No Market Value or Negative Value

[CANative]

From a paper I am reading published by the International Association of Assessing Officers.

7.4 Intrinsic Value of Property
Does a property have remaining value that exists even
when the cost to cure the problem exceeds apparent
market value? If not, it would be appropriate to assign
zero value to property in such a case. The question that
needs to be answered to decide this issue is that of utility.
If the property can be used, value must exist. With use
comes market demand, at least at some point in time.

To determine value in use, several factors should be
reviewed, including current income stream, predicted
future income stream, demand for alternative uses, and
cost to modify operation for alternative uses. The
concept of value in use appears to conflict with the
concept of value in exchange, which statutes in many
jurisdictions require be assessed. However, many
recent court decisions have held that property that has
use has value, even though a traditional market may not
be immediately apparent.

Property is often permitted to pollute to a certain extent.
Acceptable amounts of pollution are defined in permits
granted by regulatory agencies. These rights to
pollute enable a business to operate when no operation
would be possible if zero pollution were required. This
then contributes to the income-producing ability of the
business and enhances its value. Both the .rights. and
the business will therefore have value.

 

[stedios]

In this instance , one parcel will be 100% clean and the other not 100% clean (capped allowing surface only uses, no buildings). In both cases, the clean up costs far exceed value.

As in this particular case, the current owner acquired these properties in mid 1980s for almost nothing, sat on them since, and now for whatever reason the state is cleaning up the sites as long as he donates them to the township. He's been paying taxes for 25 years and he'll get a small tax write off in the end for donating thebcleaned sites. But, alternatively he could have been liable for millions that he wasn't even aware about until the past decade.

There is definitely a market for contaminated sites that can profitably be cleaned and used. But, if clean up costs grossly exceed value I don't think there is a market without outside considerations.

As far as long-term potential, these parcels abut rail tracks and are behind industrial buildings and junk yards. Access to the immediate area is poor, as the interstate system was reconfigured at some point cutting off primary access . Very poor commercial or retail potential even in the several decades time span. Nonetheless, todays 'prime' retail land values (nearest corridor) tbarley eclipse clean up costs ...

 

[stedios]

There are former land fill sites in many areas of the northeast US that have been developed with shopping centers, office and industrial buildings. Although clean-up costs have been estimated at $300K that does not mean that is what it would cost to utilize the site.

Remember, not all sites require clean-up to be placed into re-development and clean-up costs are impacted considerably by the degree of clean-up. For example, it costs quite a bit less to clean-up a property to 80% - 90% versus 100%. The most significant factor is the issue of alternative sites.

I see what you're saying: that maybe the site should only be cleaned to the minimum to obtain some positive value. That may be possible in this case, for maybe one of the sites, but we just don't have that information. Hm..

 

[G Man]

My thoughts:

I think the key here is the definition of Market Value. What would the typical buyer and seller do to reach a negotiated price? The seller would need to cure the situation before a buyer would be interested. So he would have to spend the $300k to get someone to buy. If a Market Value appraisal was specified, the proper answer may be that the property currently has an infinite marketing period because of current conditions and that no one would buy. Thus, the appraiser cannot reliably estimate Market Value. Then it is up to the client to figure out (with the advice of the appraiser) what type of value needs to be estimated.

g-man

 

[Terrel L. Shields]

But, alternatively he could have been liable for millions that he wasn't even aware about until the past decade.

That presumes he has the millions to be liable. You can't get blood out of a turnip. So his "liability" depends entirely upon what he has up to lose. Just because Trump casino filed bankructcy hardly means The Donald was liable personally of any of it.

People who deal in "Brownfield" properties know what they are doing and limit their liability...That's why they call them "LLCs" and "LLPs"...and that's why the APPARENT cost to cure is a meaningless metric.

G man hits on a point about longer holding periods and hints a question of whether or not the average appraiser is competent to estimate Market Value under the constraint of the definition thereof.

If a town condemns a brownfield for say a railroad spur and then asked the owner to pay THEM because the property has a negative value...well, if i recall, that issue has been settled in the courts. The condemning authority is on their own. That is not "just compensation" and Market value is a concept that comes out of the just compensation clause of the constitution.