Arm's Length vs Non-Arm's Length Sales

[J Grant]

big city. unless you can build on that row house lot next door, the only value is to the house next to it. used for parking or an actual yard. we have over 40,000 vacant homes. the funny part is that the city has the custom 30% assessed land value for worthless lots, making them unsaleable to the neighbor. so they sit there, sit, there, sit there. eventually, in some parts of the city the lots do go up in gentrification value. the city has time to wait.

How does an assessed value make a lot unsaleable to a neighbor? There is no law I am aware of that a property must sell at an assessed value. The assessed value sets the tax rates to collect property taxes.

 

[Tom D]

the house is worth less than 100,000 in i don't wanna do an appraisal there. the lot next door, torn down house, has no value. the few neighborhood lot sales were below $3,000 but the city wants $30,000 for it. the city don't care, will not negotiate. they will only sell it for that, or the new gentrified value. you don't have 40,000 vacant homes/lot if the city would sell them for $1. we don't need no stinking law, we are government.
i believe in appraisal terms, they make it economically infeasible to but it. i don't know, maybe they have a law that it cannot sell below assessed value. not real market value, but assessed value.

 

[J Grant]

the house is worth less than 100,000 in i don't wanna do an appraisal there. the lot next door, torn down house, has no value. the few neighborhood lot sales were below $3,000 but the city wants $30,000 for it. the city don't care, will not negotiate. they will only sell it for that, or the new gentrified value. you don't have 40,000 vacant homes/lot if the city would sell them for $1. we don't need no stinking law, we are government.
i believe in appraisal terms, they make it economically infeasible to but it. i don't know, maybe they have a law that it cannot sell below assessed value. not real market value, but assessed value.

The city setting a sale price would mean the lot is owned by the city and it is theirs to sell, correct?

Which is different from your post about the city assessing the lot for X $.

The rest of this post is a rambling discourse that makes no sense -

We don;t have to take every assignment and if we are not competent for it we should refuse it -

 

[Tom D]

The rest of this post is a rambling discourse that makes no sense -

above, they were talking about adjoining site value. i was explaining how city owned lots are valued. the are all valued at 30% of the assessed value that the city has assigned, not market value. remember the 30% value rule we question on the cost approach. nothing to do with with taking an appraisal assignment. i hope i have simplified it enough for you, i mean clarified my rambling discourse for you.
meaness has no home here jgrant. and you be the 1st person to bring up meaness here, so sad.

 

[J Grant]

above, they were talking about adjoining site value. i was explaining how city owned lots are valued. the are all valued at 30% of the assessed value that the city has assigned, not market value. remember the 30% value rule we question on the cost approach. nothing to do with with taking an appraisal assignment. i hope i have simplified it enough for you, i mean clarified my rambling discourse for you.
meaness has no home here jgrant. and you be the 1st person to bring up meaness here, so sad.

Assessed value has nothing to do with market value.
Sorry to be mean- .. idk how to react to some of the weird things I read here -

 

[Tom D]

don't do big urban, if you don't understand how the city government can affect market values and neighborhoods. and then, maybe you do. but today your not passive agressive, just aggressive. i do forget that i generally think in term of ghetto appraising. i will try to improve my communication skills to add suburban and rural thinking. or maybe no more weird thinking. could be getting too old.

 

[Ricky LaFleur]

You keep saying part of the market - that can become a weasel word, which means everything is a comp no matter the terms of sale or odd, atypical motivations of the parties.

The market is what it is. Doesn't mean everything is comparable to the same degree.

Market value (I am sure you know the definitions) takes place under a defined set of terms and conditions and buyer/seller motivations. Anything outside of that, while it may be part of the market, is not a transaction that represents market value; thus, it is typically excluded as a comp.

I think that's a fair argument to make. To what degree the motivation is "typical" is part of the question, though.

A sale of an adjoining property to the neighbor is either nonarm length or too atypical in motivation to qualify as a market value term transaction. A lot next door to Mr Marshall Jones who lives adjacent, can have a very different value and use particular to him, than to every other buyer in the market .

I don't think being an adjoining owner and looking to acquire property next to you constitutes duress, although it could become an atypical motivation. What constitutes "typical" motivation from the buyer side and how many buyers of similar motivation does it take to become "typical"?

If you're looking to acquire a random property in no proximity to you, we're okay with saying that's typical, but expanding a business to acquire a vacant commercial land tract that's been listed for sale next to you for some future use isn't? The buyer has to be anybody but that adjoining property owner to meet "market value"?

When farm land is sold at auction and the last two bidders include an area farmer who is 1-2 miles away and the adjoining owner next door, where is "market value" met? When the area farmer bids $5,000/ac and the adjoining owner bids $5,050/ac and has the high bid, are we to say that the area farmer set the "market value" of $5,000/ac but the winning bid and final sale is not market value?

A sale to an adjacent property owner is rarely on the open market.

That's not even close to true. I'm trying to drag you outside of the SFR checkboxes, J. lol.

 

[Mark K]

I think that's a fair argument to make. To what degree the motivation is "typical" is part of the question, though.

That's the question. IMO, the adjacent buyer is AL but since he likely has a higher motivation than the other buyers, his bid may very well be higher than our typical definition of MV. When we think of unequal motivation levels we usually think of this in relation to the buyer and seller. Unequal motivation between buyers is simply the market at work. There's always someone that wants the property more than the next guy.

When farm land is sold at auction and the last two bidders include an area farmer who is 1-2 miles away and the adjoining owner next door, where is "market value" met? When the area farmer bids $5,000/ac and the adjoining owner bids $5,050/ac and has the high bid, are we to say that the area farmer set the "market value" of $5,000/ac but the winning bid and final sale is not market value?

I often used auction sales for comps but also didn't use the 'winning' bid. One buyer doesn't make a market. I'd usually use the next lowest, 'non-winning' bid for the value. At that point you know there's at least two buyers at that price.

From my experience, adjacent landowners will nearly always pay more and the farmer that is currently planting the land, if he's not the adjacent owner, will also pay a premium as to not lose this acreage for planting. I've seen these premiums be 5-10%, sometimes more than other local sales. I think you need to include this sale in the analysis with the comment that the other sales temper the value lower than this sale price.

I suppose that the current tenant farmer bidding could be considered non-AL since he is currently in a business relationship but the adjacent owner is simply more highly motivated than some other buyers.

 

[J Grant]

The market is what it is. Doesn't mean everything is comparable to the same degree.


I think that's a fair argument to make. To what degree the motivation is "typical" is part of the question, though.


I don't think being an adjoining owner and looking to acquire property next to you constitutes duress, although it could become an atypical motivation. What constitutes "typical" motivation from the buyer side and how many buyers of similar motivation does it take to become "typical"?

If you're looking to acquire a random property in no proximity to you, we're okay with saying that's typical, but expanding a business to acquire a vacant commercial land tract that's been listed for sale next to you for some future use isn't? The buyer has to be anybody but that adjoining property owner to meet "market value"?

When farm land is sold at auction and the last two bidders include an area farmer who is 1-2 miles away and the adjoining owner next door, where is "market value" met? When the area farmer bids $5,000/ac and the adjoining owner bids $5,050/ac and has the high bid, are we to say that the area farmer set the "market value" of $5,000/ac but the winning bid and final sale is not market value?


That's not even close to true. I'm trying to drag you outside of the SFR checkboxes, J. lol.

Nothing to do with checkboxes ha ha--

Again, the definition of market value hinges on the property being exposed on the OPEN market, yes or no? If we both use the same definition, then we signed we complied with it.

Most adjacent property sales are offered between parties and are not listed in the MLS, which means they were not exposed to the open market. If the property was exposed, then it was - but typically, in my experience, that is not the case.

Typical means how the majority behaves and their motivations - since usually only ONE or SEVERAL people live next to, or own adjacent to a property, they clearly are in the minority compared to the thousands of other buyers out there - and on top of that, the combining assemblage of an adjacent property comprises a motivation or price particular to that very limited set of people who live or own the adjacent property

I personally would not call it duress, it is an atypical motivation driving the offer and price of an adjacent property sale.

 

[TerryRohrer]

I often used auction sales for comps but also didn't use the 'winning' bid. One buyer doesn't make a market. I'd usually use the next lowest, 'non-winning' bid for the value. At that point you know there's at least two buyers at that price.

That methodology precludes the use of any sale and leaves the appraiser establishing "market value."