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Quick Sale Disposition Discount Rates

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shovanec

Freshman Member
Joined
Apr 12, 2007
Professional Status
Certified General Appraiser
State
Arizona
We are appraising 49 finished lots and 12 spec homes at various stages of completion with a master planned community located in an outlier area of Phoenix. The client has asked us to provide a quick sale disposition value assuming a 6 month marketing period. Has anyone out there have experience this type of value? If so, what kind of discount rate did you use and how did you support it? We are seeking a rate that is inclusive of entrepanuerial profit. Some appaisers bifurcate profit out as a seperate line item in the DCF is why I say inclusive. Any help is appreciated!

Steve
 

Vernon Martin

Senior Member
Joined
Jun 8, 2005
Professional Status
Certified General Appraiser
State
California
I've been getting a lot of these types of assignments, too. If you're talking about an area outlying Phoenix, then I imagine that the only likely buyers within a six month period will be vulture investors. Perhaps a builder might want to bank the property until market conditions improve, but only if the price is tempting.

Talk to developers and homebuilders about who is out there scooping up distressed subdivisions and the criteria that they're using. I doubt that these buyers are using DCF models, as how can you project absorption in the current market? You will probably hear things like "35 cents on the dollar" or similar rules of thumb.
 

H.B. Userman

Junior Member
Joined
Nov 11, 2003
Professional Status
Certified General Appraiser
State
Wisconsin
I recall a couple similar recent threads. Check em out too.
 

Ray Miller

Elite Member
Joined
Feb 20, 2002
Professional Status
Licensed Appraiser
State
Wisconsin
Have something similar that I am working on for auction. I will see if I can reach the CG that is doing the work for the bank. We will be bring 14 completed homes and 47 lots to auction. The homes are 18 months to 24 months old and have never sold.

Curently it looks to be about .10 on the dollar for this rural subdivision. Considering the $450K to $600K condo's the opening bid the banks will take is $50K.

"I doubt that these buyers are using DCF models, as how can you project absorption in the current market? You will probably hear things like "35 cents on the dollar" or similar rules of thumb."

I don't think a DCF would work for subject like these. I think you will need to establish just what the market is for such property. I think you will really need to look to the income capitalization approach, the project holding period, net present value, the profitability index and yield capitalization. Be sure you look as to how the property will change over the holding period.

Would this be a case where you would need to vbalue the income stream of a wasting asset? You would need to develop a speculative rate and a safe rate?

I would look at this from an investors point of view.

I have another auction project where it looks like we will be bring on 90 lots at a resort to auction at the same time. I will try and find out what they are doing there as well to establish value.
 

H.B. Userman

Junior Member
Joined
Nov 11, 2003
Professional Status
Certified General Appraiser
State
Wisconsin
hmm... I am not sure what to say right now.
 

leelansford

Elite Member
Joined
Mar 29, 2002
Professional Status
Certified Residential Appraiser
State
Illinois
...The client has asked us to provide a quick sale disposition value assuming a 6 month marketing period...

RE: "quick sale disposition value"

So...how is this "value" to be defined within your report of the appraisal?
 
Joined
Mar 19, 2002
Professional Status
Certified General Appraiser
State
Illinois
Although we did not provide a six month disposition value, we ran across a bulk lot sale by a builder who was known to be in trouble in this area and was dumping some inventory. If you were lucky enough to find something like that...

In general though, we are struggling to find good recent sales for subdivision analysis.
 

Ray Miller

Elite Member
Joined
Feb 20, 2002
Professional Status
Licensed Appraiser
State
Wisconsin
You might check with your local or national auction real estate company and see what they are selling. I would also check with the court house and see what has sold and what is coming up to sell. That might give your a running start.:new_multi:
 

shovanec

Freshman Member
Joined
Apr 12, 2007
Professional Status
Certified General Appraiser
State
Arizona
RE: "quick sale disposition value"

So...how is this "value" to be defined within your report of the appraisal?


Disposition Value – The most probable price which a specified interest in real property is likely to bring under all of the following conditions:
· Consummation of a sale within a limited future marketing period under current actual market conditions for the property interest appraised;
· Buyer and seller each acting prudently and knowledgeably with seller under compulsion to sell, and buyer is typically motivated;
· With both parties acting in what they consider their own best interests;
· An adequate marketing effort made for the limited time for completion of a sale;
· Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto;
· And the price represents the normal consideration of the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
 
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