Help! Breaking In New Client!

[Bill_FL]

Austin,

When I run into someone like this, I have figured out away around their ignorance. I write an engagement letter, outlining what I will do. In this case, I would state in the letter that the land is leased from the trust and that you will be providing a value based on that. I would quote my fee and turn around time in this letter. Towards the bottom, I would restate, I will provide your bank with a market value of the

estimate the market value of the leasehold interests under the assumption that there is no residual value at the end of the lease for reasons just explained or appraise the investment value (which is highly subjective due to land lease renewal).

The intended use of the report would be to make the guy a loan. I would state in the letter that you assume the intended use to be to use the appraisal as evidence of value for collateral assessment in the lending decision. I would then have a place for him to sign and return or fax the letter to you.

All this guy wants is a number to make a loan with. By sending that type of letter and him sigining it, you will have covered yourself. I would also, of course, make the engagement letter a part of the appraisal.

 

[Carnivore]

Austin,

I have re-read your paragraphs above several times. I would like to point out that it is imperative they tell you in WRITING what the purpose of the report is and who the intended USERS are. Since there is an estate involved, many people and there lawyers could be looking at this with interest.

Then again I may be all wet. but it was fun anyway.

 

[Austin]

Here is what I did yesterday. This was hard to do without being offensive but I explained that after my review of the original appraisal and report of which he had a copy and in light of his written appraisal request and our telephone conservation that he discuss my letter of this complex situation with his appraisal reviewer. I then explained the fact that his borrower did not own any land in a conventional sense but there were layers of interests involved and that in my original appraisal I was hired to appraise some of these interest that were not included in his written appraisal request. I explained that I was required to have a clear understanding with his bank what the purpose, intended use, and intended user of the appraisal are before I can determine the scope of the appraisal. I explained that subleasehold interests diminish in value over time like an amortized loan and that the value of the subleasehold interest of his borrower would most likely be much lower than on the date of the last appraisal and as time passed the marketability of his ownership interest decreased.
One other thing I was afraid of was that the four page letter of engagement stated that the written request should be included in the report and I had a completely different set of and very nebulous verbal instructions from the LO. It seemed to me that this was the best way out of this. I hope I never hear from them again but I wasted enough time handling this mess to have done the appraisal. They will probably come back and want five comparable sales of subleasehold interest showing the extracted IRR or some such crap.

 

[Austin]

Rest of story:
A few days after I sent the above letter the LO called me back and explains that the bank understood the problem and ask me to appraise the combined contract lease interest consisting of the lease fee interest of the Family Trust that owned the land and the LLC that owned the subleasehold interest because they were taking a security interest in both estates. I finished the reports, four copies, and turned them in yesterday.
When I did the appraisal in 1998, the leases were pending completion of construction, which would be the commencement date. The final version of the leases had changed some of the expense items to the tenant and it ended up being a triple net lease.
There was an interesting paragraph in the sublease that I thought you guys might enjoy. It had to do with allocation of proceeds between the lease fee and subleasehold interest in the event the property was condemned. Here is the formula. Three MAI appraisers who were experienced in the local area would appraise the lease fee and leasehold interest in the property by discounting the income flows using the prime interest rate in effect at the time of the Case Bank. Then there was a fraction formula to determine the awarding of damages but I don’t remember the details.
When all was said and done here is the bottom line: This LO basically wanted a re-type of my 1998, appraisal addressed to his bank and so stated in our first conservation. The final result would not have been significantly different but the commencement date had not been established as of the last appraisal and some of the lease terms had changed that the LO’s bank were not aware of, the lesson being you had better be careful when doing re-types, which I don’t think are legal but some obviously do, because things could have changed significantly.

 

[Farm Gal]

:rofl:

Just because you think they are out to get you they *may* not be, but what you don't know CAN hurt you ....

so just be careful out there!

Thanks for following up!

(Did they even LOOK at your report... or just the "number"
--- and if they DID look at the report would they have unnerstood what you wrote :blink: )