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URGENT! Net present value vs. net discount value

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Kathy in FL

Thread Starter
Member
Joined
Jan 17, 2002
Professional Status
Certified General Appraiser
State
Florida
Working on a very complex assignment on a new SD going in...lender wants NPV, not market value...and gave me 12 whole days to get it. Just looked at the 15 page engagement letter they sent, and noticed it's not NPV, but something called "NET DISCOUNT VALUE."

Can't find that term ANYWHERE. Sounds like NPV to me....HELP!
If there is a difference, what is it? (Boy, do I feel stupid.)

Kathy in FL
 

Rlong

Member
Joined
Jan 31, 2002
Professional Status
Certified General Appraiser
State
Colorado
I'm with you, I do development appraisals all the time and I have not heard of Net Discount Value. I looked through all my books and did not find it. Intuitivly it would seem to mean the same as NPV, but I wouldn't put it in a report without a definition.
 

Ray Ohler

Sophomore Member
Joined
Jan 15, 2002
Kathy, I am not sure what you are appraising. Are you appraising an individual lot in the new subdivision OR are you giving a value for the whole job? The actual definition I'm not sure about, never heard that EXACT term but it would make a little sense if you were doing the whole and they were asking for a discounted value (forecasting sell out of lots, etc). If you are doing the whole sub I sure hope it's not a big job with only 15 days to complete it.
 

Austin

Elite Member
Joined
Jan 16, 2002
Professional Status
Certified General Appraiser
State
Virginia
It has been a while since I did a subdivision appraisal, but I have a book on the subject at the office. Based on the term, Net Discount Value, in relation to the appraisal format for doing a subdivision, I would “guess” it means to use the appraisal format to estimate the net return over the absorption period and then discount the net returns to a present value. Language is always a problem with lawyers, lenders, and accountants. Same words mean different things in each profession. They always kill me with terms like: Actual cash value; fair value; actual market value, etc., and if you ask for a written definition for clarification you generally get a dumb look. If you want something to worry about, wait until you have to support the absorption period and discount rate. I am lucky in this market area because most of the subdivisions I appraise are sold at public auction with no absorption period. I have seen class A subdivisions that I thought would sell out in five years sell out in two years, and I have seen class A subdivisions bomb for unknown reasons. One of these subdivisions has 32 lots and in over 20 years has sold less than 12 lots. The sad part is, that subdivision was my idea and I sold the property to the owners for that purpose. I think what happened was that the lots were sold to spec builders and the first house built was a low quality job by a builder that was known for low quality work. Be sure to CYA!
If you think you have problems, the last subdivision I appraised was for another retired appraiser whose son is an MAI-SRA. The son told me the old man lied to me about what he paid for the raw land. Such is life. Never believe anything a developer tells you. Divide his cost by 3 and his projected sale prices by 2 is a good rule of thumb.
 

jtrotta

Senior Member
Joined
Jan 16, 2002
Kathy;
sounds like about an $8,000 to $12,000 assignment, if what they want done is in your realm of work. Sounds like an assignment you may not be interested in, without the expertise to back it up 8O


8)
 

Ben Vukicevich SRA

Senior Member
Joined
Feb 9, 2002
Professional Status
Certified General Appraiser
State
New Jersey
Kathy,

First, this sounds like a job for a certified general appraiser. If you've met that requirement, then you have Statement 10 in USPAP to deal with-don't forget about it. The regulators will bug-out on you, if you fail to comply with it.

Ray Ohler has given you good advice in his post. I would also suggest a good book on residential subdivision analysis if you're completing a complex job on multiple sites with final subdivision approval.

Time to fire up the HP 12C for the "discounting" process.

Ben
 

Kathy in FL

Thread Starter
Member
Joined
Jan 17, 2002
Professional Status
Certified General Appraiser
State
Florida
Thanks everyone. I called the lender and he clarified...what they wanted was NPV. He just didn't know what to call it. Yep, I did the whole subdivision in less than 14 days. (20 acres, 27 lots, riverfront, in case you're interested.) And no, I didn't charge them enough to buy a new Yugo.

And yeah, I'm general, and do a lot of commercial work...but in this tiny little one red light county, you rarely get to do the same TYPE of thing twice. So every appraisal is a learning experience! And since I'm the ONLY general in at least four counties, I do pretty much everything sooner or later.

Kathy
 
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