HBU when property appears to have no value?

[Nick1985]

I have an interesting situation and this is the first time I have came across an issue like this. I'm dealing with a very run down property. It is in an incredibly low value area. One main comp I have for use is in fair condition needing only slight repairs to become functional and this property only sold for $10,000. It is right around the corner for the subject. There are other examples of low value comps in the area. The issue is the subject requires MUCH more work than even these properties that sold around the $10k range. Every room has plaster and ceiling damage, floor coverings worn/damaged or missing, bathroom torn out, no functioning house systems (heat, water heater, etc...), very very poor condition. The subject is currently uninhabitable. The cost to repair would obviously far exceed the value attainable in this area. The subject is also located in a general business zoned area and cannot be re-constructed as residential. It is located in a very thin lot between two other residences. Estimated site value appears to be just a few thousand dollars with a very similar vacant land sale nearby to support this value. The cost to raze and clear the site appears to be more than the actual value of the lot!

TLDR: This place is not financially feasible to repair, would cost more to clear than the site is worth, and due to the size of the lot and physical location appears to have no feasible business use. Is there a highest and best use if there literally appears to be no value?

 

[DTB]

HBU

As is donation to the local government.

 

[Terrel L. Shields]

I have seen that case where it might appear that the dwelling clean up exceeds the value of the lot. But time and again, I see someone buy the property. Maybe an adjacent owner who wants to tear down an eyesore. Or a developer or someone to put a manf. home on it. And therefore, it almost certainly would sell for something. I'd pick the lowest lot value (improved or not) I could find in the past 3 years and consider it the "bottom" line value. I don't know why but over the years the old saw about the value is "as if vacant" LESS the cost to demolish - almost never holds water. They pay lot value for it unless there is a real defect (a pile of old tires, etc. that creates a legal hazard, etc.) Don't ask me why.

 

[The Warrior Monk]

The highest and best use of the property needs to be determined.

Local zoning codes matter in this case. The situation you mention involves what appears to be a legal, preexisting, nonconforming use. In many areas, the abandonment of the use for a specified period of time can result in the loss of that preexisting use. In other words, the possibility exists that the building on the property might not even be able to be utilized as a residence any more.

Regarding the sales you mentioned, are they also business zoned?

 

[alebrewer]

So the third test of H&BU analysis is financial feasibility. Assuming that you're correct in that it would cost more to prep the site for construction than the site is worth, it seems there is no use that would meet the test of 'financially feasible'. In which case, DTB may be onto something...

 

[J Grant]

if it would cost more to repair the place, make it habitable then it is worth with those repairs made, then the HBU is tear it down (site as vacant ) . It is usually that much $ to demolish a property esp in a low $ area. Even if the site is only worth 3k....

If the repair estimate is 20k and house would be worth 30k repaired then HBU is repair it (though if made subject to repair doubt the owner can afford it but that is not your problem

If repair estimate is cost 20k and house would be worth 15k repaired then HBU is demolish because the depreciation is incurable .

Being that a decent condition comp only sold for 10k- well do the numbers, let the HBU reveal itself and it is what it is.

 

[Terrel L. Shields]

The buyer usually wants the lot. If the wall studs are good, and the foundation is good, they might salvage that. Near me is a similar lot with an old house. It was bought for the land. He took the house down to the studs, added on and built a very nice home.

I know a guy who buys barns. In fact, he uses my barn to store these old barn timbers. He only wants post and beam barns to tear down- even with damage and the barn worthless, he demolishes them, salvages the lumber and reconstructs a barn similar to it.

 

[Sadie]

The HBU may very well be to demo and leave vacant. To repair the subject, wouldn't you have to make a commercial/retail property and ADA compliant? Agree with Terrell Shields that it might be salvageable, but at what cost?

 

[George Hatch]

A current value of $0 is a value.

 

[Elliott]

What is its land value?