Can a property have a negative value?

[WyattD]

I have an appraisal assignment of a three-story residential home in a central Florida community. The local municipality resurfaced and altered the grade of the street which resulted in continuous flooding of a portion of the subject property’s yard, driveway and whole first floor of the home which includes a garage, two bedrooms, bathroom and a den. This has been ongoing for several years.

Recently, a local judge ruled that the local municipality has taken a permanent drainage easement from the subject property which includes not only exterior areas of the property but also the entire first floor of the home.

Interviews of local real estate agents have confirmed that given the circumstances with repeated flooding and a permanent drainage easement encumbering part of the property and the entire first floor of the home, the home is not marketable. In addition, there is no way for the homeowner to correct the problem based on detailed engineering analysis.

A diagram of the area of the home layout is shown below with the drainage easement indicated with blue crosshatch lines. It is not possible to assemble the lot with any adjoining owner and, as a result, the drainage easement creates a u-shaped unbuildable lot.



Mathematically, when considering demolition costs of the home and the unbuildability/sellability of the lot as vacant, the resulting valuation results in a negative value if demolition costs are deducted from the nominal lot value that remains.

Is it possible to have a negative value? I know this has been discussed on this forum and other places but wanted to get the groups opinion.

 

[KHS445]

A property can definitely have a negative value.

My question is has the property owner been properly compensated for the negative impact on their property? Or was the drainage easement in place and someone built the house anyway? Then it may be an issue and the current owner would have to deal with the seller, real estate agents, title company, developer, builder, etc.

 

[Bob Ipock]

Have one right now. The site is worth $20,000. The cost to remove a huge barn built in 1888 is $30,000. -$10,000 is the site value.

 

[J Grant]

IMO, a property can not have a negative market value if the market value is the assignment. A property can have no value, as in, nobody is willing to pay for it.

A negative value would mean the owners of the property PAY to have someone take it off their hands ( creating a negative value ), which happens in a few cases, but I doubt it applies here.

A LOSS to the owner-seller is not the same thing as a negative value of the property !!! Just as a profit to the owner might not be the market value of the property. MV depends on what a buyer is willing to pay - whether the owner took a loss on the property or not.

What are the other homes on that street or affected by the same flood drainage in the community selling for? If they sell for any $ even if very low, that is the value.

 

[J Grant]

OP -Mathematically, when considering demolition costs of the home and the unbuildability/sellability of the lot as vacant, the resulting valuation results in a negative value if demolition costs are deducted from the nominal lot value that remains.

The mathematical $ loss to the owner is not the same thing as the market value of the property ( see above post )

If the lot has a nominal value (for example, 20k), then 20k is the market value of this property.
The fact that the owner might have lost 400k is not the same as what the property value is.
( assuming you are right that the home has to be demolished )

An owner's personal $ loss is a tax or legal issue, not a property appraisal issue, though the two can be related. Be careful with your area of expertise and do not try to pretzel-twist into a negative property value to get a county to repay a loss.

 

[Tawfik Ahdab]

“IMO, a property can not have a negative market value if the market value is the assignment. A property can have no value, as in, nobody is willing to pay for it.”

Huh? That’s more a play on words than an actual appraisal theory.

See Bob Ipock’s illustration above.

 

[J Grant]

“IMO, a property can not have a negative market value if the market value is the assignment. A property can have no value, as in, nobody is willing to pay for it.”

Huh? That’s more a play on words than an actual appraisal theory.

See Bob Ipock’s illustration above.

His example confuses the two issues.

Again, a personal fianncial loss to the seller is NOT the same thing as a negative value of the property !!!!

 

[TerryRohrer]

The Berkeley Pit is a former copper mine. Only a select few could opine that the circumstances described below can have neutral value.

“Cleaning and treating water from the Berkeley Pit in Butte, Montana, is a major Superfund project estimated to cost around $110 million. The Horseshoe Bend Treatment Plant, which treats water pumped from the pit, cost $19 million to build and is designed to handle 10 million gallons daily to prevent toxic water from rising to critical levels.

Key Cost Factors & Details:

• Treatment Plant Cost: The facility designed to treat the pit water (Horseshoe Bend) cost $19 million.
• Operations: Operating the treatment system involves significant expense, with estimates for similar large-scale projects ranging between $3 to $4 million annually.
• Pumping Scale: As of 2019, systems are pumping about 3 million gallons a day to keep water levels stable, preventing the contamination of local groundwater.
• Goal: The pumping is designed to keep water levels below a "critical level" (5,410 feet above sea level) to prevent it from entering local, clean groundwater, a goal supported by a $110 million cleanup plan.
  S. Environmental Protection Agency (.gov) +3

The project, managed by Atlantic Richfield Co. and Montana Resources, uses the pumped water for treatment and, when treated, releases it into Silver Bow Creek.”

 

[J Grant]

Have one right now. The site is worth $20,000. The cost to remove a huge barn built in 1888 is $30,000. -$10,000 is the site value.

The $10,00 to remove the barn is a loss to the seller

The $20,000 is the market value of the property.
We are appraising property values, not the profit or the loss a seller suffered or gained.

Example: Market value per recent sale prices is 400k each for two identical adjacent houses, House A and House B .

House A was purchased 10 years ago for 200k. The seller got a 200k profit. The 200k is NOT the market value of the property. 400k is.

House B was purchased 3 years ago for a high price of 450k. The owner suffered a 50k loss. The 50k is NOT the MV of the property. 400k is.

 

[Gobears81]

I recall some extremely strong opinions in both directions for past threads.

I have personally appraised properties for negative numbers, but it is quite uncommon. In this case, if demolition costs exceed the site value, it is not feasible to demolish, but clearly the improvements have negative value, as well. That factor, in itself does not create negative value, as the local government may or may not require the owner to act. If they do not, the highest and best use would effectively be to walk away from the property, which suggests that it is worthless/ $0 value. If they do require action and are unwilling to provide assistance, then it is clearly a liability/ negative value.

The question arises in this specific case of the responsibility of the local municipality, as a result of the easement. I suspect that the municipality will be forced to rectify the issue, but perhaps that is the reason why this appraisal is being done. That is where the parameters of the valuation are important - i.e. are you appraising the property based on the assumption that the municipality will not compensate for any additional damages? If so, the value may be negative, but that also depends on the maintenance responsibilities of the owner.