Got an interesting one...need advice

[Warren Sumner]

Hi folks...
I'm an appraiser in NC and am doing one just outside a small historic town. The home is approximately 2600 sf, a brick ranch and sits just north of the city limits. Its a foreclosure property and is in fair condition. So far, so bad right??

Well the big problem with the property is that the previous owner also owned a nightclub near the home. I mean REALLY near the home, as the subject carport rests 15' from the nightclub wall. The home shares a driveway with the club, patrons would literally have to walk up the driveway to get into the front entrance. (Maybe just a bit of external obsolesence??)
Anyway, the club has recently been foreclosed upon as well, (Sold for $50k in June 2001) but is apparently somehow still in operation. The club manager is related to the previous owner of the home, so I'm getting no cooperation there. I know the club operates on weekends from 8pm-2am. Zoning is Agricultural/Residential, I've left messages with the planning and zoning board and am awaiting their clarifications on this specific property.

My questions for some of you less green on these matters are these:
1- How would you determine a reasonable rate of external obsolesence to account for the noise/nuisance of an operating nightclub next to the property? Obviously there are no comps that have sold next to nightclubs.

2- Would you interview local police authorities to determine the amount of nuisance created by the club's noise levels on weekend nights?. I don't want to get into any grey areas on USPAP with this, but I don't feel like this falls into commenting on crime rates, racial composition, etc. on neighborhoods, as this is a specific property outside city limits and not in an actual "neighborhood."

3-Is there a way to do this other than through the SWAG method??? The tax department has applied a 55% depreciation on the property through their valuation, but of course they don't have to justify it.

4-Should I just punt???

Any advice you ladies and gentlemen could provide would be appreciated.
Thanks!!

 

[Jeff Horton]

Gee, I always say I love a challange but that is a tough one! One thought did come to mind. If you can find any previous sales and do some historical work to determine how much below market it sold for before you might determine a depreciation percentage. Past that I am anxious to hear some other ideas. In a case like this tax data is something to to take into consideration. I don't think a 50% deduction would be out of line. Unless you worked at or owned the club I wouldn't want to live there and not many other people are either.

Good luck!

 

[Les Brant]

Any chance of joing the two structures as one and enlarging the club? Les in Coastal (N)Carolina

 

[Will Granger]

Oh my! Both properties in foreclosure. They may both sell to one person. It appears neither use is good for the other or by themselves. I think I would do a regular appraisal on the home, then subtract the cost to acquire the club next door, then subtract the demolition cost of the club, then figure in a sale of the land the club sits on. Let me see: That's $100000 house - 50000 Club - 10000 Tear down + 15000 Land = $55,000. Seems pretty simple to me. I think you will have to treat the two properties as one and get into some highest and best use stuff.
Yep. Instead of SWAG try PANOOTA - Pull A Number Out Of The Air. :lol:
Have a better day tomorrow.....

 

[Oregon Doug]

Warren - my advice is to:

1) Talk with your client and change your assignment from an appraisal assignment to a consulting assignment.

2) Charge an hourly fee.

This is a complex assignment that is bound to lead to trouble no matter how you deal with it. It sounds as though the two properties ought to be considered as a whole and you are going to get into some real H & B use issues.

If you use the SWAG or PANOOTA approach or try to punt, some hotshot on the other side is gonna use you for target practice and spoil your whole day.

Since you are clever enough to ask the questions, you must recognize the difficulties inherent in this assignment - ask yourself if its worth the risk.

Just my opinion, Oregon Doug

 

[Ron in AR]

Warren,

I think Jeff had a good idea. Take a look at the sales history of the subject in comparison to other sales in the past. Did the subject sell below market in the past? That should be fairly easy to do. Even if only one past sale exists, it will give you something.

Good luck,

Ron in AR

 

[Warren Sumner]

...appreciate the feedback. The property did sell in 1997 for $125,000, but sold as a part of a package with the club. (Sheeesh) The club and home are unfortunately under separate ownership now. There's no way for me to inspect the club and being that I only hold a residential certificate, I'm not sure I'm really qualified to assess even its building value. I wouldn't know commercial conctruction if it bit me in the arse!!! Not sure what I'm gonna do. I love this client, would love to help em out, but I can't put my license at risk. Its 4th and a mile and I'm on my own goal line...Punting just might be imminent.

 

[Tom Hildebrandt]

Warren

Who is your client, what is the purpose, waht is the intended use. I have assumed it was the foreclosing lender. First thing, I would requote a fee based on time spent.

I like the idea of the former sale to other sales, shame it was a package deal.

What about this as an idea. House without the adjoining property issues would be owner occupied. With the club next door, it becomes a definite rental house. The difference between sales to owner and sales to investors would give some measure of loss, in my market, almopst inevitably 15-20% (excepting in neighborhoods where rentals outnumber owner occupied homes). This would set the absolute minimum discount in my opinion.

Wills comment sound tongue and cheek, but if you know the source, you also need to give his recomended approach a try. Do the necessary leg work to get verifiable demolition and land values, and see where the numbers go.

Another thought, you know the combined value in 1997. What about segregating costs for each building along with the land. Check those numbers against the above approach.

Finally, do some sampling of propsective purchasers. Write a sample scenario for the house without the impairment. Ask these folks what they would pay. Then give them the twist with the fun loving neighbor. See what they would then pay. It is not science, but it may provide some insight.

Compare all the results from above, reconcile the issues and report them.
That is about all that can be done.

Regarding the nuisance issue, I do not think you can go wrong if you merely report what factual information the local gendarmes have regarding the "problems" of the club. Just stick to the facts. If there have been issues raised before the zoning authorities, they can be cited, also news paper articles. Notoriety is a factor impacting stigma.

Wow, what fun!

Regards

Tom Hildebrandt GAA

 

[Will Granger]

Warren,
I know some things... :wink: