Land can be divided. Attorney says not so fast...

[Res Ap]

Appraising a 4.74 acre of land with two older homes on it. This is for an estate, with the mother just passing. Based on zoning it can be divided and sliced and diced with homes, a townhouse or condo complex. When she sells next year (she told me that is her plan), there is no doubt a developer will buy and do just that. I explained this to the attorney. He said she has to pay taxes on the value I come up with, so said can't it just be appraised as it sits now on a large acreage with two homes and not divide-able. Typically, everyone wants their values high, so this threw me. I don't believe I can do as a hypothetical assumption that it can't be divided, when in fact it can. There will be a huge difference of at least $500K+ if I appraise it as dividable or if I appraise as it can't be divided. Advise please.

 

[CANative]

Hypothetical assumption?

Anyway, unless it's worth more than $11M or so it is not taxable. The issue on this is the "what's it worth now (or a retrospective date)" vs. what they might sell it for later. But that's probably not relevant to what your working on at the moment.

The as is value, today, would be the real estate in it's present use and what type of buyer is most likely to purchase it right now. It's a HBU problem to solve. Would they pay more now for an undivided property that might be dividable later and put to a different use? Or would a buyer of this property purchase as a single acreage lot with two dwelling units to rent or live in?

That's the question you have to solve.

 

[Tim The Enchanter]

How much would that developer pay, not how much would it be worth redeveloped.
Sounds like you have a land appraisal.

 

[bnmappraisal]

hypothetical assumption

it's Hypothetical Condition OR Extraordinary Assumption .... sorry, but had to correct that (might come in handy if you have to go to court/give a deposition)

It's a HBU problem to solve

I agree with CAN above, but it also depends on the SOW and Intended Use

He said she has to pay taxes on the value I come up with, so said can't it just be appraised as it sits now on a large acreage with two homes and not divide-able

(my bold) I think this gets into the definition of Value needed.

 

[CANative]

Sounds like the OP is either dealing with a step up value situation or the Prop 13 reassessment process used when a property transfers. I don't think the assessor needs an appraisal, they will look at the amount reported by the new owner. Of course, if it doesn't look right they don't have to accept the reported transfer amount and will do their own appraisal.

 

[J Grant]

Appraising a 4.74 acre of land with two older homes on it. This is for an estate, with the mother just passing. Based on zoning it can be divided and sliced and diced with homes, a townhouse or condo complex. When she sells next year (she told me that is her plan), there is no doubt a developer will buy and do just that. I explained this to the attorney. He said she has to pay taxes on the value I come up with, so said can't it just be appraised as it sits now on a large acreage with two homes and not divide-able. Typically, everyone wants their values high, so this threw me. I don't believe I can do as a hypothetical assumption that it can't be divided, when in fact it can. There will be a huge difference of at least $500K+ if I appraise it as dividable or if I appraise as it can't be divided. Advise please.

Boo hoo she will have to pay more taxes. Is the purpose of your assignment a market value opinion, or to mislead about value to help her pay less taxes?

Be careful ! Estates can turn into a family squabble litigious situation.

Appraise what is it is worth as of X assignment effective date -as of this effective date a buyer would pay more because it has subdivision potential (HBU) than so be it.

I like to have a conversation upfront when I take a private assignment ( because often they expect an appraisal to "help" their agenda ) I tell them upfront, I am going to appraise for market value, not high or low to help any side or party - do you still want me to proceed? They always say yes ( maybe with a few "But"...) Then when I deliver the appraisal if they have an issue, I say, "remember our conversation?"

 

[George Hatch]

If a developer would pay more for the property than a residential user then the land value is the thing, and most likely they would value it based on the potential yield, not the overall square footage or acreage. "sliced or diced into homes or condos" is a pretty broad statement - the primary question will be how many units, and how likely they'll be able to get the maximum density.

Proximity to utility connections, what types of street improvements, subdivision costs - these all come off the top of the retail price/unit after completion of the mapping process. In my region, if an individual SFR parcel that has all the street improvements and mapping and utility stub-ins complete would sell for $100k then the value of unmapped land with access and utilities but no engineering or mapping complete will be somewhere in the $25k/unit range. Even a map that has tenative approval but is still lacking some of the requisites for recording will commonly sell for less than half of their value upon completion of the subdivision mapping process.

There's a potential scope of practice issue here for a CR appraiser - Scope of practice allows the appraiser to appraise the lot if they can appraise what goes on the lot, meaning if the yield is 1-4 units total then that's within the scope of practice for a CR licensee. If this site would yield (for example) 10 units then that would lie beyond the scope of practice for a CR. And really, those types of assignments can get pretty involved.

Now for a non-FRT a CR can appraise the property. Just remember, the "appraisers peers" for a parcel that's good for 5+ units won't consist of CRs, it will consist of CGs who commonly appraise such properties and what we would do in that assignment. OTOH, if this site is only good for a couple homes or a 4-way lot split plus a remainder for a common driveway or whatnot then that would lie within the scope of practice for a CR assuming they knew how to do that assignment competently.

TBH, I've never yet seen an *unsupervised* SL or CR in this region appraise a multi-residential parcel the way the CGs do it. Most of them go for price/sf or price/ac, which can only work when all the comparables have the same attributes including zoning, access and utility availability.

 

[CANative]

The issue is purely a matter of a careful HBU analysis.

Not an easy assignment regardless of the noise being made by the parties and their attorney.

 

[Elliott]

One of my first estate appraisals was a wide house that set over the property line. Everyone told me it must only be one site (two 50x100 lots). And I like a dope appraised it accordingly. A real estate broker snatched it up, went to the city, pleaded he could seg off a site with a tappered lot line adjustment and viola, he created a new site, built a new house on it and sold the old house too. Made me feel like a dope. Total violation of set-backs for fire safety which specified 5' on each side for both properties. Every time I drive by it, it looks like a fire trap that shouldn't have happened.

I've seen more cases where zoning created two lots when it looked like one than I care to count. Oregon actually just passed a law that re-zones all single family zones from one house to one house or a duplex (have you heard of the housing/rental shortage?). I once saw a 50 x 50 built on, then sold off that was with a 50x100 and a 50x50. So I've concluded, cities only care about tax revenue and they will let you build anything, anywhere, just so they get their taste.

Your situation even seems simpler.

 

[J Grant]

Is the attorney going to sign the appraisal? I imagine not. He/she will suggest appraiser commit fraud ( possibly ignore HBU and under value a property), if anything happens atty will claim they relied on the professional appraiser to make the call.

Note this is an estate/tax issue, the IRS has their own appraisers - if the property is appraised for estate for 200k , owner pays little taxes ( tax evasion) and 8 months later it sells for 900k. They might notice something -