No Land?

[Hugh Griffith]

I've been asked to appraise a building under construction without considering the land(no fee simple nor leasehold). The land is a 5 acre tract on which several of these buildings will be erected as demand increases, but no master plan is in place. I've done a cost workup in the past using M&S to estimate only construction costs for another party, but did not consider it an appraisal. This appraisal will be for a client that will finance the building for the developer and land owner; whereas the land is currently financed by a 3rd party. Am I making this assignment more difficult than it is? What is the best way to approach this problem? Is there one? Thanks for any replies!

 

[xm39hnu]

Am I making this assignment more difficult than it is?

No, I'd say you've got a good bit of work to do.

What is the best way to approach this problem?

Don't know if it's the best way, but here's "a" way...

If you owned this building in its present state, and assuming the building must be removed from the land if default occurs....
1) Who would you sell it to? (market analysis)
3) What would they do with it? (HBU analysis)

Best thing I can think of to do is to look for houses or other buildings which have been sold "to be moved." Establish the contributory value of improvements for houses which DON'T have to be moved, versus the selling prices for houses which DO have to be moved.

Now, is this building movable at all? If so, will it be easier or harder to move than a house? Is it on a slab? If so, be sure to account for the requirement for a new slab at the new location. Houses don't have that requirement, usually. (A house on a slab *can* be moved, but it's not usually economical to do so.)

Once you establish a ratio for houses, and an adjustment for the type of building you're considering, then you can find normal comps for your building including land, adjust out the value of the land, and apply the ratio you established with houses.

Once you've reconciled, back off and give it the smell test: Would anyone really PAY that much for a building to be moved? HAS anyone done so in the last five or ten years? (Back in time, out in distance). In other words, try to find at least some support in the market for your calculations.

 

[The Warrior Monk]

A cost workup would not be my choice in this situation. In order for the cost approach to be considered reliable, the relationship between cost and market has to be established if market value is what one is looking for.

The sales approach is an option if other similar buildings have sold, but in situations like this, that's not always the case.

The income approach may be the best option. What are similar buildings being leased for? If that can be established, one can figure out what the typical investor would pay for such a property.

 

[Fred]

I've been asked to appraise a building under construction without considering the land(no fee simple nor leasehold).

Then you must be appraising personal property.

Real estate IS land: land and what is attached to it. No interest in land (fee simple or leasehold) = no real estate. I know we say all the time that we appraised the building, but that is only a figure of speech.

If you are appraising real property, it has to be fee simple or leasehold. There just isn’t anything else. The “land owner” owns whatever is attached to the land as soon as it is attached, if not before. That is, the so-called “land” owner owns the whole property. An exception to that is a leasehold that makes the building removable.

Someone may be willing to lend against what the construction will add to the value of the land. That could be the subject of the appraisal. However, it is hard for me to imagine someone taking a second-position construction loan with their own money, when Vegas is so much more fun and offers similar odds. Do these folks know it’s not the 80’s any more? I’m flashing back on the Keating Five.

The way this is described, it would cost a bundle in legal fees to get all the contingencies and subordination agreements worked out.