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Appraisal Of Surplus Land Or Uneconomic Remnant

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Val8r Tom

Freshman Member
Joined
May 11, 2017
Professional Status
Certified General Appraiser
State
Georgia
I am appraising what I believe to be surplus land or it may be classified as an uneconomic remnant. There are two adjoining property owners and one is selling to the other at a price that is about 1/20 to 1/30 of land value of the adjoining parcels. The buyer is a church that needs the land for expansion of their facility. The seller needs the appraisal to support a charitable donation. I am confused as to whether the value appraised would be market value or value in use (Use value). The land is idle but is in the development plan of the buyer.
 

Gobears81

Senior Member
Joined
Nov 7, 2013
Professional Status
Certified General Appraiser
State
Illinois
There's not really enough information here to provide much insight. Surplus land may or may not have value as part of the whole. It is very possible that it was entirely worthless to the seller (again, based on part of the whole) and whatever they get is gravy. But remember that surplus land is regarded as such as part of the whole whereas it sounds like you are appraising this tract separately, such that it wouldn't be surplus land in such case. The contributory value of surplus land and the market value of this land, as though subdivided, could be quite different. Appraise the land, not the sales contract. You can always attempt to clarify with the client, but I highly doubt that value in use would be an accepted definition for a donation basis. Although we do this in every appraisal, it is important to identify the most likely purchaser.
 

J Grant

Elite Member
Joined
Dec 9, 2003
Professional Status
Certified Residential Appraiser
State
Florida
I am appraising what I believe to be surplus land or it may be classified as an uneconomic remnant. There are two adjoining property owners and one is selling to the other at a price that is about 1/20 to 1/30 of land value of the adjoining parcels. The buyer is a church that needs the land for expansion of their facility. The seller needs the appraisal to support a charitable donation. I am confused as to whether the value appraised would be market value or value in use (Use value). The land is idle but is in the development plan of the buyer.

I find this query confusing. The purpose of the appraisal, such as market value, is different than result of appraisal ( identifying whether land is surplus or excess, or a sale contract price is below market value)

Identify the purpose of the appraisal...the client normally determines that, or if client is ignorant , you can help them determine it. What a client uses an appraisal for , such as tax reasons or to show a charitable donation, is different from the purpose of the appraisal.

What is the land being sold? Is it a separate parcel of land? Or is it a portion of a parcel of land? The land is being sold to an adjacent neighbor, but is unclear what is actually being sold...is it land locked such as only usable by a neighbor?
 
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Terrel L. Shields

Elite Member
Gold Supporting Member
Joined
May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
Appraise the land, not the sales contract.
Exactly. What they are selling it for does not matter. Use the IRS definition of FMV. As a gifting, you will have to sign an 8283 form. Don't agonize over it, just do it. Keep in mind there is certain IRS verbiage that is required. If they sold at FMV then they there is no gifting. Since it is selling it sounds like excess not surplus land.

Value it for what it is worth not some idiotic value in use or your client will come after you if the IRS rejects the appraisal. If the value is "jacked", the IRS can come after you.


Fair Market Value :
IRS Regulation Section 1.170A-1(c)(2) defines Fair Market Value (FMV) as “the price at which 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.”

IRS Disclosure:
"The purpose of the appraisal is to estimate the fair market value as defined by the IRS §1.170S-1(c)(2) of the subject property, as defined in this report, on behalf of the referenced client as the intended user of this report. The intended use of the appraisal is to assist the client, as the intended user of this report, in evaluating the subject property."

This appraisal was prepared for income tax purposes.​
 
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Val8r Tom

Freshman Member
Joined
May 11, 2017
Professional Status
Certified General Appraiser
State
Georgia
I find this query confusing. The purpose of the appraisal, such as market value, is different than result of appraisal ( identifying whether land is surplus or excess, or a sale contract price is below market value)

Identify the purpose of the appraisal...the client normally determines that, or if client is ignorant , you can help them determine it. What a client uses an appraisal for , such as tax reasons or to show a charitable donation, is different from the purpose of the appraisal.

What is the land being sold? Is it a separate parcel of land? Or is it a portion of a parcel of land? The land is being sold to an adjacent neighbor, but is unclear what is actually being sold...is it land locked such as only usable by a neighbor?
J Grant
Yes it is landlocked and therefore, in my opinion, not Excess Land. It would not be sold to anyone other than the church under the present conditions that impact it. I am just not sure if I should be appraising market value if there is a limited market.
Exactly. What they are selling it for does not matter. Use the IRS definition of FMV. As a gifting, you will have to sign an 8283 form. Don't agonize over it, just do it. Keep in mind there is certain IRS verbiage that is required. If they sold at FMV then they there is no gifting. Since it is selling it sounds like excess not surplus land.

Value it for what it is worth not some idiotic value in use or your client will come after you if the IRS rejects the appraisal. If the value is "jacked", the IRS can come after you.


Fair Market Value :
IRS Regulation Section 1.170A-1(c)(2) defines Fair Market Value (FMV) as “the price at which 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.”

IRS Disclosure:
"The purpose of the appraisal is to estimate the fair market value as defined by the IRS §1.170S-1(c)(2) of the subject property, as defined in this report, on behalf of the referenced client as the intended user of this report. The intended use of the appraisal is to assist the client, as the intended user of this report, in evaluating the subject property."

This appraisal was prepared for income tax purposes.​
Thank you Terrel
I think this answers my question. So under IRS regulations, FMV would be the value to be appraised which is different than Market Value as defined by OCC and Appraisal Foundation. And just to be clear - I am appraising the property and not the contract. I do believe the church would be foolish not to purchase the property at this price and would be compelled to do so. So there is a little gravy and small supportable "right off" after appropriate and substantial discounts for the limited market.

Thanks again. It is nice to know that there are still active appraisers that are willing to give knowledge and incite to their colleagues.
 

Pittsburgh Pete

Elite Member
Joined
May 6, 2008
Professional Status
Certified General Appraiser
State
Pennsylvania
It ain't surplus land either as that would imply it was a part of larger parcel being valued. You have land with a limited highest and best use that should sell for a fraction of its fee simple value (assuming that it could be developed). The likely purchaser (as is the case) is an adjoining landowner under no compunction to buy it. As a result it would most likely be valued at a fraction of fee simple value (assuming it were independently developable--certainly sounds like your situation). Finding pairs to determine the "discount" over fee simple is difficult but once you find them, hold on to them for future use as they tend to be as rare as hen's teeth.
 
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