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At Completion Value With Completed Site Improvements

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runner52

Sophomore Member
Joined
Mar 15, 2010
Professional Status
Certified General Appraiser
State
Washington
I have an office building that I am appraising. Was built in 1990 with improvements in 2015/2016. The owner is spending $280,000 on a new parking lot and landscaping. The bank wants a value "At Completion" of these site improvements. Does this warrant a Cost Approach? I am comparing to similar office properties with similar parking ratios and fully landscaped sites. However, I'm not sure I am accounting for the cost of these improvements fully accurately. I don't want to do a Cost Approach if I don't have to given subjective depreciation of the building improvements. Thoughts are appreciated.
 

Meandering

Elite Member
Joined
Feb 26, 2006
Professional Status
Real Estate Agent or Broker
State
Pennsylvania
Don't get too anal retentive.

Repairing the parking lot is part of normal maintenance. If they've let it go so long, that it needed an overhaul, it's a wash. If parking lot improvements enhance rents from tenants, or bring more business to the entities occupying the building, than unenhanced parking lots in other properties, there might be a value contribution of a newly enhanced parking lot, as opposed to an adequate, yet slightly dated parking lot. But then again, if zoning regs have changed and landscaping is now mandated, where it wasn't previously mandated, there may be a cost consideration to a buyer who might have to add landscaping to an old parking lot, as opposed to buying your subject.

.
 

Michael S

Senior Member
Joined
Mar 18, 2009
Professional Status
Certified General Appraiser
State
New Mexico
If the market would recognize the current parking lot as deferred maintenance (and demand a discount if buying the property) then the as complete value will likely be higher. However, it will probably not be $280,000 higher. Tenants aren't going to pay more in rent because the parking lot is new, or there's a new roof on the building, or the dead grass and trees have been replaced. However, if there are multiple roof leaks or the parking lot is full of huge potholes and has no more striping it will probably be reflected in lower rents or lower occupancy.
 

Red Flint

Member
Joined
May 15, 2005
Professional Status
General Public
State
Michigan
Want to carefully look at the 'As-Is' value today prior to lot improvements.

It is worthwhile to consider all three approaches to value for each case, 'as-is' and 'as-complete'. It can be as simple as jotting notes for your workfile, or inputting numbers into your templates. This may shed light on the reconciled value conclusions, and credibility for inclusion into the final report. You also are on the right track to determine a market response, not only to the as-complete, but to the as-is.

These assignments can be difficult, and it is beneficial to use all the tools in your box, if only in your head, or running a result by a local peer. It can also be quite useful to discuss preliminary value determinations with your client, there could be scope of work issues since it is hard to find market data for the cases.
 
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