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  #1  
Old 09-23-2011, 05:13 PM
Road Rage Road Rage is offline
 
Join Date: Aug 2011
Location: Southeast Michigan
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Default Condemned

I was contracted to do a HUD REO property. During the inspection, there was a notice on the door from the city's Engineering and Building Department. I called and found out the subject was condemned the previous day by the city council and is now scheduled to be torn down. The client still wants an appraisal. However, they want me to appraise the property with the present effective date and as-is, as vacant land stating that the structure no longer holds value. I did some research there are a few closed sales that have sold that were torn down by the city a few months after their sales. I'd have to do some more research to find out if the purchaser knew they were condemned or not from the listing and/or selling agent, but there are similar condition sales on the market. I told them I'd be happy to do a vacant land appraisal with the hypothetical condition the structure was not there, but they don't want that. I'm probably missing something obvious, but condemnation is not an issue I'm familiar with. Any advice?
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Old 09-23-2011, 05:56 PM
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Scott R Marshall Scott R Marshall is offline
 
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Your "as-is" value then would be the value of the site - demolition and clearing of the site. Ideally, if you have comps with a similar situation you can also see if there is any further market reaction beyond this as a potential buyer may want a bit more incentive to take on the hassle of removing the condemned structure but if you do not, then this would be the route to go.
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Old 09-23-2011, 06:09 PM
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Michigan CG Michigan CG is offline
 
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Your appraisal is AS-IS with the condemned building. It is the value of the land minus the cost to remove the structure. Don't forget the costs of all permits.
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Old 09-23-2011, 06:14 PM
Road Rage Road Rage is offline
 
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Forgive me for asking [what may be] a stupid question, but since this would be going on the Sales Comparison Approach of a Land Appraisal, wouldn't I have to find the market reaction to the condemned structure rather than the actual cost to tear it down. The reason I ask is that I always also told/trained that cost adjustments don't belong on the Sales Comparison Approach as they may or may not be market based. Thanks to both of you for the assistance. It is much appreciated.
  #5  
Old 09-23-2011, 06:19 PM
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PropertyEconomics PropertyEconomics is offline
 
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Does the City pay for demolition of the building or do they do it and charge it back to the property owner? An important question.
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Old 09-23-2011, 06:48 PM
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You have to find out the cost and the market reaction to said cost.
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Old 09-23-2011, 10:24 PM
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Michigan CG Michigan CG is offline
 
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Quote:
Originally Posted by Road Rage View Post
Forgive me for asking [what may be] a stupid question, but since this would be going on the Sales Comparison Approach of a Land Appraisal, wouldn't I have to find the market reaction to the condemned structure rather than the actual cost to tear it down. The reason I ask is that I always also told/trained that cost adjustments don't belong on the Sales Comparison Approach as they may or may not be market based. Thanks to both of you for the assistance. It is much appreciated.
The cost also includes management of the demolition and the expected profit from the task at hand.
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Old 09-23-2011, 11:23 PM
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Doug DeMars Doug DeMars is offline
 
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I wonder if a fire department would pay to have it burned for training purposes. Just a thought outside the 9 dots....
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  #9  
Old 09-23-2011, 11:36 PM
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Michigan CG Michigan CG is offline
 
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Quote:
Originally Posted by Doug DeMars View Post
I wonder if a fire department would pay to have it burned for training purposes. Just a thought outside the 9 dots....
The OP is in metro Detroit. They don't need practice with fires. They get plenty of on the job training. Arson is a hobby in Detroit.
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Old 09-25-2011, 03:46 PM
David Mescon David Mescon is offline
 
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The client will have to choose - do they want it appraised "As-Is," or "As Vacant and available for its highest and best use?" That the dwelling does in fact exist, as of the effective date of the appraisal, would preclude your appraising the property as vacant, unless you did so subject to the hypothetical condition that it was vacant.

If this appraisal is to be used for condemnation purposes, be aware that there are a lot of moving parts. Since you stated you are not familiar with condemnation, or, in this instance, what would appear to be inverse condemnation, I would STRONGLY recommend you associate with another appraiser who is an expert in this field. It is a specialty. Although not usually overly-complex, there are a few specific things you need to be familiar with in order to do the job.

I don't know whether or not you have any experience as an expert witness, but quite often, appraisers are called upon to testify, be deposed, or answer interrogatories related to these types of appraisals - you need to be prepared for this. Your engagement contract with the client should specify clearly what your fee includes and does not include. Make sure you charge accordingly for any necessary testimony, interrogatory conferencing and pre-trial conference time with the client and/or attorney. My fees for these types of appraisals are based upon an hourly rate of $175 to $200 per hour for the appraisal itself, and $250 per hour for everything else. Good luck!
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