HBU when property appears to have no value?

[The Warrior Monk]

Isn't 'gifting' the property to someone or some entity the same as a negative price being paid?

The context is in a market value transaction. Do you have evidence of a negative price paid in the market under the conditions required by the definition of market value?

 

[alebrewer]

The context is in a market value transaction. Do you have evidence of a negative price paid in the market under the conditions required by the definition of market value?

My point is that a negative price paid is the same as paying someone to take the property... and yes, I've seen this happen multiple times after the crash.

 

[Elliott]

Not sure how a property can have a negative value. Real property is a bundle of rights which are bought and sold. If a property has a "negative" value then why wouldn't a prudent owner tell the local tax collector that you no longer are interested in owning those property rights of ownership and no longer plan to pay property taxes on the property. If the local tax collector doesn't take the property, they will be forced to own it in about 3-years. If it sells at public auction by the tax collector or sheriff, I don't think they will be willing to pay you $10,000 or whatever to 'own' the property. More likely you'd have to buy it for $1.

 

[The Warrior Monk]

My point is that a negative price paid is the same as paying someone to take the property... and yes, I've seen this happen multiple times after the crash.

Did this transaction happen

"in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus."

How many people were interested in these properties? How long were these properties listed for sale?

 

[alebrewer]

Not sure how a property can have a negative value. Real property is a bundle of rights which are bought and sold. If a property has a "negative" value then why wouldn't a prudent owner tell the local tax collector that you no longer are interested in owning those property rights of ownership and no longer plan to pay property taxes on the property. If the local tax collector doesn't take the property, they will be forced to own it in about 3-years. If it sells at public auction by the tax collector or sheriff, I don't think they will be willing to pay you $10,000 or whatever to 'own' the property. More likely you'd have to buy it for $1.

that's exactly what a prudent owner would (and did) do... look at Detroit after the crash.

 

[Russ Kitzberger]

Sometimes, the conveyance has to be for good and valuable consideration, usually $1 or $10

The answer I have seen is that the seller, in the "theoretical" market transaction pays different sales costs than a more typical transaction. Seller pays selling costs in order to facilitate the exchange the bundle of rights. Speaking to exposure period is in the past:

I have seen these alternatives to standard sales costs used:
-3+ year exposure period; has paid minimal holding/legal/fines and any costs to deal with PR issues and allowed taxes to build past due, during the "exposure period" until escheat occurs.

Liquidation (quick sale):
-Seller paid another entity to take the property until the municipality/land bank, non-profit, etc, gets the property through escheat
-Seller paid a party to lobby land bank to take the property

Keep in mind there is no requirement, in most areas, for any entity to accept ownership of property.

Maybe some of these are be applicable for your project.

 

[Greg Graybadger]

 

[sputnam]

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?

We appraise land... and coincidentally things that are attached to the land.

 

[alebrewer]

We appraise land... and coincidentally things that are attached to the land.

close - we appraise rights.

 

[Michigan CG]

The context is in a market value transaction. Do you have evidence of a negative price paid in the market under the conditions required by the definition of market value?

David, you and I have debated this topic for almost two decades and I see your points. BUT. When a property has a negative value the owner simply gives up the property and lets the city, township, county or whoever take over the property. This is not an uncommon occurrence.

So let us say that your argument is correct in that there are never transactions that have a negative value and that no one PAYS someone else to take the property. The people with a property that has a value, in your opinion, of $0.00 stop paying taxes and then the municipality takes over the property and THEY have to pay to tear down the POS house. The municipality did not buy the house and got it for "free" but they also had to pay for it to be razed.

Municipality got it for "free" and then paid $20,000 to get rid of (tear down) the POS house. And then they sold the property to the next door neighbor for $1,000. How did that property with a POS house not have a negative value?

I know that you will not agree with me as we have been having this debate for over a decade but why not continue the debate for 20 years. LOL. How are your girls? I am guessing college for at least one of them now.