PropertyEconomics
Elite Member
- Joined
- Jun 19, 2007
- Professional Status
- Certified General Appraiser
- State
- New Mexico
Indeed, we are facing more and more of these types of partial subdivision requests and the feedback I've received here, including from you, is generally in line with what I've heard; although the verdict is still out on ent. profit.
Regardless, NOW the question becomes, if we are deducting the holding expenses and discounting it all back to today, does the final value estimate become a LIQUIDATION value rather than a MARKET value. If we are appraising so many lots in a single transaction, are we to assume that the seller is under duress and therefore any such transaction would not be market value???
Irene .. Im not sure I would deduct "holding" expenses. I dont think the cost of the loan should be included if you are referring to interest expenses and the like. Market value assumes a cash transaction much the way you dont consider all of the interest paid on a home when you value it. I remain thinking that either EP or a higher discount rate would be necessary to reflect current market conditions. Risk must be reflected in some manner or a combination of both.
Thinking this through a bit, is your seller a willing seller? Does the bank own this property? If market value of the property as it sits, considering the holding period, reflects a liquidation then doesnt that become market?
Unless specifically asked to do so, I would not consider the seller under duress but rather what does the market reflect the property is worth? We are back to a similar situation as and REO neighborhood. If those sales are the norm, they become the market, even though they also meet the classic definition of liquidation. Again I would measure the market and what is happening with other similar properties and how other developer / investors are treating their investments.
I have three or four of these subdivisions in my market, and thus far, there have been no liquidations. In two of the subdivisions the owner/investors are strong enough to carry the properties through this down period. In the others, well only time will tell.