Most Probable Minimum Price

[CANative]

NOTE: This is an old thread
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I am nearing completion of the appraisal of what I think is a unique property. If not unique, certainly one of very few properties like it anywhere. I posted about this one a couple of weeks ago. It's a very nice 120 acre property with it's own private 30 acre natural lake.

The intended use of this appraisal is mortgage lending and the client is a mortgage broker who brokers to a well known lender. After researching and thinking and analyzing for 2 weeks I find that I can only come up with a minimum value. It's likely (in my opinion and the opinion of most Realtors) that this property could sell for much more if properly marketed, but I can't prove it because there is nothing else like it. I found one recent sale of a property with similar acreage and a private lake which was virtually the same size as this one. Unfortunately that property is located in Canada.

The appraisal certainly will raise the eyebrows of an underwirter with comps on the same street and up to 30 miles away. Net and gross adjustments approaching 200% and the use of some lakefront homes on less than an acre against the subject's 120 acres with no adjustments for parcel size.

Is it appropriate to include a discussion that the opinion of value is likely conservative based on a lack of data and no truly similar comparable sales?

 

[The Matrix]

With a one of a kind property like the one you are appraising, I think that the accurate determination of land value is paramount--- then add the depreciated value of the improvements. In other words, the cost approach may provide the strongest indication of the subject's market value. The appraisal could be further complicated if the 120 acre parcel could be subdivided into numerous high priced residential lots (you might be talking a subdivision appraisal with water rights). The determination of highest and best use of the land as if vacant, and as if improved, are important components to this type of complex appraisal.

 

[Ray Miller]

Mr. Boyd,

I had a similar problem. With a hand cut log home with the Black River on three sides.

I did find a similar comparable sale north of the subject 75 Miles. Then I used two other sales that were over 250 miles from the subject that were similar. I bracketed and was not over 15%/25% with these. These were my 1,2 and 3 comparalbe sales.

I also prove the land value of the acreage and the comparables.

Then I used sales in the area for comparables 4,5 and 6. That had the 100%/ 200% adjustments.

Then I wrote a nartive of why the property was worth $750K. Using similar sales from six other states. Showing that there was a market for this type of property. A lot of my informaiton I got from my files of WSJ real estate ads for the past two years. I also use the information from WSJ to show that these properties are on the market every week and buyers from all over the country will buy if they like the subject.

This property could not be subdivided as the it sit out on a finger of land with the river around it.

I am working on one now that has it own lake and airstrip that will handle a twin. House is 5500 GLA, Guest home of 2200 GLA and managers home of 1800 GLA, related equine buildings. NW Wisconsin.

 

[CANative]

How big is the lake Ray? If you find comps with a large private lake on the property would you PM me? I think the market for this property is nationwide.

David, the parcel cannot be split due to AG/RL zoning with minimum parcel sizes of 160 acres. Land value? I do a lot of land appraisals and it's easy to determine the value of the 120 acres... but what about the lake? Since it's unique, there is nothing to compare it to. I am estimating the land value based on the acreage and adding the value of what lake frontage tends to contributes to lakefront lots. Front footage on Clear Lake can be adjusted at about $500 per foot. This lake probably has over 5,000 feet of front footage. While I wouldn't value the contribution at that rate, it does lead me to think my opinion of value is conservative.

 

[Non Sequitur]

Damn Ray you rock. If I lived closer I'd pay good money to tag along and learn.

 

[Elliott]

I'm an appraiser, not a lender, not a MB, not a bank.
But I know there are is A paper and B paper, hey
maybe there is C paper.

I get calls on wierd properties. My first comment is,
"who's buying this mortgage?" Why don't you have
the UW call me. Usually I don't get the next call.

If it ain't simple, one house, one lot (normal), then its
just a headache or timebomb waiting to happen.

My latest "call" was someone who was sure to inform me
this was a "security" (talked even faster than a MB).
So he sends me the assignment, and I inspect the
four zero-lot line houses, and by the time I get back
to my office, he says, "put it on hold, I have to clear up some issues."

Lots of luck making this one into a mortgage.

elliott

 

[Ray Miller]

The lake size is 15 acres. Lakes are not to big of a problem here. Lots of those lakes around in the north end of the state. Most have been cut up and subdivided.

Matter of fact I am dealing on a section of land now for a new riding stables that has a trout stream and a 20 acre lake on it, as well as a certified gravel pit in the center. We are trying to get a 20 year lease with fist option to buy.

I will PM you with an appraisers name and phone number who might be able to pull you some.

 

[JSmith43]

The lake size is 15 acres.

Hey, Ray:

Doesn't the department of natural resources...or whatever it is called in cheese land have a minimum acrage before a puddle is called a lake? :rofl:

MN does, but I cant remember what it is.....more than 100 acres, I'm fairly confident.

Greg: I think you are right about the national market for such play estates. National size marketing times as well.

There was a beauty of an estate North of Grand Rapids, MN owned by a lumber baron. It is on a beautiful lake that is basically undeveloped as it is surrounded by national forest land. The final heir died off about 25 years ago & left it to the Chippewa Natl Forest. The buildings are preserved, the sea plane hanger was torn down.

No market data there. I just needed to tell the story since it reminds me of summer when I rough it through a mile long channel to fish that lake.

 

[Roger Kinnard]

Interesting.

In a direct answer to your question. I would say yes.

For collateralization purposes, a minimum value may very well be good enough to suit the client's needs and a discussion concerning the lack of meaningful data and your own feelings that your value may very well be conservative could aid them in making their lending decision, which is the reason they want the appraisal in the first place, right?

Unique situations call for unique answers.

Good luck

Roger

 

[Carnivore]

Greg,

Thanks for bringing forward an appraisal assignment that really demonstrates why Intended Use and Intended User is important. You might think about being very restrictive and prominent with your Intended use/user comments.

It also illustrates why loan amounts on your order form sometimes are important.

Curious, Was your HBU helpful?

Again, thanks for this example. I personally get the most out of these types of appraisals because of the grey matter massage it takes for solving the problem.


So how much does this dog get in California