4 subdivision lots

[Value Ninja]

I have a pending assignment for 4 subdivision lots (single family). 16 of 22 total lots have homes. 2 vacant lots individually owned. My prospective assignment is to appraise the 4 remaining developer owned lots for a bank. 2 of the lots are clear with similar size, and the other 2 are wooded/pie shaped/ in a cul de sac. There is data, and valuing the lots individually would be no problem. At what point does a multiple lot assignment turn into a 'subdivision analysis', involving absorption rates/discount rates/etc...? Does this assignment involve 2 appraisals (with comments relating to the other lot in the same class)?, or 4 separate appraisals?, or something else in narrative form? I know that with enough lots, that the market value does not equal the sum of the individual parts. But, is 4 different than 2 in this respect? or 8? Trying to determine the complexity of this assignment to see if I am able to take it on or not. Thanks for your feedback.

 

[Meandering]

It all depends on the scope of the work, what your client is looking for, individual values, or value as a whole, considering a single sale of all lots to a single buyer. It could be one appraisal, 4 appraisals, or 5 appraisals, and all in one report, or it could be individual reports.

There is no rule that over two the report has to be xyz.


,.

 

[Michael S]

Ask the client what they're looking for. I'm guessing they want one bulk value for all four lots. There probably won't be much of a discount for just four lots. The absoprtion period could easily be less than a year. I would determine the retail value of each individual lot and then using other bulk sales and surveys of local investors/developers/builders determine how much of a discount (if any) would be required for someone to buy all four.

 

[Terrel L. Shields]

At what point does a multiple lot assignment turn into a 'subdivision analysis'

5 lots or more...you are safe and you can do all 4 of them as one "unit" or you can do them individually

To comply with the Federal Reserve Appraisal Standards for Federally Related Transactions Subpart G 225.64 of the FDIC, an appraiser must among other requirements,
analyze and report appropriate deductions and discounts for any proposed construction and discounts for any proposed construction, or any completed properties that are partially leased or leased as other than market rents as of the date of appraisal, or any tract developments with unsold units;
Further, the FDIC defines tract developments as follows in 225.62. (2)j:

　
"Tract Development" means a project of five units or more that is constructed or is to be constructed as a single development.

 

[Greenra]

As everyone has noted this is a SOW issue. You could do 4 individual reports; one report with 4 appraisals with an aggregate value; or a bulk value appraisal.

bulk value
The value of multiple units, subdivided lots, or properties in a portfolio as though sold to a single buyer in one transaction. Sometimes called bulk sale value.

bulk sale valuation scenario
In subdivision development analysis, a specific appraisal problem in which a group of properties is evaluated to form an opinion of bulk value. The underlying premise is the valuation of an entire group of lots or units to one purchaser as one sale. The valuation scenario considers the individual values of each property, the absorption period needed to sell the entire property inventory over time, and appropriate deductions and discounting for holding and sales costs as well as profit. Lending institutions typically require an analysis of the bulk sale valuation scenario as part of the financing of tract developments.

Source: Appraisal Institute, The Dictionary of Real Estate Appraisal, 5th ed. (Chicago: Appraisal Institute, 2010).

[url]http://greenra.com/[/URL]

 

[Value Ninja]

Thanks for the feedback. Client wants a bulk value. Greenra, you are describing a traditional subdivision analysis, right? But I'm wondering at what point the threshold for that type of approach is needed. Certainly not for 2 lots. What about 3 or 4 or 8 or 20?. Terrell S provided some regulatory guidance, indicating 5 lots. My research shows that discounts (for this segment) occur somewhere around 3 or 4 lots. I have identified several subdivisions which have both multiple lot sales and single lot sales. The multi-lot sales were discounted (per lot) relative to the single lot sales. There is a range for the discounts (middle of the range around 10%-12%). The elements of analysis you reference (absorption, etc...), should already be cooked into the prices of the multi-lot transactions, right?

 

[Meandering]

The elements of analysis you reference (absorption, etc...), should already be cooked into the prices of the multi-lot transactions, right?

If the world only ran backwards, yup, otherwise, depends on how old your sales are, what is under development now, what will be coming on line for lot sales, what externalities might be coming on line that would increase or decrease demand.

You need to look at demand and supply over time, and those factors that have, or will impact it, including zoning changes, new regulations, tax increases/decreases and the overall economy of the area, unemployment, yada, yada. There are historic absorption rates that could be trended, (text booked as a linear trend) or as a regression analysis. Just depends on what data and information you have and can get for the current supply and availability.


.

 

[Greenra]

I wouldn’t look at it as a traditional subdivision analysis since the lots have been subdivided and that part of the cost has already been incurred. As the definitions implys it is simply a Bulk Valuation whether 2 or 100+ lots/units are appraised. I think you have a pretty good grip on what you are doing as the absorption/carrying cost along with anticipated profit (entrepreneurial incentive) should be included in the price paid for bulk sales.

Bulk Sale
The sale of two or more parcels of real estate to one buyer in one transaction. Usually a bulk sale will involve multiple parcels of either vacant or improved properties.
Source: Appraisal Institute, The Dictionary of Real Estate Appraisal, 5th ed. (Chicago: Appraisal Institute, 2010).

The bulk Sale of the comparables may represent a price per lot that could be adjusted and applied to your 4 lots indicating a bulk value. Or as you implied you can use these bulk sales to develop a discount rate applicable to your Aggregate of Retail Value.

Aggregate of Retail Values (ARV)
The sum of the separate and distinct market value opinions for each of the units in a condominium, subdivision development, or portfolio of properties, as of the date of valuation. The aggregate of retail values does not represent an opinion of value; it is simply the total of multiple market value conclusions. Also called the sum of the retail values, aggregate retail value, or aggregate retail selling price.
Source: Appraisal Institute, The Dictionary of Real Estate Appraisal, 5th ed. (Chicago: Appraisal Institute, 2010).

Also, direct comparison can by used as a check against your discount method or vice versa.

Simply said, call the assignment a Bulk Valuation, Conclude to the Aggregate of Retial Value (total of the 4 lots based on single lot sales), discount this number based on you analysis of bulk sales, and call your conclusion a Bulk Value.

http://greenra.com/
http://greenra.com/

 

[Greenra]

Now that I re-read your post, let me add. If the most proable buyer of 2 lots is an investor who by definition would expect a return than there should be a discount for a bulk sale compared to retail sales of single lots. If not where is the return of and on capital for an investor who buys 2 lots when he resells them. Given the imperfections of the marketplace it may difficult if not impossible to extract a discount by simply reviewing data without interviewing buyers/sellers/agents involved in bulk sales. This is how entrepreneurial incentive is exracted from the marketpalce--- by survey.

 

[George Hatch]

Depending on what your market is like you may already have access to comparable sales data involving multi-lot sales transactions. The sales don't have to be that recent; you're primarily interested in the discount factors involved.

The most common buyer for 4 lots in my region is a small builder. And yes, those transactions almost all pay less per lot than if sold separately. The general rule of thumb around here is that those sales usually involve a 15% - 25% discount factor.