Time For Another Poll On The Income Approach

[Fred]

Paul,
I agree you have tried your best and I truly appreciate it. I have any number of such questions about valuation principles, have raised them on various occasions and usually get nothing but vacuous stares, silence and the occasional flame in response.

On this hypothesis, so far you have told me that
it is a fact,
everyone knows it,
textbooks say so and
brilliant scholars say so.
I like the way you are ratcheting-up citations. I know some Biblical references about valuation, but none that go to this point.

I have stipulated that the hypothesis is commonly taught and commonly believed, but that belief is not logical proof or market-data proof. Logical and data proof the standards of academia (brilliant scholars), appraisers (acceptable practice) and forensic evidence (Daubert). Scholars would be the first to argue that the burden of proof is not on the skeptic to disprove a hypothesis that has not been even minimally established with logic or data and those who put forth unsupported hypothesis have little to claim on being brilliant or scholars.

Can you at least comment on the ingobruity that apparently everyone "knows" this, but no one can explain it? Is it so much to ask for support?

I am a little unsure about what to do with the data question. Maybe I can discuss some common situations that everyone should be aware of. Those who believe the hypothesis apparently reached this implacable conclusion without the aid of any data. I am not optimistic about suddenly encountering open and scientific responses to market data – especially, since it is the lack of logical or data-driven process is exactly what I have been commenting on.

I am trying to be clear on this. When you folks say capitalizing market rent in un-rented buildings at the market rate is fee simple, I construe this to mean fee simple market value as is.
True or False: When you say that market rent capitalized at the market rate reflects fee simple, this means: that this amount is the most probable price that would result when knowledgeable owner-users of commercial property transact un-rented commercial property that the buyer intends to occupy and use.

 

[Paul Ness MAI]

Pat, I believe we may have met at an Institute seminar in the past. Were you previously employed as chief appraiser at a subsidiary of a large ins. company near BWI? I interviewed for that position after you left, but was not interested in what I saw there.

 

[Paul Ness MAI]

I can't remember where we met, probably either at a MD chapter sponsored seminar or Central PA chapter seminar. Have you ever been up to Harrisburg for one? Maybe at an AI function. Were you involved in chapter govt? I was Central PA chapter president in 2000 and got to know Bud, who was your president that year. Also that year I had Pete Korpacz come up and put on a "Market Cycles" seminar. Maybe there? Anyhow...so working at the IRS, wow what a change. Good luck!

 

[Fred]

Pat,
I have no idea which "argument," linear, "circular" or otherwise that you refer to. I see a lot of straightforward questions for which no one could provide answers - like the question I asked you about what market data you used to reach your conlcusion.

Thanks for your adivice/flame, but I am already a seasoned professional and have conducted many complex appraisals and consulting assignments.

 

[Austin]

Steven wrote:

Actual rent capitalized is the primary way to find market value of a rented property.

Reply: How about doing HBU analyses and feasibility studies for proposed projects. Your premises in that statement pulls the props out from under the whole logical process it seems to me.

Steve wrote:

How do you know that market rent capitalized is equivalent to fee simple?

Reply: Many income properties are rented on a month-to-month basis. By actual numbers, probably most are or for less than a year. In these instances rent capitalization is fee simple that is how we know. Fee simple and lease fee does not really have anything to do with rent; it has to do with use of the property. It is a different bundle of rights. If the income doesn’t fully compensate for the loss of the right to occupy the property then you are assuming incompetent management, which is contrary to the definition of market value where competent management is assumed. If your premise holds, then any property owner in fee simple or lease fee would have to either be an idiot or an extortionist depending on the contract rent. Supply and demand govern and takes care of the difference between fee simple and lease fee value. Your entire concept seems to be against all economic principles to me.

 

[Fred]

Austin,
On the first quote, I am referring to long-term not month-to-month. For example, consider a shopping center. The primary way to find the value of a shopping center is capitalized rent. Yes/No/Maybe?

On the second quote - You are referring to my "premise." There is no premise there. Just a question.

And on this one-
" lease fee does not really have anything to do with rent"
I'll work on that one and get back to you.