concern over market stratification.
The evidence shows that the residences
along Hall Avenue will not incur any mea-
surable diminution of value if the subject site
10 The Appraisal Journal, January 1998
is developed for a pharmacy. This is demon-
strated by market transactions involving
knowledgeable buyers and sellers who pur-
chased properties with and without a com-
mercial influence. Further support is pro-
vided by the town of Henniker’s assessment
practices. In recognition of the facts that the
study group in the Hillside subdivision did
not have the benefit of a landscaped buffer
from the commercial development and that
the planning board will require a buffer for
the proposed development, there is no rea-
son to anticipate any measurable diminution
of value to the Hall Avenue properties.