No Market Value or Negative Value

[stedios]

I've read through some old threads regarding No Market Value / Negative Value. But, most were closed threads so I can't respond.

We're appraising an industrial site, which is worth around $40,000 per acre as a clean site. The cost to remediate the site exceeds $300,000 per acre.

Based on what I've read in the threads, I tend to gravitate towards the opinion that a site in this situation has No 'Market Value' As Is due to the contamination and lack of marketability. It may have value under the assumption that the seller, or a third party, will cover clean up costs.

Opinions?

 

[hastalavista]

I've read through some old threads regarding No Market Value / Negative Value. But, most were closed threads so I can't respond.

We're appraising an industrial site, which is worth around $40,000 per acre as a clean site. The cost to remediate the site exceeds $300,000 per acre.

Based on what I've read in the threads, I tend to gravitate towards the opinion that a site in this situation has No 'Market Value' As Is due to the contamination and lack of marketability. It may have value under the assumption that the seller, or a third party, will cover clean up costs.

Opinions?

I'll quickly opine....
I'd say that the market value is "zero". No informed buyer would pay anything for the property.

I'd say there is an impaired value, which can be defined as:
(Market Value) minus (market reaction to impairment) = (Impaired Value)

In your example, the impaired value would be $40k - $300k = -$260k/acre (negative $260k)

 

[CANative]

I'll quickly opine....
I'd say that the market value is "zero". No informed buyer would pay anything for the property.

I'd say there is an impaired value, which can be defined as:
(Market Value) minus (market reaction to impairment) = (Impaired Value)

In your example, the impaired value would be $40k - $300k = -$260k/acre (negative $260k)

I like "no market value" instead of "zero market value" because zero is a mathematical expression and the math doesn't support that expression. It has no market value because there is no identifiable market.

 

[J Grant]

This was the subject of heated debate...a poll was even started, by of all people, Doc Manhatten...the subject of the poll was, is there such a thing as negative market value? I responded, "no", (though I clearly understand a property can have negative value, just not negative market value). Though more people from this forum voted "yes," a property can have negative market value, one of those who agreed with me on the poll (I researched their names), is an MAI instructor at the Appraisal Institute. I'll take that as good support for the "No" position.

Re, there is a loss in value, as you note, on the seller side, the seller has to pay to mitigate the property, to make it marketable. That is a net loss to seller, it does not mean the property has negative market value.

A property either has no market value, nobody will pay anthing for it in present state, or it has market value, as repaired.

The problem with the original example of can a property have negative market value is that the example was flawed...the appraiser minused cost to cure from the site to arrive at a negative number, but, nobody adderssed the fact that this should have been an "as repaired " value...if you are using a cost to cure in the SCA, then that means the property would be "cured" of the defect, and thus have market value. So using the cost to cure in the SCA would have to yield an "as repaired" value, not an "as is" negative $ amount for market value.

There is loss of value, but the loss is net to seller should they elect to do cost to cure to make it marketable.

 

[residentialguy]

I wouldn't answer this unless you paid me.

 

[J Grant]

I like "no market value" instead of "zero market value" because zero is a mathematical expression and the math doesn't support that expression. It has no market value because there is no identifiable market

This is true, execpt that many clients want to see market value expressed as a Dollar amount.

Though we put in a number, there is a dollar sign next to the number. This means that it is not just a math derived number, but the numeric dollar amount a buyer would pay . (the amount a buyer would pay, per the defnition of market value)

Therefore, the question is, how to express the concept of "no market" in a numberic dollar amount...would $0 suffice?

 

[CANative]

I like "no market value" instead of "zero market value" because zero is a mathematical expression and the math doesn't support that expression. It has no market value because there is no identifiable market

This is true, execpt that many clients want to see market value expressed as a Dollar amount.

Though we put in a number, there is a dollar sign next to the number. This means that it is not just a math derived number, but the numeric dollar amount a buyer would pay . (the amount a buyer would pay, per the defnition of market value)

Therefore, the question is, how to express the concept of "no market" in a numberic dollar amount...would $0 suffice?

Change the definition of the value. $0 is not the same as No.

 

[hastalavista]

I like "no market value" instead of "zero market value" because zero is a mathematical expression and the math doesn't support that expression. It has no market value because there is no identifiable market.

An appraisal must be "numerically expressed"; either point, range, or benchmark.

If "market value" is the value to be opined, would you be comfortable with a benchmark? ("zero or less")

 

[CANative]

Use a different definition of value. Problem solved.

 

[hastalavista]

Use a different definition of value. Problem solved.

But whatever definition of value one uses (like the "impaired value" I exampled), the value opinined must be numerically expressed.

(or, am I misinterpreting how USPAP defines an "appraisal"?)