Can a property have a negative value?

[J Grant]

I recall some extremely strong opinions in both directions for past threads.

I have personally appraised properties for negative numbers, but it is quite uncommon. In this case, if demolition costs exceed the site value, it is not feasible to demolish, but clearly the improvements have negative value, as well. The question arises in this specific case of the liability of the local municipality, as a result of the easement. I suspect that the municipality will be forced to rectify the issue, but perhaps that is the reason why this appraisal is being done. That is where the parameters of the valuation are important - i.e. are you appraising the property based on the assumption that the municipality will not compensate for any additional damages? If so, it sounds like the value is negative.

Again, imo we need to separate issues.

A financial loss suffered by an owner is not the same thing as the MV of the property ( though they can be related. ) The MV of a property is what the market is willing to pay. If the market paus $20k for a property that the owner suffered a 200k loss on, the 200k loss is what they are suing for - but the MV of the property is 20k.

If a property has no marketability, it has no MV . ($0)

There might be odd cases where an owner of an environmentally damaged property PAYS a buyer to take the property off their hands - that might be a negative MV. But that exotic scenario is not the case here.

 

[Overimprovement]

The $10,00 to remove the barn is a loss to the seller

The $20,000 is the market value of the property.
We are appraising property values, not the profit or the loss a seller suffered or gained.

Example: Market value per recent sale prices is 400k each for two identical adjacent houses, House A and House B .

House A was purchased 10 years ago for 200k. The seller got a 200k profit. The 200k is NOT the market value of the property. 400k is.

House B was purchased 3 years ago for a high price of 450k. The owner suffered a 50k loss. The 50k is NOT the MV of the property. 400k is.

Not if demolition and reversion to vacant is HABU. Your example is only valid if HABU is continued improvement with what is probably a C6 building. Demolition/razing costs absolutely figure into market value. You assume someone ELSE will remove that barn. That's not what current market value means. Would YOU pay $20k for that property as is? Would you take it for free and pay taxes on it every year? Serious questions.

 

[Artemis Fowl]

K

Thread 'Negative Market Value?'

May 24, 2017

I work at a bank that recently took back a vacant parcel of land. There is a recapture agreement for road improvements from 10 years ago that states that if the parcel is sold or developed, a one-time payment of $500,000 is due. We just had the parcel appraised, the value came back at $300,000 “as if unencumbered by the recapture agreement” and -$200,000 “as is”. It was sent out for the review and the review appraiser agrees with the original value of $300,000 but stated that a property can’t have a negative value. He said that the parcel has no market value as it is currently...

• Kevin_B
• Replies: 41
• Forum: Commercial/Industrial Appraisals

 

[Gobears81]

Again, imo we need to separate issues.

A financial loss suffered by an owner is not the same thing as the MV of the property ( though they can be related. ) The MV of a property is what the market is willing to pay. If the market paus $20k for a property that the owner suffered a 200k loss on, the 200k loss is what they are suing for - but the MV of the property is 20k.

If a property has no marketability, it has no MV . ($0)

There might be odd cases where an owner of an environmentally damaged property PAYS a buyer to take the property off their hands - that might be a negative MV. But that exotic scenario is not the case here.

I edited my post a bit and think you responded to the unedited post, but I'll repeat.

If the improvements have reached the end of their useful life and the demolition costs exceed the site value, what is required by the government is the key factor. There are no shortage of homes in my community that are dilapidated and the demolition costs exceed the site value. But, they do not have negative value because there is really no liability to the owner and they can walk away. If the government requires action and is unwilling to provide assistance, then it becomes a liability and negative value.

 

[Overimprovement]

There are MANY cities where they don't take over C6 properties even with taxes 15 years overdue. Why? Because they can't even give them away. Even discounting taxes owed, razing would cost far more than a vacant lot would be worth. We have to consider all 4 elements of HABU on questions like this. If you have to use EAs or HCs are you really talking current as is market value?

 

[J Grant]

Not if demolition and reversion to vacant is HABU. Your example is only valid if HABU is continued improvement with what is probably a C6 building. Demolition/razing costs absolutely figure into market value. You assume someone ELSE will remove that barn. That's not what current market value means. Would YOU pay $20k for that property as is? Would you take it for free and pay taxes on it every year? Serious questions.

If I ( and other buyers) would not pay anyting for the current state of the property, it has NO value ( which is not the same as a negative value )

Demolition and razing is a cost incurred either by the owner who needs to do it to sell, or the buyer who anticipates it after purchase. If the lot appeals to spec buyers who will raze after purchase, normally the lot has some monetary value to them.

I am not even sure in the OP case, the house needs to be razed. It is possible the appraiser is letting their client influence them to get the most $ for their client... again - what are the other houses affected in the community selling for? Why is the owner's particular house a special case?

 

[JTip]

You cannot take a part of an improvement.

This is a 'Before and After' assignment.

Before = As Is prior to any takings.

After = The remaining land after improvements and easements have been acquired.

The after value will be a 'remnant' and will have a nominal (ie $100, whatever) value (for assemblage).

Damages = Before Value less Remnant Value. The property owner will have the option to keep or sell the remnant.

 

[George Hatch]

There are plenty of properties in blighted areas (as just one example) where the cost to cure exceeds the value of the underlying land.

 

[TerryRohrer]

If I ( and other buyers) would not pay anyting for the current state of the property, it has NO value ( which is not the same as a negative value )

Demolition and razing is a cost incurred either by the owner who needs to do it to sell, or the buyer who anticipates it after purchase. If the lot appeals to spec buyers who will raze after purchase, normally the lot has some monetary value to them.

I am not even sure in the OP case, the house needs to be razed. It is possible the appraiser is letting their client influence them to get the most $ for their client... again - what are the other houses affected in the community selling for? Why is the owner's particular house a special case?

You seem to be picking and choosing which aspects of the definition of market value apply, based on your position on a given argument. When you consider it in its entirety, there is little doubt that a negative market value is contemplated.

"Market value is the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale with, the buyer and seller, each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

• buyer and seller are typically motivated;
• both parties are well informed or well advised, and each acting in what they consider to be in their own best interest;
• a reasonable time is allowed for exposure in the open market;
• payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and
• the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale."

 

[George Hatch]

The "as cured" doesn't currently exist. So whatever the property would hypothetically be worth if cured is only useful in an "as is" analysis as a waypoint in the analysis comparing costs vs value.

For example, proposed construction where the proposal is not financially feasible. If you build it you will lose money. That's why some proposals don't get built.