Can a property have zero value?

[The Warrior Monk]

The last post made me rethink the situation.

What is the purpose of the appraisal? Is it to determine the market value of the property, or to determine the feasibility of the project?

 

[justinschroeder]

The appraisal is for market value for lending purposes. I had hoped the lender would want an AS Complete appraisal but from what I gather they had lended on the property which also used to have a house on it. The church removed the house without telling the lender to install the addition. So they want it AS IS.

I looked at just repairing the older structure as well but you have to figure the cost of removing the partially completed addition and the repair costs which are greater than what the older structure would be worth as well.

I used the cost approach (marshall and swift) to estimate the cost to complete the addition and then removed the portions that have already been completed.

The pastor is building it with the help of volunteers. So actual costs were not available.

 

[justinschroeder]

The foundation, the first floor subfloor, and two walls were framed. I guess you could salvage about 110-2x6s. The subfloor probably wouldnt be worth anything with the amount of work it would be to remove it with the nails and glue. The floor trusses would be good but only if you were building a building the same size.

 

[DaveH]

OK so now since the church removed the house, can you determine the value of the house prior to its removal? Which did they lend upon the church or house or both? Did the SOW say anything about the old house? Was it considered part of the original loan? Sounds to me like you have a lot of phone calls and conversations to get to the bottom of the situation. Volunteer cost can be calculated and then subtracted from the cost approach. But it sounds like you need more answers before you can determine anything.

 

[PropertyEconomics]

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.

This sentence would lead me to conclude the value is not zero .... the value may be less than the cost to complete ... but the improvements "as is" have a value according to this statement.


While perhaps not germane to your valuation ... the fact that churches often receive tremendous free labor from the congregation does in fact affect the "feasilibity" of these properties for their use. As others have noted, this is a value "in use" and a specialty value at that ... a completely different beast then perhaps you are use to appraising.

Financial feasibility of such uses are often not present, UNTIL, the other intangibles are considered, ie free labor, donated materials, etc.. One of the reasons the vast majority of churches that I have ever appraised have been the subject of specialty lenders, ie The Baptist Convention, who understand lending on properties in which financial feasibility is not present ... then again, how can one measure the worth of worship? These non traditional lenders typically look at the ability to repay first and the collateral second.

Good luck but I do think you are going to need some help with this assignment from somone who has appraised churches.

 

[Annelle]

Food for thought...Does the Church have stained glass? If so, it could have serious impact on your cost approach, depending on who the artist is, and quite a few other variables. M&S tends to be pretty low on this subject and may require additional research. I did a church appraisal 4-5 yrs ago where the stained glass added an additional 500K after doing some research, and documenting quotes. M&S figures came in about 100k. In addition, stained glass does not particularly depreciate due to its incredibly long life span. Salvage can be pretty tricky however.

 

[John Glass]

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.

...or a DRI encumbered by bond payments for infrastructure where there is no demand for houses or commercial development, at least until the bond goes belly up.

 

[J Grant]

Wrong post !

 

[appraisalsfaster]

In response to the Op's original question the answer is yes (I've also seen it with contamination)....But in this case it seems the value lies in the Land value plus the depreciated value of the Improvements (PC and existing), with an assumption the work will continue until completion.
The Op stated a "as is" value was requested so using a HC related to a completed structure may not be appropriate. Since the Op stated comparable(s) indicated value, and the current owner/users have not abandoned the site, it probably has some value most likely predominantly "in use" compared to "in exchange" (IMHO).