Most Probable Minimum Price

[Richard Carlsen]

This may be one of those cases where your best indicator of value is the cost approach. I would carefully work that up and then, using the indicator of value from the sales data approach, bring it all together if, of all places. the reconciliation. Sure your opinion of the most probable sales price might extend beyond the indicated value of the comps, but if you are limited to those values, you will be most likely, low on market value.

I would try to do a full reconciliation but if the UW does not like it, go back to their guidelines and give what you can. But explain fully that the opinion of value is limited by the requirement of the secondary market. Such a property might not make it to the secondary market. This loan may be put in the portfolio.

BTW, I don't think you can peg a Most Probable Minimum Sales Price. The bottom line on selling price is the minimum that the seller will accept. Since you can never know just what a seller's bottom line is nor measure it in the marketplace, there is no way to form an opinion of a MPMSP.

 

[CANative]

Richard, I used "Most Probably Minimum Sales Price" as the thread title because it was catchy and conveyed my thinking. I wouldn't use the phrase in the actual report. the cost approach has been very helpful and is pretty much where I'm land on this. It is also problematical because it is indicating the MPMSP. Without the lake this is just another hobby ranch on 120 acres. Since there is no way to cost out a large natural lake, I'm guessing at what this lake would contribute to the land value based on it's appeal.

HBU... The zoning includes multiple combining districts and the permitted uses runs 5 pages long with incrreasingly tougher permitting process (i.e. permitted, minor use permits, major use permits) and some of the combining districts make the uses allowed by other districts not allowable or feasible. It's primarily an agricultural preserve and although it is in a good appellation, the rugged topography would make large scale vineyards difficult to harvest except by manual labor. Other crops would not produce enough income to overcome the land value which is high because of the lake. A private fishing and huting club is allowed with a minor use permit and there are plenty of bass in the lake, and the area has wild pig, turky and deer. But a world class bass lake is only 10 minutes from the property and there are bazillons of acres of BLM land surrounding the property so I don't see someone buying this to produce income. I think the most likely buyer of means who would like a private getaway, or perhaps a corporation to use as a company retreat.

So how much does this dog get in California

Since this property is shown in detail on the internet, I probably shouldn't disclose my opinions about the value on the internet. LOL

subject

 

[JSmith43]

the cost approach has been very helpful and is pretty much where I'm land on this

Would you use the cost approach to value a ghost town?

I like the concept of emphasizing a minimum value since you have some floor data and very scant data on the high end.

 

[Mike Boyd]

Ya gotta DEMONSTRATE that there is a market for this type property in Lake County for an ACCURATE appraisal report. You won't get your comps in MLS. Sales for this type of thing are often through combined corporate assets. Title may never transfer as the corporation gets sold which includes the real estate it owns.

For a lender, you're on the right track. Your idea on narrative is also good. Of course, you had a good teacher.

A real problem would be if a corporate ownership wishes separate valuation s for its real estate holdings. Make sure you include in your addenda that this report is valid fir mortgage lending purposes only and for no other reason. Standard stuff but sometimes get left out of complex report writing. I hope you charged a fee that will net you at least minimum wage after expenses.

 

[Jim Onderisin]

Yes. I do that type of thing regularly. I let the client know that there were no truly comparable sales, and what might be the possible range of value for the subject property. I'll generally give them a point-estimate of value because that's what they want. But then I explain why the value may be different, if there's more of a likelihood that it might be greater or lesser than the point estimate, and an approximation of how reliable the point estimate might be. What else can you do?

 

[Edd Gillespie]

Scatter the words "Complex Property" at strategic points through out the report where the UW may stumble upon them. Perhaps occassionally highlighting them. Even though the MB may be good it seems sometimes they just are not a match for a UW who knows she is right-just because she is. I think UW school teaches these words and they seem to somehow trigger the UW's tolerance-for-the-uncommon-property appraisal button. Or at least I think it does. Worth a try anyway. I really don't know if UW's think alike or are trained from the same manual or what. My experience is that once one gets started she (why are they always she's?-that just occurred to me-is that just me?-god forbid that I would be sexist-maybe I just attract women UW's) is almost unstoppable and will have it her way and she will have the last word or this loan won't close by golly.

 

[Ray Miller]

Greg,

If I had been called in as a buyers consultant for recreationl use. I would really need to consider this property as an income producer. Just with your information you have posted here, the pictures, looking at maps and drive times from populations centers. Now with the BLM land, I would need to give this high consideration as the HBU.

Many people over look these types of properties. I just completed one here in Wisconsin that was bought for 1.75M. Covert the farm from just a farm to a recreational farm. Six hundred forty acres. It has sit there for years as a money looser for a company dumping big bucks into it. Now it is moving forward as a recreational ranch. I worked on the project for three years. Laying out operation policy, start up policy, budgets and etc. As a Farm, it had a worth of 1.5M, as a development it had a worth of 3.5M as a recreational ranch it has a net worth of 7M. If the recreation ranch fails then they can fall back and develop it as rural vacation home development or just sell it for farm land and still recover thier investment.

I am also co-partnering on one in Norther Wisconsin. We did the zoning work and got it changed three years ago, so we could develop this new recreational operation. It had sit vacant for 15 years. Plans are to open by June first at the start of the tourist season. Then it will be come a year round operation for recreation. Figure it will take us three years to build it to its full potential for income.

and there are bazillons of acres of BLM land surrounding the property so I don't see someone buying this to produce income.

Are there permits that could be obtain from the BLM for recreational use, grazing rights. If so how many acres ? Usage ? Lenght of time of permits ? If so would you need to consider these in HBU as an income producing property of some kind? If there are permits available this would make the property even more valuable.

It sound like and the picture indicate that the lake maybe a primary part of the appeal of the property. If so what are the water rights on the land? Dose the property own the surface water rights to the lake or part of the water rights? What is the water source for the lake? Is there the possiblity for this lake to drain or dry up?

I sure hope you bid this appraisal up in price for the work it is taking.

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On my complex one above on the finger of land. The cost approach was with in 10% of the sales approach.

 

[CANative]

Clear Lake is about 3-4 miles east (as the crow flies.) It is thought to be one of the oldest lakes in North America. This smaller lake is natural and is fed by several springs. It's probably very old and it's not likely to drain or dry up. The lake is entirely within the boundaries of the parcel and all rights are owned by the property owner. I've spoken with both the planning department and the county water resources officials. There are no known restrictions to use of the lake other than if someone wanted to do something that might upset the local envirnoment or effect wildlife habitat.

There is an operation like the one you describe in the rural outback of Napa County, about 60 miles south of the subject. It doesn't have a lake, but is in close proximity to Lake Berryessa. The project is failing miserably.

The Anderson Valley region of Mendocino County, 30 miles west of the subject has several large tract properties with facilities for corporate retreats or substance abuse treatment spas. Again no lake. I'm not sure how they are doing as far as income but I've seen a couple and they don't seem to be very well maintained.

There is one very good place like this. It's in the Russian River area of Sonoma County, about 70 miles southwest of the subject. Each year celebrities and world leaders meet there for a wild, week long party. It is doing very well. Lots of black SUV's and black helicopters.

Sorry to have mislead you on the BLM lands. They are not contiguous to the parcel which is actually surrounded by privately held lands. One would have to drive a bit to get to the BLM areas where one could hunt and ride ATV's.

I bid this when I thought is was just a 120 acre house in the hills. During the inspection I told the HO that I would be billing additional fees to my client. I'm not sure if I will though. A deal's a deal. And I'm walking away with some additional experience on unique properties.

 

[CANative]

why are they always she's?-that just occurred to me-is that just me

Come to think of it, I don't think I've ever heard tell of a male underwriter.

 

[Ray Miller]

There is an operation like the one you describe in the rural outback of Napa County, about 60 miles south of the subject. It doesn't have a lake, but is in close proximity to Lake Berryessa. The project is failing miserably.

The Anderson Valley region of Mendocino County, 30 miles west of the subject has several large tract properties with facilities for corporate retreats or substance abuse treatment spas. Again no lake. I'm not sure how they are doing as far as income but I've seen a couple and they don't seem to be very well maintained.

Most of these fail for lack of correct management and proper marketing. Can’t count the ones that I have worked with in the past 40 years across the North America. Most we got turned around; some we just closed and liquated the stock and equipment.

Did a number for Resort Development International that they had gotten from the RTC for pennies on the dollar. (Coming again). From VA. to TX. to Ca.

I bought one here in the Dells, which was doing $500 net a week, 8 to 10 weeks in the summer season. With in three years we had it at $45K gross a month, net 15K, 12 months out of the year. Did the same thing with one in Tucson.

Some just don’t have the right location. They are the ones you don’t waste your time on.

We find many that are started by or managed by backyard horse owners, wantabe cowboys and cowgirls or people who have stayed at a guest ranch. They have just a surface understanding of the recreational industry and of horses. It gets them in trouble all the time. Many are under funded at the get go. But they should cash flow with in 6 weeks and paying all operating expenses. Return on and of investment should start with in 12 weeks if you have done you home work.

With lost of the BLM land not be contiguous to the property would lower the value a bit.

Sounds like you have done you home work on this one. How many appraisers would? These are lots of work.

I understand what you are saying about your word. The C/W song writer and singer Lee Roy Vandyke tells the story. One time when things were not good and money was tight. He sign a contract to do concerts for the coming summer season at County Fairs for a low fee just to pay his band and by food. During that winter he wrote the song “Auctioneer” and it hit the top of the charts. He was wanted for concerts across this land. His rate went up four times what he was charging for the county fairs. He says he could have not honor the contract. But he had given his word. His word met more then the dollars he would miss. He did the fairs.

On rural acreages, I try and leave the rate open ended. Just for problems like this.