Can a property have zero value?

[justinschroeder]

I have a 3,000 square foot church that is in the process of installing a 8,000 square foot addition. The current building is in usable but poor condition and has had the bathrooms removed. The addition has the foundation, main subfloor, and two side walls completed. There are no comps with similar condition so I am appraising it as completed and then deducting the costs to get an as is value. I have come to the conclusion that the cost to complete is greater than the value finished so it is not resonable to renovate. I have also determined the cost to demolish the existing new addition, repair the older structure, and install new baths would be greater that the completed value of the old structure. Demolishing eveything would be a greater cost than the value of the vacant land. It should be noted that this is in an old area of run down single family homes and the probibility of development is nil. Zoning is residential so conversion to another use is nil. Everyway I have imagined I keep coming back to the costs outway the gain and a zero value. Any thoughts would be greatly appreciated. Thanks

 

[Brian Weaver]

Properties can be zero MINUS the cost of demolition. Sometimes even the land isn't worth anything. This is not a specific comment to your assignment...just an answer to the "zero" question.

 

[The Warrior Monk]

Properties can have positive, zero, or negative value. The commonly mentioned property that has negative value is the contaminated property.

One of the issues with churches, or houses of worship in general, is that that value is in the use. The market value of the property doesn't matter to the owner; only is use value. Of course a problem arises if financing is necessary, because the value in use is often substantially higher than the market value.

 

[Terrel L. Shields]

Value the site as if vacant and available for its highest and best use.

Value the subject as completed (hypothetical) by appraising the subject by SALES [and I bet you can find other churches that have sold] That likely has a significant external obsolescence.

It has been many years since I have been unable to find a number of churches that sold. Some were converted to other denominations. Some were converted to a business. Some were businesses or buildings converted to a church.

Then carefully examine your premise. I would seriously doubt that the property is worth zero or less "as is". It may COST more to remodel than it is worth finished, but the older 3,000 part - even if valued at nigh nothing - leaves an 8,000 SF partially complete building...

So why is it being appraised "as is"?

Properties can be zero MINUS the cost of demolition.

again, i cannot concieve a partially constructed (new) building where the building materials would not also have some salvage value.

The pix below are two churches, one sold for non-church use, one a new church, and one a commercial building bought and converted to a church.

 

[CCAAMO]

A property can have a negative value, sometime a large one in the case of a contaminated site. in the mid 1990's real estate bust, you had high rises which were 1/2 completed for which there were no buyers but still had associated costs which resulted in negative valuations.

 

[justinschroeder]

the property is being appraised for a lender and I spoke with them and told them about the state of the property. They want the property appraised "AS IS". I have church comparables and the indicated value is less than the cost to finish the property.

Also the highest and best use as vacant would be for residential but the cost to remove the sturcture would be greater than the value of the vacant land.

 

[CANative]

You have an improved property, so you need to do a two step HBU (as though vacant and as improved).

HBU is apparently to hold the property until market conditions improve. The land value cannot be less than zero (alright, we don't need to discuss environmental problems).

 

[stefan olafson]

If you've never appraised a house of worship, find another appraiser who has the expertise and work with that appraiser to do the job correctly. Churches are a different breed of property and it takes either a large amount of time to correctly complete the assignment or the ability to team with someone who has done them to get the job done right.

The cost approach is difficult to complete, you have very little information on rate of depreciation, and external obsolescence. The income approach is do-able but does not reflect the market value, it provides a glimpse of the value in use of the structure. The sales comparison approach is doable and can be completed if the correct comparables are utilized.

Do your homework or find someone who has completed other church type properties.

 

[justinschroeder]

I have appraised several churches but none with partially completed additions that need major work in an AS IS format. The question was due to the factors involved could the property have no value.

 

[DaveH]

The buildings could have little to no value currently, but once improved it could have value. What is the cost approach showing you.

Do you know the current cost of construction, and does it compare to the local market? What would be the cost approach to just finish the older section and not the new addition? You might want to look at it separately, with the original structure and then the cost of the addition. Obviously, you are trying to think out of the box, but the "as-is" format is kicking your *****. The property could technically have no value as it currently stands until the addition is complete. The value in use is probably greater than anything else, which doesn't help I know.

***EDIT*** Ok the more I thought about it, there could be a salvage value, but depends upon the percentage of completion of the renovation. Are they phasing the renovation? I would assume so, to keep the church going, so if that's the case then you could break it down into the phasing costs and then the time frame of the overall project with percent complete. That could give you a better idea on "as-is" cost of the property. Then the property would have some value or negative value depending upon the percent complete of construction. Then you could illustrate the value in percentage complete of the overall bid, without overages, and determine an "as-is" current value.