Understanding external depreciation.

[Wildflower333]

My beef is still with the 30% in depreciation and it not being shown.

 

[Terrel L. Shields]

Land has a value. If leased, and a typical land rent payment is required, then you deduct that (capitalized) from the value of a fee simple property (meaning the land and the improvements are owned by one entity). If you pay above market rents, then it is a defect that would likely be deducted. Or if you pay no rents, you benefit from the land value. So if the leasehold transfers you only have title to the improvements, not the land. If the leasehold converts to a fee simple, then you are selling both land and improvements. So it depends upon what rights you are transferring.

In Hawaii where they have quite a bit of leasehold property, they pay some pretty high rents (but are typical) indicating the land value is high. Here outside of reservations we don't see land leases often. I do know a case where the land leases are about to expire (within 5 years) and the failed development from the 1920s is being sold to a non-profit to use as an environmental and recreational area, so the owners are selling out cheap or simply abandoned the properties as they deteriorated over the years. In those cases, the value of the land is nigh zero.

That does not take away from the notion that external obsolescence is an attribute to an off-site factor, usually a area where environmental conditions or location makes the property less valuable. I don't know what the appraiser is thinking applying Ex ob to a house as you state his/her reasoning. If all Indian housing is equally impacted it isn't solely for just being on the reservation.

He should have valued the property against fee simple properties if no leased fee properties were available and then deducted the value of the leasehold - Say the local land rents should have been $200 a month then $2400 ÷ a cap rate (say 10% for ease) = $24,000.

 

[Wildflower333]

He states in the appraisal that no land value was included and doesn't say how he figured the 30%. It was stated in this forum that he doesn't have to "show his work." If I had been the person who had asked for the appraisal for negotiating purposes, I would want to know where the 30% deduction came from. I mean seriously, what could I say to the seller, "Well, the appraiser says 30% should be deducted, so that's what it is."?

 

[ZZGAMAZZ]

It takes experience doing homes on Tribal Land and frankly I have only known one appraiser in my entire lie who had expertise in Tribal Land Leases. Another problem is when you have no data it would be impossible to arrive at any external depreciation that he could support. I dont like to criticism other appraiser work but I woudl love to know how many Tribal Properties this appraiser has ever completed or ones on Land Leases but my guess is this may be his first one. Personally I have never done one and I woudl decline the assignment as I have no expertise.

Big G, Wondered where you have been. Wondering if you are familiar with appraising tribal land throughout the Coachella Valley. I'm wondering whether I should consider a leased fee purchase as a winter time home, seein' as how leased fee properties (If that is the correct term) are so much cheaper than anything at all even in the I.E.

 

[glenn walker]

Big G, Wondered where you have been. Wondering if you are familiar with appraising tribal land throughout the Coachella Valley. I'm wondering whether I should consider a leased fee purchase as a winter time home, seein' as how leased fee properties (If that is the correct term) are so much cheaper than anything at all even in the I.E.

No do not do Tribal Land or buy properties on leased land . Why sink money in a winter Home in SO CA when there are no winters -Rent a Suite at the finest Hotel for a week and only pay for the time you want and need.

 

[sputnam]

He states in the appraisal that no land value was included and doesn't say how he figured the 30%. It was stated in this forum that he doesn't have to "show his work." If I had been the person who had asked for the appraisal for negotiating purposes, I would want to know where the 30% deduction came from. I mean seriously, what could I say to the seller, "Well, the appraiser says 30% should be deducted, so that's what it is."?

The appraiser is responsible to the Client (and the myriad of regulatory agencies). The Client is the person or entity that engaged the appraiser's services. If you aren't the Client, the appraiser is prohibited from discussing the issue with you. You can point out your concerns to the Client and ask them to have the appraiser explain further. The appraiser has no obligation to you at all.... the fact that you are party to the negotiations is not relevant. It is the client relationship that matters.

Is the appraisal wrong? I don't know. Neither does anyone else in this forum.. To answer that question would require that the appraisal in question be reviewed. And even then, what you have is a review appraiser's opinion of the quality of the appraisal being reviewed.