Land locked appraisal

[gregb]

Exposure time, when related to the circumstances of a landlocked property, would likely be considered reasonable if the owner made contact with every adjoining property owner informing them of his offer to sell.

 

[hastalavista]

If I recall correctly, a valuation for the bilateral monopoly scenario does not qualify as a market value assignment.
In that scenario, there is only one buyer and one seller.
Other landlocked properties are not comparables.
Game theory does apply (kinda).
A minimum and maximum value (a range) can be concluded, but where it falls within that range (which starts at zero) is up to the negotiation ability and specific motivations of the only buyer and the only seller (game theory).

Based on this description:

HOUSE............vacant parcel..............HOUSE.

the subject would not fit the bilateral monopoly definition.

But it sure comes close. Rather than only one buyer and one seller, in this scenario there are two buyers and one seller. A small market, but a market nonetheless.

 

[PropertyEconomics]

If I recall correctly, a valuation for the bilateral monopoly scenario does not qualify as a market value assignment.
In that scenario, there is only one buyer and one seller.
Other landlocked properties are not comparables.
Game theory does apply (kinda).
A minimum and maximum value (a range) can be concluded, but where it falls within that range (which starts at zero) is up to the negotiation ability and specific motivations of the only buyer and the only seller (game theory).

Based on this description:
the subject would not fit the bilateral monopoly definition.

But it sure comes close. Rather than only one buyer and one seller, in this scenario there are two buyers and one seller. A small market, but a market nonetheless.

Other land locked parcel sales can be considered in order to determine the appropriate adjustment necessary to the non-land locked parcels that are comparable to the subject except for their having access which the subject does not have.

 

[Michigan CG]

I agree with you completely. I am not certain you addressed exposure time when it is a component of market value definition.

Interesting question.

......reasonable time is allowed for exposure in the open market;....

I will explain why I think exposure is adequate from my experiences.

Guy has a house with a vacant unbuildable lot to the left. Guy to the left of the unbuildable lot owns his property. Both see this parcel that they don't own and nothing can be built on it. They see it in the morning when they go to work, in the evening when they come home, on weekends when they mow the lawn or shovel the snow. It is there, and they know it.

When the owner is interested in selling they let guy A and guy B know. I would consider that exposure.

But guess what..............that is all inconsequential as the subject property does not have to be exposed at all, it does not have to transfer in terms of Market Value. The subject is being appraised with the definition of market value.

Someone can go to the subject, hold a gun to his head and make him sell but none of that matters. The appraisal assumes Market Value no matter the circumstances of the subject sale conditions.

 

[hastalavista]

Other land locked parcel sales can be considered in order to determine the appropriate adjustment necessary to the non-land locked parcels that are comparable to the subject except for their having access which the subject does not have.

PE:

I was referring to a bilateral monopoly scenario, which would be a landlocked scenario, but doesn't apply to all landlocked scenarios.

In the bilateral monopoly scenario, the valuation is really simple: The maximum value is the contributory value to the potential buyer's site: a rational buyer, albeit he or she is the only buyer, will not pay more for the parcel than what it contributes to the existing parcel (or assemblage's) value.
The minimum value is zero (theoretically, the seller might have to "pay" the buyer something to take the parcel off their hands... but let's not get into negative value! :new_smile-l.

So I'm not contradicting your general statement regarding like-for-like (landlocked subjects are best compared to landlocked comparables).
I am saying, that by definition, a bilateral monopoly is unique unto itself (one buyer, one seller, one unique property); in that case, another sale, landlocked and even bilateral, wouldn't provide an indication of market value for the subject.

(at least, that's what I recall from the course when we discussed the bilateral monopoly scenario! :new_smile-l.

 

[PropertyEconomics]

Adequate exposure time would be measured against the exposure time of other similar parcels ... I agree with Denis its a very limited market .. but that doesnt mean the value cant meet the definition ... exposure would be to those who would have an interest in purchase ... including perhaps some who wish to purchase a land locked parcel that is not an adjoining land owner ... nothing I know says it has to be .. they are just the most probable .. then again who knows what an investor might determine ....

 

[sail143]

There is a market for these properties, its just limited. Non-disclosure is your problem. The comps are there, you just need to dig them out. In my opinion, it is not realistic to try to adjust non-land locked sales. The value is typically modest, likely lower than your are thinking.

 

[mark hurlock]

Interesting question.

I will explain why I think exposure is adequate from my experiences.

Guy has a house with a vacant unbuildable lot to the left. Guy to the left of the unbuildable lot owns his property. Both see this parcel that they don't own and nothing can be built on it. They see it in the morning when they go to work, in the evening when they come home, on weekends when they mow the lawn or shovel the snow. It is there, and they know it.

When the owner is interested in selling they let guy A and guy B know. I would consider that exposure.

But guess what..............that is all inconsequential as the subject property does not have to be exposed at all, it does not have to transfer in terms of Market Value. The subject is being appraised with the definition of market value.

Someone can go to the subject, hold a gun to his head and make him sell but none of that matters. The appraisal assumes Market Value no matter the circumstances of the subject sale conditions.

In theory, I agree with you all. A theoretical exposure time is conceivable. However, I don't see how I could develop and state a reasonable exposure time linked to my value.

Since I am not required to define market value with an exposure time, why would I want to in this case?

Even if I had reliable information, my selection of sales would likely produce everything from the neighbor bought the day after it was offered to they bought 10 years later after they realized the owner wouldn't give it away for free, none of which would likely produce credible results for any conclusion related to value.

So what would be reasonable in such a limited market?

This is not a sword I wish to die on and I can be persuaded in my thinking, but why?

It seems to me the appraiser has a choice here, why would I choose to include exposure time as a component of value?

This is an interesting question.

 

[CANative]

HOUSE............vacant parcel..............HOUSE.

I re-read the original post and now realize I misread the scenario. I didn't realize there were three parcels involved.

 

[Alan Magill]

Thank you all for the food for thought. The parcel is separately platted and is a part of the sellers land. It is only 0.22 acres and is adjacent to the potential buyers lot. It is not being used for anything and it would not be divisible or add value to the original owner except as surplus land due to the configuration and zoning. Terrible planning on the part of the original developer.

Prop Eco, I do not think another land locked sale could be verified in Texas. We are a non disclosure state, so I would be beating down doors for who knows how long. On top of that the situation is only one possible buyer and seller. The dynamics of the sale are often more important than the value of the property. It is like the last seller in a re development. Sometimes they get payed more than market due to the dynamics of the sale.

In other situations, it could be that they are good friends and the neighbors sell well below market. Due to the lack of competition, the dynamics of the situation can and often do dictate market value.

I am just trying to be fair and supportable.

Thanks again for your input.