Land Only Appraisal

[GWC]

I had a private client ask me about appraising the fee simple "land only" for a property that is currently improved with an older Oil Change station and a Car Wash, both with 10 years remaining on their lease. Improvements are about 4k SF and the land is about 30k SF. Since this is for a private party and not for a federal related transaction, how would you go about addressing this in the engagement letter and in the report?

 

[Michael S]

Just use a hypothetical condition that the land is vacant and available for development to the highest and best use. I would include a reasonable cost of demolition to clear the site of the current improvements to provide the as is value. After all, why would somebody pay the same for this site as a vacant one which would not incur demolition costs to get it ready for development.

 

[CANative]

If they subject of the appraisal is the underlying land why is there a need for a hypothetical condition?

 

[Terrel L. Shields]

Just use a hypothetical condition that the land is vacant and available for development to the highest and best use. I would include a reasonable cost of demolition to clear the site of the current improvements to provide the as is value. After all, why would somebody pay the same for this site as a vacant one which would not incur demolition costs to get it ready for development.

If they subject of the appraisal is the underlying land why is there a need for a hypothetical condition?

Agree... the "as is" value and the as if vacant values appear to potentially be very close to each other.


http://oregonaclb.org/pdf/USPAPQA-Mar2008.pdf

Does Appraising a Physical Segment Require Use of a Hypothetical Condition?

Question:

I received a request to perform an appraisal on an improved property; however, the client only wants me to provide an opinion of land value, giving no value to the improvements. Does such an assignment require the use of a hypothetical condition, since the improvements exist but are not being included in the value?

Response:

No, such an assignment does not require the use of a hypothetical condition.

Standards Rule 1-2(e)(v) permits the appraisal of a physical segment of a property. In this example, the segment being appraised would be the land. Put simply, the land is the subject of the assignment and the improvements are not. To avoid communicating a misleading appraisal report, the report would have to acknowledge the existence of the improvements on the land, but they do not have to be included in the valuation.


USPAP defines a hypothetical condition as:

that which is contrary to what exists but is supposed for the purpose of analysis.

In this example, a hypothetical condition would not be required because the land does, in fact, exist. ...
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[GWC]

Agree... the "as is" value and the as if vacant values appear to potentially be very close to each other.

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Thank you all for your feedback. If I am only valuing a segment of the property (land only), wouldn't the "as is" and "as if vacant" values be the same? Just trying to wrap my head around how USPAP requires I report it since I haven't valued a property this way before. Am I required to have more than one value in this situation?

 

[Terrel L. Shields]

The as is and as if vacant value would be the same if you value only the land. The HBU "as if vacant" would be to make a determination of what would the ideal improvement be. And the "as is" value is just that. I would say you only need to report the value "as is" of the land only.

 

[DriveByBBQ]

You need to make an extraordinary assumption the land is free of environmental contamination as well. Underground storage tanks might have to be addressed. You need to determine if the tanks are fiberglass or steel. If the tanks are using cathodic insulation and have been without power for a certain amount of time they have to be filled, removed, or inspected and brought up to code. You should reach out the your state's department of environmental management they would have all of the info on file.

 

[glenn walker]

I see you are in California , no offense BUT unless you understand the environmental conditions associated with gas stations in California I would probably either walk from the assignment or pair up with a AG who specializes in this area of expertise. The liability is almost endless because the land could be worth nothing if the tanks are leaking or the cost to mitigate any environmental issues could be staggering. In California you can make all the hypo or extraordinary conditions you want but the attorneys will still name you if there is any future or existing litigation.

 

[NachoPerito]

Just use a hypothetical condition that the land is vacant and available for development to the highest and best use. I would include a reasonable cost of demolition to clear the site of the current improvements to provide the as is value. After all, why would somebody pay the same for this site as a vacant one which would not incur demolition costs to get it ready for development.

I think including demo costs would confuse things. If you are valuing the land then improvements shouldn't come into play at all.

 

[NachoPerito]

I see you are in California , no offense BUT unless you understand the environmental conditions associated with gas stations in California I would probably either walk from the assignment or pair up with a AG who specializes in this area of expertise. The liability is almost endless because the land could be worth nothing if the tanks are leaking or the cost to mitigate any environmental issues could be staggering. In California you can make all the hypo or extraordinary conditions you want but the attorneys will still name you if there is any future or existing litigation.

You need to make an assumption that is obvious in the report that the site is environmentally clean. Write it in the letter of the appraisal as well so the client has full knowledge of this assumption. Has an appraiser ever been held liable when it was explicitly noted in the report that the site was assumed clean and that the appraiser is not an expert in this area?