Is Build-to-suit Considered A Sale?

[Gobears81]

Another interesting comment. Is it possible some of these agreements are arm's-length? By the way, there is no fundamental difference between residential or commercial sales. All must meet the standard market value definition.

This is not trick feedback. I am not trying to solicit eco-chamber responses in what I already believe. I am interested in your reasoning.

I don't know that using a build-to-suit as a "wild card" comparable is so bad if you have a good reason to use it. But owner occupied properties are built not all that infrequently when market conditions do not render construction of them feasible, and in the cost approach, that would be reflected by obsolescence. Assuming that your property is owner occupied, where would you recognize the obsolescence to the BTS sale in the sales comparison approach in this hypothetical situation?

 

[J Grant]

This is a fairly straightforward question with a follow-up. Does build-to-suit need to be reported as a sale when providing a history of conveyance?

I fully understand there is a difference between should it be reported and it must be reported. My question revolves around the mandatory factor and is it considered an actual sale?

Finally, if it is a sale can you use cost to construct as legitimate indications of comparable building cost. In other words is it both a comparable sale and a cost comparable?

It cant be used as a comp ( per many guidelines, if report is done under those guidelines ) however this question references it as part of transaction history, so yes it should be reported, imo would also provide information about cost to acquire and build the property. It is not technically a "sale" since owner commissioned the project, though the site was a sale (and reported as such ), the building of house on it was not.

 

[J Grant]

This is a fairly straightforward question with a follow-up. Does build-to-suit need to be reported as a sale when providing a history of conveyance?

I fully understand there is a difference between should it be reported and it must be reported. My question revolves around the mandatory factor and is it considered an actual sale?

Finally, if it is a sale can you use cost to construct as legitimate indications of comparable building cost. In other words is it both a comparable sale and a cost comparable?

It cant be used as a comp ( per many guidelines,) however this question references it as part of transaction history, so yes it should be reported..

The portion of it that is a sale transaction was sale of the site to owner. The build to suit of improvement was commissioned by owner of site, so that portion was not a "Sale" however it can be part of analysis of history of subject .

 

[Stephen J. Vertin MAI]

"It cant be used as a comp ( per many guidelines, if report is done under those guidelines )"

Are the guidelines you are referring to individual lender guideline or larger more inclusive guidelines such as Fannie Mae, FIRREA, Interagency Appraisal and Evaluation Guidelines (Guidelines) etc.,?

"The build to suit of improvement was commissioned by owner of site"

So commissioned properties are not sales?

Not picking on anyone, just need to know the reasoning behind the thinking.

 

[J Grant]

"It cant be used as a comp ( per many guidelines, if report is done under those guidelines )"

Are the guidelines you are referring to individual lender guideline or larger more inclusive guidelines such as Fannie Mae, FIRREA, Interagency Appraisal and Evaluation Guidelines (Guidelines) etc.,?

"The build to suit of improvement was commissioned by owner of site"

So commissioned properties are not sales?

Not picking on anyone, just need to know the reasoning behind the thinking.

Either guideline but mainly the more inclusive guidelines.

The SALE was of the site , correct? At some point in time, the person custom building bought a site or house on a site and tore it down. The decision to then custom build or build a spec home on the site, how would an owner building on their own site constitute a sale?

In total it comprises a history of the subject. The decision and cost to build is part of property history and can deserve consideration, but an owner building on a site they own is not technically a sale ( unless you believe otherwise, am open to other viewpoints/learning)

 

[Stephen J. Vertin MAI]

"Either guideline but mainly the more inclusive guidelines"

I have actually looked at most commercial inclusive sources and cannot find references. I do not know about residential sources. Are you going off memory or do you have a particular reference and if so do you mind sharing?

"how would an owner building on their own site constitute a sale?"

You are referring to a particular form of build-to-suit transaction. While some may transpire as referred most build-to-suit transactions (even in the residential arena) are not of this nature. For the sake of argument are you saying the user-owned land is not a sale and even if they do not own the land it is still is not a sale? Or a third possibility, the land was a sale but the newly constructed improvement is not?

 

[residentialguy]

If you are talking about about a land sale and then hiring a builder to build a house on it and adding that cost to the land sale price:

• This is not acceptable to use as a comp

If you are talking about a new construction sale where builder sells the whole property subject to completion of a house that the buyer wants built

• This is an acceptable sale to use as a comp

 

[hastalavista]

"I'm thinking using a build to suit as a comp for residential is an unacceptable appraisal practice.
Not an arms length sale".

Another interesting comment. Is it possible some of these agreements are arm's-length? By the way, there is no fundamental difference between residential or commercial sales. All must meet the standard market value definition.

This is not trick feedback. I am not trying to solicit eco-chamber responses in what I already believe. I am interested in your reasoning.

Stephen-

I always appreciate discussing issues with you; forces me to think hard!

Here is my logic (and, it may not fit or "suit" your situation):

We have three players here:
A= the current land owner
B= The developer who is going to buy the land from A and develop it for the end-user
C= The end user, who I am presuming in this scenario, is going to purchase the site once it is complete for their use

Event 1
C goes to B or B goes to C (it doesn't matter, but I'll use C in this discussion) and says,
C: "We found a site that works perfect for us. We want you to buy and develop it and then we'll buy it from you."
B: "Ok, you want us to build your standard big-box model, right?"
C: "Yes"
B: "Got it; let's write up the contract now. If I can purchase the site, I'll develop it to your specs, and then You'll buy it from me for $X"
C: "Deal!"

Event 2
B: "Hey, Ms. A, I'd like to purchase your property".
A: "Great, you its yours."

Event 3
B: "OK, I've done my part, now its time for you to do yours; building is ready, pay up!"
C: "With Pleasure, good doing business with you!"

Here is my logic:
Event 1 creates the business relationship between B & C. C will buy the property from B only if (i) he acquires it and (ii) he builds the improvement to the specs. They are partners in a development project.

Event 2's sale is between B & A. There is no relationship here, and that sale is arm's length.

Event 3's sale is between B & C. They have a relationship; B purchased the site with the express objective to build C's big-box model; once that is done, B sells it to C. There is a relationship here that creates the non-arm's length relationship.

I'd go on further and say if B is a developer they normally use, then that business relationship is established and certainly creates the non-arm's length relationship.

To be clear, the relationship may have nothing to do with the prices paid. In other words, the non-arm's length relationship does not necessarily impact price. But I think the relationship exists; and if it does, it would trigger the non-arm's length identification.

This is more of an academic/technical discussion than anything else. But, you asked the question. And, I can be convinced to change my view.

 

[J Grant]

"Stephen J. Vertin MAI, post: 2817275, member: 66179"]"Either guideline but mainly the more inclusive guidelines"

I have actually looked at most commercial inclusive sources and cannot find references. I do not know about residential sources. Are you going off memory or do you have a particular reference and if so do you mind sharing?

8. I have not used comparable sales that were the result of combining a land sale with the contract purchase price of a home that has been built or will be built on the land. This is from the appraiser's certification page in the URAR form.

"how would an owner building on their own site constitute a sale?"

You are referring to a particular form of build-to-suit transaction. While some may transpire as referred most build-to-suit transactions (even in the residential arena) are not of this nature. For the sake of argument are you saying the user-owned land is not a sale and even if they do not own the land it is still is not a sale? Or a third possibility, the land was a sale but the newly constructed improvement is not?

At some past date, the owner of a site where they later build purchased that site , that purchase of the site was the SALE. The subsequent decision by the owner to build on that site is not a sale. It is market activity and can be commented on, but building on land you already own is not a sale.

 

[timd354]

"Stephen J. Vertin MAI, post: 2817275, member: 66179"]"Either guideline but mainly the more inclusive guidelines"

I have actually looked at most commercial inclusive sources and cannot find references. I do not know about residential sources. Are you going off memory or do you have a particular reference and if so do you mind sharing?

8. I have not used comparable sales that were the result of combining a land sale with the contract purchase price of a home that has been built or will be built on the land. This is from the appraiser's certification page in the URAR form.

.

Just curious as to why you would talk about what you have learned as residential appraisal guidelines and quote from the pre-printed certification in a Fannie Mae residential appraisal form in a discussion about the appropriateness of using certain transactions as a comp in the appraisal of a commercial property.