Disposition / Liquidation

[FeeSimple]

I'm working on a land appraisal, for asset valuation purposes.


The bank wants as is value, in addition to disposition value considering a 6 month market exposure and a liquidation value considering a 3 month market exposure.

As far as I understand, the additional values are going to be very subjective and nearly impossible to support. Basically I'm 'Forcasting' with my crystal ball. The subjects market is declining and over supplied and this is located in a rural development of 98% vacant land lots (extreme market competition, fewer than 3 sales close a year, and the vacant lots are mostly all competitively priced because they aren't in a 'disposition' to sell).

I would think that to find disposition or liquidation, I would turn to the market to calculate a percentage decrease from the actual market value based on similar disstressed properties. However I have no disstressed property sales to base this on.

With full disclosure of the lack of information and the variables that exist that are unknown and can't be calculated for (over supplied market(competition), declining market, etc), I would like to base a liquidation sale, considering a 3 month time frame, at 20% off the actual market value. And I would like to consider disposition at 10% off the actual market value of the subject. With full disclosure and disclaimers that this is the best statistical analysis has to offer for the area. (which sucks)

I understand this is very very weak analysis, however, what further should I be considering beyond disclosing its an estimate of market?

 

[PropertyEconomics]

In my opinion, even with disclosure, its not a credible analysis. Not only is it weak, it is not based on anything. Not trying to be difficult here but there is more analysis that needs to be completed before just pulling a percentage deduction out of thin air ... and it appears thats where these are coming from.

Sorry.

 

[Michigan CG]

Talk to the Realtors that sold those land tracts and then talk to the three Realtors you respect the most in your market and get their opinion.

They deal with the market and the market participants.

Also look beyond the MLS. A lot of times land does not sell through the MLS.

 

[FeeSimple]

In my opinion, even with disclosure, its not a credible analysis. Not only is it weak, it is not based on anything. Not trying to be difficult here but there is more analysis that needs to be completed before just pulling a percentage deduction out of thin air ... and it appears thats where these are coming from.

Sorry.

Don't be sorry,, You're absolutely right and I understand that its beyond weak. That's why I'm here...
What is the most competent way to address this, when an overall lack of information exists to formulate conclusions?

 

[FeeSimple]

Talk to the Realtors that sold those land tracts and then talk to the three Realtors you respect the most in your market and get their opinion.

They deal with the market and the market participants.

Also look beyond the MLS. A lot of times land does not sell through the MLS.

Okay.

And yes... I've been thorough with the county records sales..

 

[PropertyEconomics]

Don't be sorry,, You're absolutely right and I understand that its beyond weak. That's why I'm here...
What is the most competent way to address this, when an overall lack of information exists to formulate conclusions?

Vastly expand your search until you can find some sales with which to measure a discount. They should be in as similar markets as possible, and then the discount can be applied to your comparable sales. The information should come from the market and not just based upon a "guess" or "feelings".

I do know its difficult but most appraisals are difficult right now if they are done correctly.

 

[Craig Farr]

Call the owner of the lowest priced competitive (similar property) listing and ask the guy what he will take for cash.....today.

 

[Terrel L. Shields]

Plotting sales of land between 5 and 20 acres - DOM vs. $/ac led me to this scenario.

The lowest priced properties sold quickest , what you expect, but they reached a peak then tailed off. Roughly 50% sold off in less than 6 mo.

The sales after say 6 mo. or so suggests that they were overpriced to begin with and/or OTOH, perhaps it has a larger meaning

To me the interpretation would be that the peak of sales is about 6 mo. therefore the deposition sale = market sale and the sales in excess of 6 mo. are not correctly priced. OTOH, the quick sales were obviously discounted although there is a cluster around 3 month...may have been a statistical artifact (several lots sold at once etc.)

I would pick 3 that were less than 30 days for the liquidation pricing and less than 6mo for the other and make the case that the "market" is 6 mo.

This can take a lot of digging. Look for auction sales for your "liquidation" sale pricing...that's my best advice

 

[Mark K]

At the current sales rate, we have a nearly 20 year supply of developed, vacant homesites in my area. What are the lots worth today? Who knows? We had 9 lot sales last year (custom home sites) and there are approx. 200 on the market. The last few sales were at about 70% of the 2007 price. Another developer was thrilled to get two sales last month (only 2 in the past 90 days in the entire market) at $40K and his similar lots were selling for $69,900 in 2007-08.

Depending on you local supply (if its anything like this area) a 10-20% reduction is not nearly sufficient to reflect the reality of the market.

The last few distress sales, bank repo/BK, of entire subdivisions were sold for discounts of 75-80%. A group of developed lots in multiple subdivisions just sold from a bankrupt developer/builder to Beazer homes (production builder); original lot price was $35-40K to the homebuyer; the lots just sold in a package for $7,800/lot for 200 lots. These are fully developed, streets, water/sewer, etc. Another group of 30 lots just sold for $12K each; original price was $35K.

I think you have to ask yourself; "What's something worth if nobody wants it?"

To me, liquidation value, today, is about 50-75% discount; 2-3 years ago liquidation value was maybe 25-30% discount.

Developers are trying to hold out for higher prices because their bank payoff, per lot, is more than the lots are worth. Sooner or later, the bank will own the subdivision and sell them for 25 cents on the dollar rather than take 50-60 cents on the dollar today. Go figure.