Can you value as vacant.if its improved?

[The Warrior Monk]

My opinion is that if the property being appraised cannot transfer (in a market value assignment) as the property is defined, as of the date of value, then it does not exist, and a hypothetical condition is required. This is entirely consistent with the definition of a hypothetical condition.

The fact that something may physically exist is not relevant, since that is not what we appraise. We appraise property rights. Thus whether the property rights do or do not exist as of the date of value is what is relevant to the appraisal.

 

[Deadbusiness]

Client wants a land value only. Rules, regulations, forms, etc make what should be a simple assignment/request difficult. Another instance of not being able to sell a product the client wants.

 

[DWiley]

The fact that something may physically exist is not relevant, since that is not what we appraise. We appraise property rights. Thus whether the property rights do or do not exist as of the date of value is what is relevant to the appraisal.

Yes, we do appraise rights. And in the case of appraising part of a real property, the rights to the "part" do exist, they just have not been codified separate from the whole. Simply put, if I own a 10 acre tract, I have the right to sell half of it (more accurately, the rights to half of it), even if there is no deed that describes the half I intend to sell.



As I said earlier, the ASB's position has not been consistent. The "underlying land" Q&A and the 'house and 5" Q&A should be based on the same fundamentals, but the answers conflict.

 

[DWiley]

Client wants a land value only. Rules, regulations, forms, etc make what should be a simple assignment/request difficult. Another instance of not being able to sell a product the client wants.

It isn't difficult at all. Twice now I have provided a simple solution that works regardless of whether you think a HC applies or not. Just say what you are doing, why you are doing it, and the implications of doing it.

 

[fifteen]

The difference is that the land does exist and it's there to do with what you want. No hypothetical needed if it's there to do with whatever you like. We appraise a bundle of rights. But Dave, you're right, for a transfer then something has to happen that isn't there - a new legal for instance and that would be the hypothetical. But, to value a portion of the property for any reason besides a sale and recording is not a hypothetical. Not everything we value has to sell.

 

[Webbed Feet]

Has anyboyd drug "the house and 5" into this discussion yet?

Not much. But I can tell that as early in the day as it is, you need to slow down and get some dinner....

 

[Ken B]

Why is this a problem? The land exists; that is not hypothetical. It is encumbered by improvements; that is not hypothetical. If comparing the existing property to vacant land, an adjustment would need to be considered for the cost to clear the property. Why is this a problem?

I bet what the client is really seeking is the value of the land and site improvements. Might the site improvements add some value to the land? They might. It depends upon the HABU of the land. If the existing improvements support that use, they may add value. If not, they may add little to no value.

When land is valued in the cost approach, it is valued "as if" vacant. When one values something "as if", that does create an HC. The very use of the phrase "as if" directly indicates a condition other than what does exist. Is the HC a problem? That depends on the SOW as determined by the needs of the client. Can the client utilize an appraisal based upon an HC? Maybe. Only the client can answer that question. If not, then the impact of the improvements must be considered when valuing the land.

This is not necessarily an easy assignment, although those that would retain the appraiser are likely to argue otherwise. But it is not an impossible assignment.

The appraiser must simply determine which components of the property are being valued and do the research and analysis necessary to develop an opinion of that value.

 

[Webbed Feet]

Cost approach addresses a replacement or reproduction of what exists--call it hypothetical if you want--merely muddies the waters.

Highest and best use is central to the appraisal--not an opinion of value but an analysis and conclusion that drives the valuation including selection of comparable sales, rents, cap rates, etc.

Hmmmm... Ok. So we are performing a "Replacement" cost for a 1949 to 1985 house that all the replacment costs reflect modern 2x6 construction, modern windows, etc. etc. And almost nobody I know of would try to do a reproduction cost instead for the vast majority of assignments...

You're right, the water is muddy..... That sure represents the specific subject versus a hypothetical replacement.

 

[Pittsburgh Pete]

My opinion is that if the property being appraised cannot transfer (in a market value assignment) as the property is defined, as of the date of value, then it does not exist, and a hypothetical condition is required. This is entirely consistent with the definition of a hypothetical condition.

The fact that something may physically exist is not relevant, since that is not what we appraise. We appraise property rights. Thus whether the property rights do or do not exist as of the date of value is what is relevant to the appraisal.

Land under improvements conveyed all the time. Could cite numerous examples of houses, retail buildings, warehouses, etc. constructed on leased ground. As Mr. Wiley notes, property rights are what we appraise all the time.

Expanding on Mr. Wiley's example, I can sell the 10 acres of land without selling the house--enter into a long term lease for the land. Not an uncommon situation in some parts.

 

[Ken B]

Land under improvements conveyed all the time. Could cite numerous examples of houses, retail buildings, warehouses, etc. constructed on leased ground. As Mr. Wiley notes, property rights are what we appraise all the time.

Expanding on Mr. Wiley's example, I can sell the 10 acres of land without selling the house--enter into a long term lease for the land. Not an uncommon situation in some parts.

True, but in such an instance, the interest appraised would be leased fee as the land is encumbered by the lease and the improvements thereon.