Negative Value?

[zydeco2go]

thanks so far

Thanks for the feedback thus far. I think the problem I am having is this, if put up for auction I would guess it may get a bid. I see a shovel that sells for $12 new sell for $15 at an auction sale. Good news is I did find a somewhat similar sale of a heavily damaged home like the subject on more land.

 

[The Warrior Monk]

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.

This is a case where the existing improvements may matter. I've come across situations where the improvements were being improved greater than 50%, and the lot would have no building envelope if it were vacant. The improvements have to be made as conforming as possible. Typically what happens is the new building is built in place, but it put on pilings of the appropriate height.

Determining the answer requires further analysis. This is a case where knowing the code and the precedence for such situations in the past, and having local attorney/planner contacts is very useful.

 

[Mark K]

Unless there is a hazardous waste problem, one whose cleanup cost could potentially follow any owner of record, I don't think there's any negative value possibility.

Last month I turned in a report with a $0 value. By all accounting methods, assets - liabilities, it should have been a negative number but in the residential real estate world I don't see this happening.

My scenario was very similar. Estimated repairs exceeded market value; cost of demolition and site cleanup exceeded the site value by $10K+. (vacant lots selling for $1K or less).

If you think about a negative value it means that you need to pay someone to take the property. If there is no contingent liability that follows the owner, I'll take any property in the country for $1. Send me the $1's and the deeds. I'll then walk away and let the county sell it for nonpayment of taxes or whatever other liens they want to put on it. If there is no recourse to me, what do I care what happens to it after I'm paid?

 

[Elliott]

OP said, "Good news is I did find a somewhat similar sale of a heavily damaged home like the subject on more land."

That's the most defensible way to appraise the property. The next most logical way is
to do a feasibility analysis of how to whip this property into shape and back out the
costs and be left with a residual value.

I've done easement valuations from time to time and go through the list of county sales
that are between $0 and $5000. Then I looked at what they bought and why. People
buy lots of goofy things for a variety of reasons, but they don't pop up in MLS.

 

[Terrel L. Shields]

There have been instances where before/after appraisals suggested that the "after" value was higher than the before (usually due to some commercial size adjustment and the future use..) and courts tend to frown on same... Logic tells you a larger site is worth more than a smaller site, especially with the smaller site is the remainder of the larger...but anytime you think something is "worthless" then watch for its sale and most times, it will sell for something. I have never seen a property sell where the seller had to pay the borrower therefore a "negative market value" is an impossible situation. period.

 

[CANative]

I had a private party assignment in my hometown a couple of years ago. Some out of the area person purchased a vacant lot (2 or 3 acres) at a ridiculously high price ($350k). It was located in a Floodway (flood zone with velocity and potential damage from debris). It didn't have a viable water source, couldn't be built on (ever) and was not suitable for a vineyard. She kept a couple of horse and a travel trailer on it. The loan went belly up and it was going to auction.

One of the owners of a contiguous lot wanted me to appraise in order to make a bid at auction. After fooling around for a month I just could not come up with a value I was comfortable with for the intended use and gave the guy his money back. There was just no HBU for this property other than to keep a horse of two.

The guy bought it at auction for $180,000.

 

[John Hassler]

When I read the title of this thread, "Negative Value", I thought is was going to be about what AMCs add, or more precisely do not add, to the appraisal process.

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.

First off, it sounds like if the building is demolished you are left with a lot which can not be improved for residential use. That being the case, the grandfathered improvements may very well have some value. I've run across this government 50% threshold issue before and they are all a bit different. For some it is for a one year period and other over a 5 year period. What is it for your area? Are there instances in which the county will grant a variance?

Go and talk with the county again. This 50% rule may just end up extending the renovation time (50% of the work this year and 50% the next, or 50% in this 5-year period and 50% in the next, etc.) and thus the holding period before it can be occupied. If that's the case the property may well have value, just discounted for the additional holding time.

Document who at what department you spoke with, and take notes as to what they said. Be sure to discuss how you arrived at whatever decision you came to and descriptively state any EAs. If you don't feel there is enough information to make a determination at this time you can decline the assignment, or arrive at multiple values based on different scenarios if acceptable to the client.

Cool assignment, enjoy.

 

[Mike Boyd]

I have found that there are no properties that do not have at least some value. Typically, there will be a neighbor who can use it to grow or to store something or to merely add a little value to his primary property. In situations like this, document the circumstances and make a subjective opinion of value. Do not try to use a form.

 

[Mr Rex]

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.

Can you provide some sales where the sellers paid the buyers as evidence?

 

[zydeco2go]

neg value

I spoke at length with the person in charge of planning and zoning. They have the 50% rule in place to discourage rebuilding flooded homes in the floodplain. When a home is damaged to the extent of this property typical flood insurance comes into play and the owners walk away. Interestingly enough when the foreclosed homeowner bought the home years ago, it was then and is now in a 100 yr flood zone. I may be wrong as this is not my area of expertise, but shouldn't the loan have been subject to flood insurance? If so it poses sort of a moral problem to me, as I want to get a hold of the homeowner and tell them. Don't worry I won't but it does bother me somewhat.