Calling for experience! Demolition on REO poperty~ Negative value?

[Deleted member 80407]

Inspected a REO property yesterday which was suppose to be secured and ready for inspection. Upon arrival to property, I noticed the property not to be secured due to having much fire damage. Sent pictures to client who advised me to perform a land appraisal less demolition. Property located in southern part of Chicago (around 103rd & State St).

According to county records, the house has 851 sq ft of GLA, not including a small rear enclosed porch (about 7' x 8'). The house had an attic level which could only be accessed through a scuttle. The property did not have a garage. Called one demolition company in area who informed me that a permit from the city of Chicago to demolish cost $5,000. He quoted me $18,000 as a rough estimate for demolition (included permit fee).

Subject site is 30' x 123.59'. Zoning for property is RS-2 which requires 5,000 sq ft of land per residential unit. The community only has 3 recent sales (2 within 6 months & 1 within 12 months). Two of three sales were located in RS-3 zoning districts which were less restrictive than the RS-2 only requiring 2,500 sq ft of land per residential unit. Remaining sale located in RT-4 District only requiring 1,000 sq ft of land per residential unit.

*SALE 1: Site size of 37.5' x 125' sold on 4/28/08 for $9,500 RS-3 District
*SALE 2: Site size of 34' x 125' sold on 3/19/08 for $12,000 RS-3 District
*SALE 3: Site size of 33' x 125' sold on 12/10/07 for $34,000 RT-4 District

I am still calling around to different demolition companies within the area for quotes. If $18,000 is the going rate for demolition of this size property, would not the value come in negative? I have never completed an appraisal with a negative value. Has anyone out there had experience with a situation like this????????

Any recommendations from one with experience in a situation like this, would be greatly appreciated.

 

[Artemis Fowl]

It can and does happen.
Sounds to me like you have a good grasp of the appraisal problem. The solution should present itself as you continue.

 

[Charles Knutson]

I'd say there is no market value (because of the undersized lot) and the owner of the property will be stuck with the cost of demolition.

Another option might be deeding the property to the City -- let them make the decision on rehab or demolition. If the property can't be marketed, the City will probably end up owning the land (or selling it for unpaid taxes). Giving it to the City now might shorten the process, and create a rehab or building opportunity for someone. If it ends up being demolished, the present owner would still be liable for the cost -- but if the City has an ownership interest, they might grant a waiver for building on the undersized lot.

Good Luck!

 

[Mike Boyd]

You might have an off-set in that the site value might be enhanced by the grandfathered water and sewer hook-up fees, mitigation fees that may otherwise have to be paid (fire, police, school, etc), street widening requirement, sidewalks, utilities and so on. As far as zoning restrictions, the grandfather situation might also apply. In my market area where land values are extraordinarily high, I have not come across a negative value...yet.

 

[Michigan CG]

I have many "demo comps" which range from $4-$7/SF; $13,000 to demo a 851 SF house is $15.28/SF. Find some more bids.

 

[Deleted member 80407]

I have many "demo comps" which range from $4-$7/SF; $13,000 to demo a 851 SF house is $15.28/SF. Find some more bids.

Thanks Tim,
Does the $15.28/SF cover the "permit cost"? In Chicago, the permit to demolish is somewhere between $5,000 and $6,000.

 

[PropertyEconomics]

Another possible solution is to donte the "building" to the city of Chicago for fire practice and have them set the thing on fire again and give their firefighters an opportunity to fight a controlled blaze. I think in these instances, the city may in fact agree to clean up the mess left behind and leave the site clean after their practice.
I know it has happened in my market but not sure about the Chicago area and the stance on the city for such properties.
Its worth a shot though.

 

[Michigan CG]

Thanks Tim,
Does the $15.28/SF cover the "permit cost"? In Chicago, the permit to demolish is somewhere between $5,000 and $6,000.

No, just the remaining $13k.

 

[Riick]

Yes there is such a thing as negative value.
Had an appraisal with negative value years ago.
When he got it, the Banker called me, laughed and agreed.

In further support:
Years ago, some speculator/investors I knew made two offers
on two side-by-side row homes - both with same owner.

One was in OK condition, the other was a tear-down.

Offer was:
$20,000 for the good one, and $12,000 for the pair.
.
.

 

[Cigar]

FYI:

I did a demoition estimate for a single story 1,400 square foot house recently:

Estimate of Demolition Costs

Permits 700
Sewer Capping 300
Survey 3,500
Asbestos Abatement 1,500
Demolition & Disposal 8,000
Total 14,000
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