Accounting Standards Now Allow Upward Land Revaluation

[Patches_Pal]

It is now possible under accounting rules to revalue land upward on a corporation Balance Sheet using International Financial Reporting Standards(IFRS). My HOA has 70 acres of valuable waterfront property that has been recorded as worth $100 for the last 50 years. I now wish to revalue it to its true value of many million dollars. If the HOA Balance Sheet reflects Fair Market Value for the land then the members who own the HOA and its land should benefit. Their HOA membership is appurtenant to their homes tax parcel and will become worth $20,000 or more. It appears to me, appraisers in the past gave the park property and the owners membership no value. How will the appraisers know to include the HOA membership in their appraisal of parcels that are for sale? Should the appraiser be informed by the homeowner? The HOA? Do they need HOA financial statements or an appraisal of the park property to determine the membership value?

 

[TerryRohrer]

Sales of units in the HOA reflect the benefit derived from the land (market value is the present value of future benefits), as perceived by buyers and sellers. Whatever the land is carried at on a balance sheet will not impact that by a cent. In reality, typical unit ownership includes "Unit "X" plus an undivided "Y%" interest in the common elements. The HOA is not an owner of assets, in which case the $100 overstates the value of their interest.

Also, the land is not vacant and available for development. It is likely deed restricted to its present use and is owned as a collection of partial interests held by members. The value of a tiny partial interest is minimal compared to its pro rata share of the value of the whole.

 

[Tom D]

So, without any extra benefit you want to pay more r.e. tax on your unit. It's like those people who want to believe their home is worth one million dollars, until the r.e. tax bill comes due.
Now become a board member, develop that land, and use the profit to pay off your mortgages. If you can't do that then where are all the millions coming from.

 

[sputnam]

It is now possible under accounting rules to revalue land upward on a corporation Balance Sheet using International Financial Reporting Standards(IFRS). My HOA has 70 acres of valuable waterfront property that has been recorded as worth $100 for the last 50 years. I now wish to revalue it to its true value of many million dollars. If the HOA Balance Sheet reflects Fair Market Value for the land then the members who own the HOA and its land should benefit. Their HOA membership is appurtenant to their homes tax parcel and will become worth $20,000 or more. It appears to me, appraisers in the past gave the park property and the owners membership no value. How will the appraisers know to include the HOA membership in their appraisal of parcels that are for sale? Should the appraiser be informed by the homeowner? The HOA? Do they need HOA financial statements or an appraisal of the park property to determine the membership value?

Appraisers aren't accountants. We don't really care, as appraisers, what coporate accounting rules are. Most of the appraisers who post here are real property appraisers. We would not have or attempt a professional opinion about the value of a membership. If membership transfers with the real property, then it is included in the value of the real property... and hopefully, all of the comparable sales used would be similar in that regard. If they weren't similar.. then, of course... the appraiser would need to analyze the market reaction to any differences.

 

[Terrel L. Shields]

Not a problem for the appraiser, just the accountants.

 

[George Hatch]

The value of land lies in its utility. What can the HOA do with this land? I mean, besides increasing the property tax assessment that the HOA pays.

As far as the market value of common elements adding to the market value of the individual units, those individual units are compared and valued against each other. So labeling the common elements more valuable only becomes meaningful if/when the unit owners can benefit in some way.

 

[Surf Cat]

Appraising condos $uck....you can't even get a straight answer from the association about how many units are rented, if there's any litigation against the association, how many phases, etc. etc. without them sticking out their hand for a hundred bucks for the information.

If the condo appraisal is for an AMC, and you write a blurb in the report stating it wasn't within the scope of the appraisal "to pay" for said information needed and the appraiser recommends to ask for the condo certification from the lender...that causes a big drama.

So on top of all that nonsense, we're supposed to value the marsh next to the development? No thanks. Don't get paid enough as it is.

 

[Patches_Pal]

First of all, this is not a condo community. It is a community of average to high end suburban homes on or adjacent to a large recreational lake. In the past, the comparable properties don't seem to show much difference between a home adjacent to a public park verses a private park the homeowner has an ownership interest in. An appraiser has never come by the HOA office and asked for a tour of the private park property to assess the value of the homeowners interest. My question is, if we revalue the park will they do so?

 

[Patches_Pal]

Sales of units in the HOA reflect the benefit derived from the land (market value is the present value of future benefits), as perceived by buyers and sellers. Whatever the land is carried at on a balance sheet will not impact that by a cent. In reality, typical unit ownership includes "Unit "X" plus an undivided "Y%" interest in the common elements. The HOA is not an owner of assets, in which case the $100 overstates the value of their interest.

Also, the land is not vacant and available for development. It is likely deed restricted to its present use and is owned as a collection of partial interests held by members. The value of a tiny partial interest is minimal compared to its pro rata share of the value of the whole.

The deed on the land is in the name of the HOA. The homeowners own an interest in the HOA. The HOA Board has all the authority to buy, sell, rent, repair or encumber the property. Upon liquidation the Bylaws state each homeowner would receive a pro-rata share of the remaining proceeds. Some of the property could definitely be sold off for development. We have had developers come by asking to join the HOA so that their new homesites would have access to the lake. Obviously, it has tremendous value. I estimate the land is worth at least $30 million.

 

[George Hatch]

The sales history of the homes in the project will demonstrate any difference in values which might be attributable to the HOA and its common elements. The most comparable sales will be those within that project area. The units which are waterfront or which have a view amenity can be compared to the units which lack as a means of isolating the value of the view and location within the project.

If the thinking in play here is that increasing the stated value or the market value of the non-usable land in the HOAs common elements will have some effect on the value of the individual units, the answer to that question is "probably not". Except perhaps to increase the HOAs operating costs (and the resulting effect on the HOA dues) via increasing the property tax assessment.

If the project approvals for the density and configuration of the developed portions were originally made contingent upon setting aside these areas for habitat or open space conservation then those legal limitations might prevent parcel usage (and the values thereof) based on any other considerations.

What's land worth if nobody other than the conservationists can do anything with it?