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Methodology question - right-of-way dispute

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Roger Murdock

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The situation: You have been asked to appraiser a mixed-use two-story "Main Street"-type property with commercial on the ground floor and two apartments above. There is a narrow driveway that runs along the edge of the property and provides access to a small parking area at the rear, enough for perhaps three or four cars at most.

After this property was purchased, the owner decided that he wanted to expand the ground floor out at the rear to accomodate the needs of the tenant or a potential tenant. However, just as work was getting started, the owner of the neighboring property piped up and claimed to have a right-of-way through the driveway, across the back lot, and into the back lot of the his neighboring property. That back lot of his has no other access other than this claimed right-of-way; otherwise it is not accessible to a vehicle.

The dispute went to court and the court decided in favor of the neighbor, giving him the right-of-way. This of course ruined the property owner's plans, and eventually caused the loss of the tenant.

In connection with this case, you have been asked to appraise the property (retrospectively, as it happens) both with, and without, the neighbor's right of way. (Incidentally, the right-of-way has no "documentation" other than the court's decision, and has no legal specification - it is not precisely defined, but it's rather clear what it means.)

How would you reflect the different valuation scenarios (with/without right-of-way) in both the Sales and Income approaches? I have my own ideas but I want to hear what more seasoned minds have to say before coloring it with my own thinking.
 

hastalavista

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Ok, I consider this a learning experience so I'll stick-out my neck and see how long my head stays on my shoulders. :new_smile-l:

So there are two valuations: One with this side access and rear lot area for 2-3 cars with the right to modify the as-is condition of this non-improved area to improved (I'll call this "A").
The other duplicates "A" with the exception that there is no right to improve the side access/rear lot area (I'll call this "B").

"A" is the easier of the two (I'll assume). Value the property as-if it had the right to build improvements on the unimproved area. This would mean finding like-comps to what exists without any development-restricting easement.

The challenge in "B" is to match the subject's physical improvement but without the side access/parking area with its development rights. I'll assume a matching comparable does not exist. So then I'd search for comps that match the subject's physical improvement but without the access and rear lot area.
The only thing I'm missing from my "B" comps is the ability to park.
To determine that value, I'll have to calculate what it would cost to rent a parking area similar to the subject's area, figure out the income it generates and capitalize it to conclude a present value.
I can add value of the leased parking income to my "B" comps and have a reasonable facsimile of what the subject's as-is rights reflect (an improvement and parking area where the owner cannot improve upon the parking area). And, hopefully, a reasonable and credible market value of those rights

Hypothetical market value of "A" is the "without right-of-way" value.
Value of "B" is the "with right-of-way" value.

Now, there may be no difference. Or the value of "B" may be higher than "A". What does this tell me? It tells me that the HBU of this area may be parking and not improved.
It also may tell me that the subject's owner was making a specific-user decision that the market doesn't recognize- in other words no one is paying a premium for the development potential over the value of this area as a parking lot.

Let's see if this idea makes it till 8:00pm PST! :)
 
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PropertyEconomics

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New Mexico
Which property are you appraising ... the property with the access or the other wanting to expand?
 

Roger Murdock

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Certified General Appraiser
State
New Jersey
I'm appraising the property that had wanted to expand, but lost this ability due to the right-of-way that the neighbor won.
 

hastalavista

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Marc-

BTW, the "learning experience" I referred to in my first post was for me, not for you! :new_smile-l:
 

PropertyEconomics

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Jun 19, 2007
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State
New Mexico
I'm appraising the property that had wanted to expand, but lost this ability due to the right-of-way that the neighbor won.


That is what I thought.

Why wouldnt you simply do a value in the before condition and a value in the after condition ... with the after condition considering the cost of the capital improvements needed to create the additional space and income?
 

Roger Murdock

Thread Starter
Junior Member
Joined
Apr 19, 2005
Professional Status
Certified General Appraiser
State
New Jersey
That is what I thought.

Why wouldnt you simply do a value in the before condition and a value in the after condition ... with the after condition considering the cost of the capital improvements needed to create the additional space and income?

Well, let me ask you, do you do that every time you appraise a property that does not utilize the maximum FAR? I know I don't..... Should we be doing that all the time? The particular plans of the property owner should have zero bearing on the market value.
 

PropertyEconomics

Elite Member
Joined
Jun 19, 2007
Professional Status
Certified General Appraiser
State
New Mexico
Well, let me ask you, do you do that every time you appraise a property that does not utilize the maximum FAR? I know I don't..... Should we be doing that all the time? The particular plans of the property owner should have zero bearing on the market value.


But thats not what you asked ..... you asked how you would do it considering his plans before and after.

FARs are typically a range within any market ... and I would guess the FAR in both the before and after condition would fall within that range wouldnt it?

I took the assignment to be something quite different than what you have asked in this question. Perhaps I misunderstood. If so my apologies.
 
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