Question about a future taking (street widening)

[Oregon Doug]

I am appraising a typical post WW II era home facing a street that will be widened at some time during the next few years. It will happen, but the timing is uncertain.

How do I address this in my appraisal? Obviously, I disclose it but do you believe that it has an impact on the market value at this time? I think not:

1) when the taking is finally enacted, the then owner will be made whole.
2) Because the timing is unknown, its current impact can not be ascertained.

If you believe that the future taking does impart a stigma against the present market value, how would you quantify it?

Need answers soon - report due by Friday am.

Thanx guys, Oregon Doug

 

[Mountain Man]

You answered yourself, just disclose the possible future plans in the report. You are estimating a value for today, not in a few years when the road may be widened. Like you said, the home owner will be paid for the land that is condemned.
However, you may have some external depreciation due to being on an arterial road. Find current sales on the same or similar arterial road to support any adjustments.
Mell N.GA.

 

[MAC]

I don't know how it works in your state, but, if there hasn't been a formal declaration of taking or an announcement of the road widening than it is NOT a for sure thing. I would talk to the county road commission to make sure. You can't report rumors. It has to be a real certainty I wouldn't put that in the report till you know for sure.

 

[Richard Carlsen]

I did a repo this fall that is located on a major state highway that will undergo 26 feet of widening next year. Although there is no taking involved since the widening will be within the existing ROW, no consideration was made to the taking but I did think that since the market was aware of the widening and the movement of a busy highway closer to the house, this would be effect the buying decision of the market. There was no market data that would lead me one way or another and so it had to be a "best guess estimate". I approached it as external obsolescence and made the necessary adjustments.

I think that if it is common knowledge and in the planning stages, the buyer will certainly know what will be happening to the property and that must be taken into account.

Richard

 

[Carnivore]

Doug,

I know you know this stuff but here's MY thoughts:

In regards to stigma I always ask myself if I would buy the property today with full knowledge that a 'taking' or other adverse action is impending.

I also dont think a buyer would be sophisticated enough to understand what 'making whole' means. Nor would they trust someone enough to take a risk. For those that would understand it raises another question in my mind. Would they want the hassle?

I like these kind of problems. It helps me stave off alzheimers.

 

[Ruth Langkawel]

Of course, you can only amke and adjustment that you can reasonably support. Use comparables on similarly rumored roads and some that are on roads as the current condition. You should be able to extract the market impact of the rumored widening - if there is one.

I just used a log home sale (had to, log home sales are hard to come by, and subject was a log home) on a country road within a MSA that currently starts and stops, and has minimal traffic. This road is slated to become a main arterial through road, and get a bridge over a river to take pressure off the current arterial road, 7 miles west, that currently has terrible bottlenecks over the only bridge for 24 miles. A major change in ambience, to say the least. The plan is still being fought by the locals, but there is no reasonable alternative - locals believe that it will come to pass. The effect on value, supported by extraction method, is 25% reduction in overall improved value of the property.

You are definitely right to explore whether the market is currently reacting, and include a statement from the county road commission about the likelihood of the taking. I'd quote them.

You are very likely to lose a client over it - I'm sure that you realize. You're not blind and dumb enough (or unethical enough) to "make the deal fly".

 

[xmrdfghap]

No adjustment should be made at this time. Note it in the report, but at this time you really don't know if it is going to improve the property or if it is going to affect it adversely. Unless you do a condemnation appraisal (do a <span style='color:darkred'>"before taking value" </span>) you will have no idea of the effect of the taking.

If the jurisdictional offer has not been submitted to the owners, then no taking has taken place, and, unless DOT has actually staked the land, it remains a rumor.

Make note of the proposed taking, but I would not make any such adjustment until the taking actually occurs.

Greg
PS: couldn't help but play with the fonts

 

[Tom Hildebrandt]

Oregon Doug

I am assuming that your appraisal is for a current market value for the purpose of loan risk analysis rather than for determing market value for the condemnation action.

My official answer is "it depends"

I would be sure to disclose what you know about the project. If it is public knowledge, then it may have an impact on the current value, whether or not there has been a formal notice of taking. While the engineering plan may not be complete, there make be some general idea of how much the widening will be, or at least some speculation. It is the uncertainty at this stage of the project that causes any loss (or benefit if possible).

After getting as much information about the project and where it is in the planning rocess, then you can make a judgement about the issue. In my experience this largely falls into the appraising category of the art of discerning judgement rather than "rigourous and scientific" analtical research.

The key issue is to put yourself in the place of a knoweledgeable buyer, what would he/she pay for the house with the uncertainty/risk of the not well defined public project.

Remember, discerning judgment of a skilled appraiser who can identify possible issues is 2/3 the battle. The rest is applied judgment and tecnical skills.

Regards

Tom Hildebrandt GAA

 

[Oregon Doug]

Thanx for the help guys. Report done.

Property is part of an estate that two brothers are dividing among themselves. Lot line adjustment has been made and the subject is an older home on what is now a 13K + sf lot - being purchased from the estate by brother "B". Brother "A" gets the larger 3+ ac parcel (filbert orchard) with barn. The road widening is for real and has already started down the street but is uncertain when it will get to the subject - depends on City budget and need for utilities extension as new subdivisions are developed (see brother "A").

At this time, there is no way to ascertain the impact of the potential taking and/or any damages (if any) but based on the concept of a knowledgable buyer/seller in the definition of market value, the issue needs to be addressed somewhere in the report.

I disclosed it in the site description/analysis; addressed it again in the Highest & Best Use Analysis and basically indicated that its impact could not be adeqautely quantified (in the site valuation section) at this time. Therefore no adjustment was made for the present value influence of this nonquantifiable future event in the Sales Comparison Analysis.

Did I do ok guys?

Oregon Doug

 

[jt]

Doug,

Everyone appears to be on the same page in regard to the potential taking as being hearsay.

In regard to market value, as Tom indicated, it depends. It depends upon who your client is.

If the appraisal is for the bank/buyer and an agreement of sale has been signed, value has already been established(everything equal); and you would report the potential taking(confirmed) which could have a positive or negative affect on the subject.

If on the other hand, the appraisal is for the seller, a longer marketing time may be warranted depending if there is [what amount, if any] perceived negative stigma.

Also, depending on the size of the existing parcel and the amount of taking, severance damages may come into play. If this is the case, I would aline myself with a LOCAL EXPERIENCED condemnation appraiser or consultant.

Based on my condemnation experience, property owners are usually over compensated for takings in certain locals(to stay out of court) and sometimes end-up with a windfall by going to court. Of course, you(or an experienced condemnation appraiser/consultant) need to know the political climate in your area and to ascertain before hand, if any additional compensation may result from the taking(may be the motivation of the buyer). Another consideration is... if the property is currently a legal conforming use, what could result after the taking? On the negative side, as others have indicated, it could be a hassle.

Stigma of a potential taking where the taking results in the dwelling being located closer to the roadway, is difficult to measure; a case can be made in either direction; typically you lose "quite and peaceful enjoyment", but gain better access and exposure.

My point is... stigma and takings are not all negative.

jt