Appraising A New Subdivision

[Alan Simmons]

Terrel:

[I am just being argumentative this morning and really agree that subdivisions are not for the uninitiated]


So, if I read the certification correctly, a CR can value a $2M (115 acre) piece of land if it is handled as a single residential entity, but can not value a subdivision with a transaction value of $250,005 (5 lots)?

I have actually helped on a couple of subdivision appraisals and I would honestly not want to do one (the opportunity cost would eat me alive). And to be honest I did see a couple of reasons to involve a G-man, but these had more to do with the acceptance of the value by the users and deflecting pressure.

 

[Jim Onderisin]

I think Bobby's on the right track. Find someone who has experience with this type of appraisal. The AI is a good source. The person doesn't have to be local. You could also enlist that person to direct the project and you could do the legwork. It'd be good experience.

 

[Terrel L. Shields]

Alan
Yes, subdivisions should be appraised by experienced people. But once all of us are dead, how do you get experience if you never have done one? The poster said he has some mentors to assist him. So go for it.

I learned to appraise a lot of types of property by simply going to a bank and asking if they would let me look at someone else's report. I have dozens of reports and parts of reports dealing with Lot development, commercial buildings, gas stations, farms, convenience stores, etc. Double check against the textbooks and you can spot the ones who are doing a good job. With a good report, a textbook on the subject (or good tract), and time, I can appraise about anything appraisable. So can most appraisers...Time is the limiting factor. Got nothing to do for 2 weeks? Go fer it.

If he does it right, he will probably find..A-it is harder than it looks. B- DCF is no panacea. C-expense estimates are complex D-forecasting future lot prices is not a piece of cake. and certainly, E - he bid the job for about 25% of the fee that he needs.

I see a number of CG appraisers who charge $600-1,200 or so for subdivision analysis. We have a lot of new subs in NWA, and a lot of data, but even so....geez, that is not making much money. I would not consider it for less than $100 per lot, or less than $2,000 even for a 5 lot development. I suspect those cheaper appraisals are claiming a lot of things are in file that are not in file, but would be recreated to match the appraisers judgment.

I mean it would be easy for me to sweep my hand in this area and say a 30 lot subdivision will sellout 50% in the first year, 25% each following year, 3 yr. payout. Lot cost to develop - $6,500. First lots selling for $24,000, last for $28,000. Lot expenses - $100/yr to mow; $75 taxes; 6% selling costs. Those are guesses, but I would bet they are pretty darned close in my community. Put that in a spreadsheet and use 10% for a Discount rate (doesn't everybody, including the SEC use 10%??) - crunchanumber...play by the rules and you take at least 2-3 days longer to do it.

 

[Morton Fitzgerald]

Wow.

Okay, you guys have done your jobs well...I think I'll decline this order.

I'm working 12 hour days already. I honestly don't see how I'll have time to do this thing right without losing all my other business. If I do stay in it, I think I'll contact a local CG and see if he wants to partner up on this thing. Otherwise, I'm out.

Thanks for the help everybody.

 

[Eminent Domain]

Most of these I have seen and all that I have completed contain three values:

1) "As-Is"

2) "As Developed"

and

3) "Net Present Value over a holding period aka Bulk Sale"

It all builds up to the latter.

BF