Valuation of Improvements Only

[Red Flint]

separated land and building values

Common also in FEMA work

 

[Ricky LaFleur]

The conditions of your assignment contradict themselves.
You state the value if of the subject improvements ONLY; then you act as if the 100 acres are part of the subject being assigned. If the subject being valued are the improvements only, that means no land is included. That means the improvements do not include the land they currently sit on . That means they would be only worth X$ as scrap material or as a structure with the potential to be moved from the site.

Especially as you specify no EA or HC/. I believe the improvements only are personal property if they do not include the land.

Valuing the improvements only is not the same appraisal problem as developing a cost approach for the improvements. You can develop a cost approach as part of the development if you want but the assignment purpose as you describe it is to value the improvements only, severed from the land and not including the parcel it sits on.

But for MV, your scenario, where the land is minused from the whole and then the improvements, all by themselves, have a supposed residual "Market value " of x$ -where do the severed-off improvements exist? Where does the imagined buyer paying market value for them find them? Are they floating around somewhere? Hovering 2 feet in the air above the site?

No. They are a part of the real property. They aren't severed or hovering about the ground.
"USPAP FAQ #195: Q - In a real estate appraisal is it permissible to appraise only the improvements?
A. Yes. Standards Rule 1-2(e)(v) states that the subject of an assignment may be a physical segment of a property.
The subject of a real property appraisal does not have to include all of the physical parts of an identified parcel or tract of real estate. The subject of a real property appraisal can be all or any part of an improved or unimproved parcel or tract of identified real estate. For example, the subject of a real property appraisal could be a part of the land, the improvements on or to the land, or some other configuration within a parcel or tract of identified real estate.
Use of a hypothetical condition or extraordinary assumption is not necessary in the specific case of appraising the building component of an improved property, although one or both may be necessary in other specific cases. However, to avoid communicating a misleading appraisal, the report would have to disclose the existence of the land as part of the property, but the land does not have to be included in the valuation."

I believe, as others have stated, that you are valuing a segment of the real property.

Simple... in theory... maybe not so much in practice. You are not appraising the fee simple interest in the property. Some of the bundle of rights are not included in your valuation. Probably the easiest approach to valuing the improvemens is a thorough cost analysis.

I'm not sure I've wrapped my head around what @sputnam is arguing for, as this still sounds like it is an undivided interest of the property, but only to include the improvement segment of it. Thoughts?

Market Value of the whole minus MV of the land equals MV of the improvements, therefore DSC approach.

In any case value the land as vacant and available for it's HBU and the contributory value of improvements. All functional obsolescence belongs to the improvements but external obsolescence may be divided with the land or not. Depends and that is why they hire you.

This seems to make sense in how to approach the appraisal problem. Sales Comparison Approach minus land value. Cost Approach would be pretty applicable, as it would help indicate what land value to back out at the end. Income Approach as a whole could be done as well, if you could still back out the land value at the end.

 

[Terrel L. Shields]

Probably the easiest approach to valuing the improvemens is a thorough cost analysis.

I would argue that the usual effort outside of insurance purposes (to replace the value of the damaged buildings) is to value the residual building value - aka the contributory value of the improvements (w functional obsolescence etc. ie. warts and all) This might involve a taking or contesting a taking.

Where does the imagined buyer paying market value for them find them?

As you've oft mentioned, the MV we opine is not a 'real' sale. There are plenty of reasons to segregate the improvements from the land.

 

[J Grant]

I would argue that the usual effort outside of insurance purposes (to replace the value of the damaged buildings) is to value the residual building value - aka the contributory value of the improvements (w functional obsolescence etc. ie. warts and all) This might involve a taking or contesting a taking.

As you've oft mentioned, the MV we opine is not a 'real' sale. There are plenty of reasons to segregate the improvements from the land.

correct it is not a real sale

But it is a model of a sale - so then what are they buying in this segmented model sale??? If the improvements are not sitting on the hundred areas, what are the improvements sitting on? A small lot ? ( I was being sarcastic when I Said they float in the air )

 

[JTip]

I have an appraisal theory question, and I'm hoping some of you here might be able to humor me and discuss to further my own understanding.
Q: How would you go about valuing the improvements alone on a real property?

Before you answer, please keep in mind that this does not involve lending regulation, the sacred 1004 form, FNMA policy/rulebooks, etc.
Let me provide a hypothetical assignment so that we can better handle the appraisal development procedure:

1. Client: private estate
2. Intended user: the client
3. Intended use: assist client in making a selling decision
4. Value: Market value (from Dictionary of RE)
5. Effective date: current value
6. Characteristics of the property: 100 acres with home, shop building, and a larger hay barn. Location out of city limits, no zoning, 10 miles from nearby town.
7. EA/HC: No known EA or HC known to be needed at this time

For sake of discussion: What approaches would be applicable? How would you complete them? Are the improvements considered real property or personal property in this scenario?

Be it a 1004, eminent domain or divorce assignment, the process would be the same.

Sales comparison would be the first (and only if applicable), income (if applicable) and cost (using M&S for 'specialty' improvements that have no sales data).

Homes, shop buildings and hay barns are all common rural improvements (REAL PROPERTY), and the data should be readily available with a bit of research.

Unless you are being secretive about the land H&BU (consistent use principal), I'm not sure I see the complexity of the questions here.

 

[Terrel L. Shields]

what are they buying in this segmented model sale???

A transaction does not have to occur for the value of something to be needed.... I don't understand why you are having such a time understanding this. And the same would apply to improvements on leasehold property.

 

[J Grant]

No. They are a part of the real property. They aren't severed or hovering about the ground.
"U
Use of a hypothetical condition or extraordinary assumption is not necessary in the specific case of appraising the building component of an improved property, although one or both may be necessary in other specific cases. However, to avoid communicating a misleading appraisal, the report would have to disclose the existence of the land as part of the property, but the land does not have to be included in the valuation."

I believe, as others have stated, that you are valuing a segment of the real property.


.

I was getting facetious when I asked if they float above the ground-
the segment - are just the improvements -what do they sit on? The 100 acres is excluded from the value - so do the improvements then sit on a smaller lot ?
It is market value per your statement , and MV implies a sale so what are they buying, what is the segment? The improvements on a small lot ? The improvements to be carted off the 100 care site?

 

[J Grant]

A transaction does not have to occur for the value of something to be needed.... I don't understand why you are having such a time understanding this. And the same would apply to improvements on leasehold property.

MV definion is what the property should bring in a transaction. So if you are not modeling a transaction then you are not making an opinion of MV.

Impormeves on a leasehold value can still be sold.

If you are valuing something that is not a transaction ( the model transaction of MV the deinon of MV) then it is some other kind of value. such as
Insurance value, cost value, or leasehold value the value of the lease only.

 

[Terrel L. Shields]

f you are valuing something that is not a transaction

You have no idea what you are saying. So you only value property that is sold???

 

[JTip]

The op's intended user and use are simple, how much is it worth so they can sell it.

Find three sales (sales comparison) for this typical 100 acre house/barn/workshop. You wouldn't do a cost approach on an old farm house, old barn and workshop.

There is no partial interest or taking or unique improvements involved.

EZ MONEY.