Value Definition For Set Price Site In Co-housing Development

[VolcanoLvr]

Anyone here experienced with 'co-housing' communities? (Those who aren't....look it up...no time to explain now)

Sites are being sold for a 'set price' by the originator/developer. There is no price negotiation. Take it or leave it is the methodology.

For typical appraisal purposes, this is far different than situations where people work back and forth to establish the final sale price - which meets the definition of Market Value in its various iterations.

USPAP [Std 2-2 (v)] requires an appraisal report to state the type and definition of value, and disclose the source of the definition.

A set price for a site, take it or leave it, is not, as I see it, 'market value' because there are no negotiations.

So what definition is used for an appraisal report for co-housing sites if the lender wants documentation of the site value for a portfolio loan on the property?

 

[Meandering]

2 things.

1st thing - Principal of substitution -
Are there other co-housing subdivisions that buyers can chose yours at price $X, or chose another at Price $Y? If so, comp out the land in all similar subdivisions - you still have market value - for a segment of the market - no much different than 55+ communities.

2nd thing - Casual Observation -
Buyers can walk away from a price, so it competes with other land for sale, but buyers are choosing to accept the "as stated" price and buy there - so there is market acceptance as a choice within the "where shall we build a new house" market segment.

Okay 3rd - Why did you think there wasn't market value in the land? No one is forced to buy. The choice to not negotiate is still a choice by both the buyer and seller.

.

 

[J Grant]

Nowhere is it said in the definition of MV that a price must be negotiated. Frankly, your question is so odd that I dont' think you are qualified for the assignment you describe. Just because builder sets one price for the lots does not mean they cant' sell at MV. If they are advertised on open market and buyers can compare to other properties, they will sell at MV , whatever that might be. If buyers agree to pay the set prices the lots will sell. If buyers reject the prices, or don't like the planned community, the lots wont' sell. (or only sell at fire sale prices) You need to be exploring the appeal and marketability of the community as it impacts the individual sites and how they compete with other offerings.

 

[hastalavista]

I have a client (FRI) who regularly asks for different value scenarios. But always asks for the as-is market value.
While there are some exceptions (internal analysis) FIRREA requires that a property be valued at "market value". Here is the excerpt from the IAG:

 

[VolcanoLvr]

J. Grant.............nowhere did I say I'm the appraiser for the assignment.

I made the post because this is a new kind of situation that most appraisers never see, and probably would not know how to address in terms of doing a report. Co-housing developments are not exactly plentiful, although they have similarities to PUD's and condo's.

Secondly, all definitions of 'market value' have statements similar to "buyer/seller typically motivated; well informed; acting in their own best interest." While the actual word 'negotiation' is not used, that is precisely what the definition(s) mean. I'm really surprised that you don't understand the concept.

Denis....thanks for your post. I suppose 'value in use' might be an appropriate "type of value" that could be used for co-housing developments.....where the site cost is predetermined and buyers all pay exactly the same amount. Then again, 'Fair Market Value' as noted below, might be more accurate, and easier to incorporate.

I'm still not convinced that the typical Definition of Market Value we use in the majority of mortgage lending reports (GSE forms) is the correct one for this kind of co-housing development property.

Fair Market Value (as used by the IRS) [from Wikipedia]:
United States[edit]
In United States tax law, the definition of fair market value is found in the United States Supreme Court decision in the Cartwright case:

The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. United States v. Cartwright, 411 U. S. 546, 93 S. Ct. 1713, 1716-17, 36 L. Ed. 2d 528, 73-1 U.S. Tax Cas. (CCH) ¶ 12,926 (1973) (quoting from U.S. Treasury regulations relating to Federal estate taxes, at 26 C.F.R. sec. 20.2031-1(b)).[1]
The term fair market value is used throughout the Internal Revenue Code among other federal statutory laws in the USA including Bankruptcy, many state laws, and several regulatory bodies.[2] In litigation in many jurisdictions in the United States, the fair market value is determined at a hearing. In certain jurisdictions, the courts are required to hold fair market hearings, even if the borrowers or the loans guarantors waived their rights to such a hearing in the loan documents.[3]


Lastly, the appraiser involved discussed this assignment with the lender. The lender intends to portfolio the loan...not sell it off to a GSE. It is not a FRT transaction. That drives the decision as to what 'type of value' and the resulting definition/source is to be used in the appraisal report.

 

[J Grant]

If it was a real assignment there would be a value definition attached.

I understand your point about MV definition, the builder could have "set"prices on the lots, the appraiser would arrive at the MV definition opinion of value on the lots. We can't tell a builder how to price their lots!

 

[VolcanoLvr]

"If it was a real assignment there would be a value definition attached."

Wow! A real profound (highly inaccurate) statement.

It's not up to the person ordering the appraisal to 'attach' or even decide on what value definition to use.

It's the appraiser's responsibility to figure that out BEFORE completing the report.

 

[Howard Klahr]

The lender intends to portfolio the loan...not sell it off to a GSE. It is not a FRT transaction.

The issue of FRT has nothing to do with selling the loan or portfolio the loan. What type of institution is the lender.

Fair Market Value as defined by the IRS would not apply for lending purposes.

up to the person ordering the appraisal to 'attach' or even decide on what value definition to use.

It is actually part of the scope of work that is to be addressed in the engagement process. It is not something to be addressed after accepting the assignment.

 

[Deleted member 134708]

I'd guess anything transacted in US dollars is a Federal transaction as its a federal currency.

 

[Howard Klahr]

I'd guess anything transacted in US dollars is a Federal transaction as its a federal currency.

And you would be wrong. Federally related transactions are specifically defined and DO NOT include Fannie Mae, Freddie Mac FHA or VA transactions