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No Income Approach

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Richard J. Glesser

Junior Member
Joined
May 16, 2002
Professional Status
Certified General Appraiser
State
Michigan
Property: 11 Unit lakefront resort with owner's home and various rental income for paddleboats, pontoons, etc.

I do full narrative appraisal on property in October of 2002. The owners refis and appraisal is viewed so highly by lender that I now do all their commercial work.

Owner has now sold property and offers that I had done the appraisal recently. New purchaser's lender reads appraisal and opts for new one since this one is dated. Appraiser comes out and inspects property and values as follows: $50,000 each for each unit based upon recent sale of resort into condo units and then adds value for owner's home and land. Does no Income Approach stating it's not relative. Owner calls me furious about this report.

Now the owner provided me with both tax returns and access to her logbooks to verify income. The income is also easily verified by doing rent surveys of other comparable resorts as is the equipment rental income.

How can the Income Approach legitimately be omitted on a property being bought for investment purposes when data is so readily available?

Wouldn't the land value already be included in the condo sales in the approach he used to value?

Is 9 months old for a commercial appraisal?

Thanks for any input. :usa:
 

Fred

Elite Member
Joined
Jan 15, 2002
Professional Status
Retired Appraiser
State
Virgin Islands
Richard,
That reminds me of an appraisal I saw of a sandwhich leasehold that only used the cost approach.

1. Income cap for income property = "best practice." No excuse.
2. Condos come with land (rights). Buyer of these 11 units is not aquiring the same rights and ownership benefits as 11 people buying 11 condos.

That appraisal is non compos mentis.
 

Terrel L. Shields

Elite Member
Gold Supporting Member
Joined
May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
Income is important and likely the only reason the buyer is purchasing the land.

If 11 units as a single unit, did he consider the effects of a marketability discount...is he comparing a single condo sale to sale of 11 units?

Many lenders use 6 mo. as a limitation on an appraisal, so that is not unusual. If the appraisal is unfavorable to the seller in defiance to common sense the appraisal sounds like it should be reviewed or sent to the state.
 

Scott Lanz

Member
Joined
Dec 13, 2002
Professional Status
Certified General Appraiser
State
Minnesota
Richard-

I am located in Northern Minnesota and have done approximately 60 resort properties in the last 5 years from smaller operations to convention center sized, tear-downs for development, PUD's, Co-ops, etc.

Give me a call if you wish, would be happy to discuss my experience with you.

Scott Lanz 218-963-1377.
 
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