Property with Negative Value

[CANative]

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[VegasWayne]

Negative numbers were not widely accepted by mathematicians until the 17th century, so I can see why bankers would have problems with them. In this case the highest and best use may be to stop paying the property taxes and let the local government seize it for non-payment. That would make the value zero.

If you really want to confuse them you could call it a complex appraisal and have the value be a complex number.

 

[Lost Cause]

The definition is "most probable price." Paying someone to take something off your hands is not a price.

Are you sure about that? It sure seems like a price to me.

As to the original question, while I'd agree that the value is less than zero, I think I would report that the subject property has no current market value.

 

[CANative]

I think I would report that the subject property has no current market value.

Bingo.

 

[Riick]

Negative numbers were not widely accepted by mathematicians
until the 17th century, so I can see why bankers would have problems with them.
In this case the highest and best use may be to stop paying the property taxes and let
the local government seize it for non-payment. That would make the value zero.
.....

I wonder.
Depending on the laws where property is, they might take the property for non-payment of taxes,
but still keep the unpaid taxes (plus add-on interest & penalties) on their books, and look to collect if/when possible.
At which point we're in negative territory again.

.

 

[The Warrior Monk]

This issue is with determining the market value. It assumes certain things, and the appraiser is to determine the value under those conditions. If a transfer is assumed under the conditions set forth in the value definition, then the value is indeed negative; the seller will have to pay to get rid of the property.

The reality of the situation is that the property won't transfer in the open market without other considerations. I've actual seen this in action with contaminated properties. Years ago, the owner of a Superfund site offered to give the property to a municipal entity. The municipality refused due to liability issues. Another contaminated site is currently on the market, and nobody even bothers to look at it.

 

[VegasWayne]

What are the chances of some cities becoming new ghost towns? Rhyolite Nevada was founded in 1904. By 1907 it was the largest city in southern Nevada with a population of over 10,000. There was a financial panic in 1907 and then the mines played out. By 1916 the city was abandoned. Today it is a tourist attraction, but is still a ghost town.

 

[DMZwerg]

Are you sure about that? It sure seems like a price to me.

As to the original question, while I'd agree that the value is less than zero, I think I would report that the subject property has no current market value.

Or the appraiser can look for properties that sold (or reverted to the government) and were demolished leaving a vacant lot. Sometimes you can find properties in comparable condition that actually sold (but that is more usual for rural properties on multiple acres than on city lots).

I have seen rural properties where the house reduced the value of the land by as much as $30k and comparable sales existed allowing me to utilize the SCA rather than CA.

Does asbestos siding and peeling paint from 1945 (ya think it might be lead?) count as contamination??

Serious though, what was the client reaction. They are saying they won't accept the report.

If your opinion of $3,000 for the lot is correct then the property could well have no value in the market if the structure is in that bad of shape.

Asbestos siding may or may not constitute as big of a negative as you may think, but rather it is the bones of the structure that are the most important factor ... is the basement sound? Does the structure shift when you move around? Does the structure appear to list to one side or another from the outside?

In other words, what single item made you feel that it was in "poor" condition and made up most of that $30k you estimated to render it inhabitable? (aka, what was the relative condition of the $20k sale you found compared to the subject?)

I know I may be coming across as a jerk on my responses but sometimes us appraisers see things and over-react thus dropping our opinion of value more than a property deserves. Not saying you are wrong in your negative opinion, but rather trying to point to areas to consider carefully next time when things seem to be pointing unusually low. Good luck!

 

[Mr Rex]

I think DMZ has a good point about condition.

A story from this week that kinda relates to the OP. While out doing a couple of rural land appraisals, a homeowner asked me who I was and what I was doing etc. I told him I was an appraiser appraising the adjacent land, but that I couldn't tell hem much more than that. He proceeded to tell me more than I wanted to know.

Anywho, the intersting thing was that he had purchased a lot in this subdivsion (+/-10 acres each) that had an old house that was basicaly a tear down and had rehabbed it, he had pictures of it in the before condition, and I had seen it before as well. If I had appraised it in the before condition, the cost to demolish would have offset the value of a typical 1 acre site in the area, resulting in a $0 value in theory (if it was on a 1 acre site). He purchased his 10 acre lot with a discount of the demo costs of the house but didn't demo it, he fixed it up, utilizing the value that remained in a house that most folks would agree appeared to be dozer bait. The contributory value of what was left was certainly much more than the cost of demolition, so did the improvements really have negative value?

 

[Mark K]

Does asbestos siding and peeling paint from 1945 (ya think it might be lead?) count as contamination??

Serious though, what was the client reaction. They are saying they won't accept the report.

Asbestos and peeling paint are very common; not an environmental contamination issue in the sense that I consider. Dispose in the proper landfill and there's no big issue. I'm thinking hazardous waste ground contamination.

My client had no problem with the $0 value. I'm guessing they would have a problem with a negative value.

As to the Michigan CG reply about Detroit, send them on. As I stated earlier, I'd wouldn't pay taxes and the city could take it again. My point is that if you can walk from the property with no future recourse (typical), how can anyone justify a large negative number on the value? No value, sure. Having to pay someone to take it off your hands? Not likely, not in the residential world.

I hate to see Detroit and MI having these problems; I lived in Kalamazoo in the late 70's early 80's and its sad to see the decline.