Can a property have a negative value?

[J Grant]

There are plenty of properties in blighted areas (as just one example) where the cost to cure exceeds the value of the underlying land.

Then the HBU, at some point, can be to demolish the property . The value is whatever the underlying land is worth.

 

[Tawfik Ahdab]

J, I don’t know if you’re grasping the issue here. The inutility of the land “as is” is the reason why its value is negative. You propose that clearing the land will restore value, but you fail to factor in that the land clearing cost should be subtracted from the site value. You call that a mere loss of money, as though the monetary diminution is merely an out-of-pocket loss as opposed to a reduction in value attaching to the land itself.

 

[Tom D]

But to sell it, to get it off your hands, you have to give the buyer money for the problem, you get none.. If you can't even do that. Donate it to somebody, or thing, is the best you can hope for. Then it's not negative to you.

 

[J Grant]

J, I don’t know if you’re grasping the issue here. The inutility of the land “as is” is the reason why its value is negative. You propose that clearing the land will restore value, but you fail to factor in that the land clearing cost should be subtracted from the site value. You call that a mere loss of money, as though the monetary diminution is merely an out-of-pocket loss as opposed to a reduction in value attaching to the land itself.

Good point; however, none of us are on here performing an appraisal of a specific property. The thread was about theory ( I think)

What does "Inutility " of the land mean? I am not familiar with the term.

In the example GH gave, he referenced a blighted area where it costs more to "cure" _than the land is worth. In which case, the HBU might be to raze and let the land sit till the market comes back, or in some cases, for an owner to abandon the property. Let's say the owner abandons it and takes an 80k loss. Boo hoo, but that's life. Now the city owns it . They auction it for 10k, or sell it by some other means for 10k. The MV of the lot or blighted house on the lot is 10k. If there are no takers for the property at any price, the MV is zero.

Again, an owner's loss is their loss, just like their profit is their profit. Why does their taking a loss suddenly make the property a "negative value?" (if the assignment is MV )
The MV of the property is predicted on the $ it would sell for - whether the owner takes a loss, makes a profit, or breaks even.,

 

[Zoe]

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.

Yeah, it can't have negative market value. If it is negative and definition is market value, the market value opinion is "NIL". You have to prove is negative but negative don't work with Market value definition.

It could have "NIL" market value "as is" and a positive market value "subject to".

 

[Fernando]

Of course, a property can have negative value.
When looking at potential properties, I always research to see if prior use was a gasoline station.
Even though it may have been "cleaned up", I'm still worry of possible problems. Best for me to avoid such properties.

Early this year, there was an issue in this cheapo gas station causing PG&E to do repairs and shut down the local downtown business.
It was later blamed on gasoline leakage from the station. There is current pending litigation from the adversely affected businesses against the gas station.
Gas station is close and can't imagine the high cost in cleanup. Worthless until cleaned up.

 

[Zoe]

With MV, H&B use is required. Sometimes the H&B use of a property can be to "hold" it.

 

[Gobears81]

Yeah, it can't have negative market value. If it is negative and definition is market value, the market value opinion is "NIL". You have to prove is negative but negative don't work with Market value definition.

It could have "NIL" market value "as is" and a positive market value "subject to".

I recall an instructor talking about how the owner of a golf course paid for another entity to take ownership of the property. This was before COVID, when market conditions for golf courses were quite poor, and there were covenants which required that this land would have to continue operating as a golf course.

That is why the property rights matter. If there were no covenants, it would presumably have positive contributory value for an alternative use. For the example mentioned several times in this thread of demolition costs of a house exceeding the site value, the owners will walk away from it if they can - and you would be correct. If they cannot walk away from it without remediation, then it is now a liability and the value is negative.

 

[J Grant]

Part of the problem is the lazy use of the word "Value" by the OP.

Appraisal assignments are for a specific type of value - market value or value in use or liquidation value etc.

What does a "negative value " mean? It is a vague term and therefore hard to pin down, which is why folks are equating it with HBU, an owner taking a financial loss etc.

MV, or some form of MV such as LV, is what the property sells for - regardless of whether the owner had to pay to fix it up or takes a loss on sale or makes a profit or breaks even.

IMO, in the rare cases where the only way an owner can divest of a property is paying some entity per a caveat as in post 28- but these are exotic cases of a complex nature -

 

[Zoe]

Part of the problem is the lazy use of the word "Value" by the OP.

Appraisal assignments are for a specific type of value - market value or value in use or liquidation value etc.

What does a "negative value " mean? It is a vague term and therefore hard to pin down, which is why folks are equating it with HBU, an owner taking a financial loss etc.

MV, or some form of MV such as LV, is what the property sells for - regardless of whether the owner had to pay to fix it up or takes a loss on sale or makes a profit or breaks even.

IMO, in the rare cases where the only way an owner can divest of a property is paying some entity per a caveat as in post 28- but these are exotic cases of a complex nature -

It can have negative "use value" or some other value definition. Just not "market value definition". "market value" definition is very unique. If it is negative MV definition "as is", it is "NIL". It can have "NIL" for "as is" and Positive "subject to" MV definition.