Appraising a private road

[Terry Russell]

Verne,

Why not use the flagged lot approach with prescriptive easement to all. If all the tracts have been using the road, they have that right no matter who owns it.
Why is it necessary to value it seperately if no one can change its use.?

Got any snow?

Terry

 

[Verne Hebert]

Terry-

This is one of those IRS "things" and they own it. I hear what you are saying; good idea, but it is on the books, how else can I value it but a stand alone value?--I wasn't the idiot that recorded the thing--I have to agree with the posts in concept. Negative value by the pure definition of market value.

Ya' we have snow. Go to www.bigmtn.com. I am going to head up right now for a couple hours of skiing....and a cold one!

Thanks for the input.

 

[xmrdfghap]

<span style='color:brown'>Let me get this straight.

1) The ONLY legal usage is as a road.
2) The taxes are $150 per year.
3) Maintainence costs in that part of the country are going to be high.....figure 8 or 9 roadgrader trips per winter, three or four in the rest of the year.....each trip is going to run close to $250.00 (two hours work at $125.00 and that includes drive time so that $250 may be pretty low), so call it a dozen trips at $250.00 to make it $3,000 per year to maintain, then add enough gravel to keep it solid....maybe another $1,000.00.

We are talking $4,000 to $5,000 per year to own it. (It probably isn't running that high today because the owners probably just use their front end loader or bobcat to maintain it, and it doesn't take that much time.....but if you had to contract it out to a local equipment operator, you are talking that much easily)

How can you NOT value it negatively? $4,000+ annual cost, and zero marketability, zero income, and it comes with a major liability? Who pays if the road is not maintained and someone loses an axle or oil pan?

If I "owned" it, I would let the country have it. No one is going to go in and buy it....it is nothing but cost with no way of making a profit...or even getting your money back. Then I would wait until there were pot holes on the road and have my attorney call the county and explain to them that because they are now the owners, they need to maintain it.

In this case, where the IRS is interested, I would use the cost of the maintenence as an expense against the income of the adjacent properties. You should be able to go back and refile prior years (at least the last three) and show that the road and its perpetual maintenence was an inducement to buyers of the 10 lots....therefore it is a cost of doing business and is deductible. Having sold the lots, the cost of that road maintenence should be taken against profits from other projects....such as ranch operations, or other land developments. If you are valuing it for estate purposes, the costs (current AND present value of future expenses) should be taken against the balance of the estate, reducing the overall value of the estate.

To me, from here, it is not a matter of what is it's cash value, but how much of a negative value is there. Accumulated losses of $5,000 per year, adjusting for annual inflation, for 30 years isn't cheap.</span>

 

[Terry Russell]

Verne,

You are going night skiing???


you wrote:

"This "tract" is one of 27 in a "bundle" of property being valued for the purpose of "basis" due to the death of one of the two trust trustees. So yes, the summation of the negative value this tract would contribute to the whole is an issue----the reality is, however, this small negative value would little affect the whole (less than 0.05%-a good guess); nonetheless it needs to be valued.

When you say basis I am assuming depreciable basis, has the trust been depreciating the road as an improvement?
I would guess not. Hence there is no basis so its value would have no effect on the basis of all the parcels.
I don't know enough about the whole thing to be much help. Good Luck
terry

 

[Fred]

Nearly all were surveyed when Teddy was in office for the primary purpose of running railroad tracks.

Is that another way of saying Teddy Roosevelt put Montana on the map? :lol: :lol:

Can you elaborate on the capitalized holding costs, period of cure, and cost of curing the problem?

Rustic or not, most markets, provide a basis for some type of land cap rate analysis, which in the early 21st century usually produces rates of 5%-10%. The rustic end of the spectrum is, say, 5%. The corresponding land yield rates would tend to run from 6% to 12%. Say 6% for rusticana.

Possible Cure 1: No cure
Capitalized Holding Cost: Net income of -$150 per year for taxes capitalized at 5% is -$3,000. Should there be other holding costs, like maintaining the wolf traps and dipsosing the carcasses or posting the 'Ted-Turner-go-home' signs (because he is the one re-introducing the wolves into the "environment"), you can these expenses into the mix.

Possible Cure 2: Lawyer facilitates donation of land to state. The process takes 3 years.
Capitalized Holding Costs: Three years cash flow from taxes of -$150 per year at the rustic land yield rate of 6% is -$400.
Cost to Cure: Legal fees of -$3,000
Total: - $3,400
IMO, even if the owner is going to try to facilitate donation of land to sovereign personally, the fair cost of this reduces value (the same way management reduces income and thus value in the typical income approach).

 

[Richard Carlsen]

Verne;

Happy New Year

I think Highest and Best use would say that the present use is what is legally permitted "IF" the owners of the 10 acre parcels have an easement for ingress and egress. If that is the case, the value is moot as it is just about a useless piece of property to an owner.

Personally, if this parcel were mine in this situation, I think I would deed it to the one parcel owned by the trust or all of the owners of the 10 acre parcels (perhaps as an association) and turn the liability and responsibility of maintenance over to them. By attaching it to the 10 acre parcel, if they ever dispose of that 10 acre parcel, they dispose of the road liability.

Value? About naught don't you think?

 

[Mike Garrett RAA]

My question is ..."why wasn't it turned over to the state or county long ago? Who would keep a property that has no use other than to provide access to other adjoining parcels? Does this person own any of the land locked parcels? Of course I would have "RUN LIKE THE WIND" because I, like you, haven't got a clue how to value it. Good assignment for Mike Gambio to give one of his "trainees" who make $100,000 in there first year.

 

[Verne Hebert]

Happy New Year everybody!

First I want to thank everybody for their input to the thread. This is really the first thread I have posted truly seeking input to solving a problem; and I truly appreciate it. When I posted the thread, I put it out there to get some comment going, with no intention of getting too involved--but hey, I'll finish this parcel next.

I have been in Montana for 10 years now, and I have realized from everybody's responses, that the wierdness here has become normal to me.

I have not discussed all the elements of this parcel, because it would have severely limited my responses.

I want to followup with the recent responses though, and clarify a few things for continued input.


I discussed earlier that this type of platting would not be done today, the road would be a part of the SFR parcel(s) as a 1/10 undivided interest. The county "does not take roads back". Richard's comment was a good one, this road can be "straightened up" and the county would welcome it.
The 10 tracts are 1/2 acre SFR lots on the Flathead River across from Glacier National Park (the clinton administration attempted to "take" this area as Wild and Scenic Corridor but the bush administration came to office and the government ceased the process) and the trust road owner does own one lot (lot 7). This area is unzoned and anything is legally permissable.

To respond to Goodpasture, these homes are seasonal; the road maintenance is privately shared; costs are low- the owners yearly split is maybe $ 50.00-I will consider your input and I appreciate it. In terms of liability, I hear what you are saying; there, however, is not a lot of need for attorneys here--we are seeing more and more litigation as more of the litiguous portions of society move into Montana. But the reality is, in this area, if somebody had a problem with the road and sued the owner--some local justice would likely be imposed on the litigant and it would likely not get to court.

ATC- yup night skiing to 9pm. The accountants and attorneys tell me it is for "basis"-I have never inquired (don't care); I suspect they are redefining the depreciation schedule.

Santora- No Lewis and Clark put it on the map; I guess it was an interesting adventure. I got "Undaunted Courage" for Xmas--you might consider reading it- it is suppose to be very interesting (you can also get the L&C "original" journals from the library---but the "english" is challenging). These small tracts in this area are not considered harvestable due to both access and parcel size, and quality of timber growth. Sidenote: The appraisal institute conducted their timberland valuation class here a couple years ago in Spokane, Wa.. 75 people showed up. There were at least 70 very unhappy people. That course was written for land east of the Mississippi--timberland valuation is very different in the Rockie's. Can't donate this tract of land to the state (large tracts may be), again county does not take "roads" back. I'll put some thought into the development of a land cap rate--if it can be developed and supported, it is probably slightly negative (many operational farms and ranches east of the Rockies in Montana are negative and have for 5 or 6 years-since cattle went into the toilet.


Garrett- Here in Montana, appraising property, there is not the tremendous latitude to specialize. One cannot specialize in motels, hotels, carwashes, slaughter houses, solely commercial offices, or anything for that matter. So rather than going absolutely wacko appraising houses (even though we have very complicated "SFR'S" here) I do unusual assignments whenever I can--sometimes I even find truly "new" ones, like this one.

It is the fact that most days are very different, that remain to make appraising property a gratifying occupation.