New subdivision question

[Kathy in FL]

Discussing a proposed SD project with a client who wants a "Limited" appraisal based on cost and discounted cash flow analysis.

Small isolated rural area, few similar projects, no data from anyone other than the developer of the current project. Riverfront lots, mostly...will probably encounter problems with the water management district. (This is a septic tank area only)

How would you charge? I'm not sure if I should just charge my standard rate for simple commercial assignments...they want a quote in advance, so I can't really wait and see how much work I'm going to run into. Anybody ever done anything like this? Any caveats?

I'd like to pass the work on to someone else more experienced in SD development...but I'm the only commercially certified person in five counties, and I like to stretch out a bit and try something new.

Kathy

 

[Paul Ness MAI]

First, I don’t know how you could do a subdivision as a limited appraisal. Further, if you’ve never done a subdivision valuation, I suggest you find someone to tag-team and talk with them before you even quote on the assignment. It's anything but simple and you should charge more than your normal fee for a "simple" assignment.

You use the sales comparison approach to estimate the values of the individual lots. You need to analyze supply and demand – existing and proposed supply (competition for your subject), and demand to determine who is moving in and out of the area and who the likely buyers would be – all to determine absorption. Appraisers are typically good at analyzing the supply side but are notoriously weak at analyzing demand. Then set up a DCF and deduct holding costs such as sales commissions, real estate taxes, legal costs, and developer’s profit (usually expressed as a percentage of gross sales). If you are appraising the property before infrastructure completion, then you would also need to deduct these costs in your model. Then all the cash flows are discounted to present value. If appraising as vacant the risk and rate would be higher than if you are appraising assuming completion of infrastructure. As a check for feasibility, I like to calculate the overall IRR based on the value conclusion and then taking the cash flows and adding back the developer’s profit. You need to talk with developers to determine required developer’s profit and/or IRR, but make sure they know what you are asking for.

Is Dixie County anywhere near Suwannee County? I own a lot in a subdivision along the Suwannee River near Branford (we inherited it). It's all in the water mgt district, as there are also springs everywhere and it is prone to flooding (we're talking stilt homes). If yours is in the mgt district, be careful. Do they have approvals? Suwannee County has so much vacant land available for sale and it is moving very slowly. Hey if there are no commercial appraisers in the area maybe I should move there and hang out my shingle. :wink:

 

[Rlong]

I do quite a bit of subdivision analysis, and some unique situations BUT that does sound hard to determine. Does it have preliminary approvals? If not you will have some hypothetical conditions? It will take ALOT of talk with governmental agencies to see "what can and cannot" be done in that area. In my area I already have a relationship with these people. That part still tends to take up alot of time. It depends on how much leg work the developer has already done.

I DO utilize a comparable sales analysis to determine lot pricing, but it is within the income approach. Frequently, I do not have any sales of similar completed developments and or bulk lot sales so I do not perform the Sales Comparison Approach per se, although it is still a Complete Appraisal as the SC Approach does not provide a reliable value indication (without data). Probably not everyone will agree, but this is how I was taught and it has worked for several years. Other more tract home style development DO have either whole or partial development sales and I can perform a seperate SC Approach.

I get probably 50%-100% more than say a simple developed properety here. I'm not sure labeling it a limited or complete really matters as to the fee, it will still require substantial analysis. But obviously the client "thinks" it should be less as "it's limited" I hope that helps.

 

[Kathy in FL]

Paul...
Suwannee County is not far from here at all. I think there may be one practicing commercial appraiser in Live Oak (the county seat) and a few residential guys...I do some work there once in a while...mostly in the Branford area (about 15 miles north of my house!) So don't move here! I need the work!

You're right about how slow the market is there lately. My potential subject is in Taylor County, though...in a rapidly growing and popular (Former Pres Carter stayed there once!) fishing community with about 700 permanent residents. Prices spiraling upward, driven by move-in yankees and Georgia people with too much money, an addiction to scalloping and not much market sense. (No offense to yankees, now...we like your money, we just wish you would go back to Michigan and New Jersey for most of the year and leave us be.) It was a beautiful, wild place with several "discreetly" hidden runways back in the woods in the late 80's and if your local drug dealer had any marijuana, it probably came in from Columbia on one of them. It's starting to look like every other pseudo-Cape COD fishing village in the world now with building restrictions, condos and homeowner's associations. When I was in elementary school in the late 70s, the kids didn't have to wear shoes to school...and didn't.

Ah...progress.
Kathy in FL

 

[Paul Ness MAI]

After posting the last message I looked on the map to see Dixie County is located very near Branford. Our lot is in a small subdivision just north of Branford, and our lot is one block east of the river. The county isn’t maintaining the dirt roads and some aren’t even passable. I’ve written to the county maintenance dept and commissioners with no success. There aren’t enough residents in the development for them to justify maintenance but on the other hand, the lack of it deters new people from moving in, keeping values and (and the tax base) down. It’s a shame because it is truly a beautiful area with the river and springs, and the development has a common park area and boat ramp. Although I am a Yankee, my wife is a FL native (born and raised in Miami/Hollywood). Her grandmother gave her the lot 18 years ago and we decided to hold on to it.

 

[Anonymous]

<existing and proposed supply (competition for your subject), and demand to determine who is moving in and out of the area and who the likely buyers would be – all to determine absorption. Appraisers are typically good at analyzing the supply side but are notoriously weak at analyzing demand> Good comments.

In my part of the world, I find subdivisions in rural areas (our assessor calls them "rurban" & keeps them separate which helps.) Using as many as you can crunch the numbers on the history cards. # of sales per year or month, etc. You probably will find many that are owned by a developer who sells the lots as he builds so you lack both reliable lot sales and the time of development is controled by his building not by lot sales. The nice subd. to find is one developed by a person who does not build houses. These are few and far between here but gives a much more reliable absorption rate. Our rurban lots tend to be absorbed in 3-4 years, up to 10-12 if the builder is also the developer (no vacant lot sales.)
Another good rule of thumb is that the bare land value (before streets and utilities) rarely exceeds more than 25% to gross lot sales. I.e.- 10 lots selling for $30,000 suggests the developer cannot pay more than $75,000 for the bare land.

I created a Word Perfect calculating table to calculate the NPV's, so these calculations are being performed as I write the report.

Terrel Shields