Negative Value?

[zydeco2go]

I'll try and make this short. I am appraising an REO property. The property has experienced significant flood damage. The last sale 4 years ago was for $165K. FEMA has updated the flood map (pending) and the county has updated what land is buildable as a result. The county states that if the property is improved more than 50% of the assessed value, the new flood rules apply. The estimated cost to repair the home is $125K, exceeding the 50% threshold and the subject will be in the new "undevelopable" area. The county planner further states to me, that with the home falling under the new regulations it would need to be destroyed (est $15K) or moved and it is very doubtful that the lot would be a buildable lot in the future as setbacks, drain fields would not have the land space needed.

So you have a house that you can't repair, you have a house that would cost $15K to destroy, and if you just let the house be, the county can and most likely would condem the house and assess the cost to the property owner, you have a lot that is deemed unbuildable by the county. This is a rural property on a river 5 miles south of a small midwest metro area. It is possible that a landowner might buy the land as a buffer, or the county for set aside land, but there is no data to support such a conclusion. Especially considering that the potential buyer will own a property that will require an estimated $15K of work.

In my 17 years of doing this I have never encountered this and have given this much research. A typical buyer would not buy this home. Common sense says, put this on an auction and see if you get an offer. Farmland in the area sells for $3500 acre, this land is not farmable. Buildable river lots sell for $60K-250K, this is not buildable. Lets say that the land is worth $5,000, but the cost to demolish home is $15,000, do you have a negative value of $10,000.?

Thanks for any constructive input in advance.

 

[Calvin the Airedale]

The owner should donate the house to the local fire department for practice while retaining the deed. Clear the lot, at a greatly reduced cost, then sell the site.

 

[Ken B]

My exact thought.

 

[zydeco2go]

burning house

As a longtime volunteer fireman we did burn houses down in the "old days", but then contractors who removed the homes complained to the City Council (which I was also a member of) that we were taking money from their pockets, thus we don't burn anymore. I will say it is amazing how many empty homes mysteriously catch fire these days and the FD arrives just in time to save the basement.

 

[wyecoyote]

Been awhile since I dealt with something similar. Here is what I looked at. The value of the land may be that of a recrational property. Based upon what you described. Does the land have power and water on site or available? What is a recreational land river front land going for? I assume that you researched all vacant river front land sales since the new regulations came into effect to see if any sold with these type of restrictions. Also you might consider that with some of the new septic system types out there that a drain field may not be neccessary. Just a more exepnsive type of septic. Personally I would look at all vacant river front sales and see if any were not buildable in the past 4 years you could then extract based upon historic data the value of the land. Or you could in an extreme find a vacant land sale that is not buildable and used for recreational purposes and see what value difference between recreational and buildable land value difference and express that in a form of a percentage.

As to your original question could it have a negative value. Yes it is possible to have a negative value.

 

[Meandering]

Once you get to zero, you have no market value, because no typically motivated buyer can pay you less than zero for the property.

You have a negatively performing asset that does not have market value.

If you want to compute costs to liquidate, that's up to you. Mind the value definition you are working with.

 

[Mountain Man]

Sounds like a house like that won't qualify for any financing... so you are looking for a cash buyer, IE: an investor. So as an investor and flipper of properties, once you get to zero value with no incentive for me to make money, the place is pretty much nothing but a future Sheriff Sale waiting to happen.

 

[Terrel L. Shields]

How much is it in the flood zone? In our area, if say, the lot was 100% covered but only by 1', then you can elevate the foundation above the flood zone and have it surveyed to escape flood insurance. The cost of the survey plus the cost of a taller foundation would be the cost to cure. In the Delta where entire counties could technically, flood, foundations are built higher for that reason and in Hurricane country, look what they do...

there is no data to support such a conclusion

There is probably no readily discernable market data to support adding value for an oil well on a property but I wouldn't want to claim it didn't add value.

I bet someone would take the property off your hands if you gave them a deed....so I would hesitate to give it a "negative" value. I know an old junk yard that got repo'd and despite a 5 page disclaimer, the bank managed to sell it. The buyer got remorse later and tried to sue them to take it back but didn't get off first base. He ended up spending about $15,000 to clean it up of old tires (he tried to burn them and got fined) but later built a house and resold it for $150,000 recently.

 

[Lakefront boater]

What a photo!!

 

[Michigan CG]

Negative value happens. Been there done that. A couple years ago on this forum there was a heated debate about a property having negative value. The ones stating that it was not possible to have a negative value were shot down pretty well.