Valuation of a portion of a property "as is".

[bsilver]

Let's say you have been engaged to appraise the back 100 acres of a 200 acre former farm now rural residence with outbuildings. Your assignment conditions are that only the market value of the back 100 acres is to be appraised. Assume it has road frontage but is otherwise unimproved acreage, say pasture land with limited development potential. The description is not really relevant to the question here. The subject 100 acres has not been subdivided from the larger parent tract, and the permitting application process has not been started.. Subdivision is not a particularly involved process, nevertheless, a requisite wastewater permit with accompanying engineering reports, a recorded survey, a zoning board review, a simple application and small fee are required, and the process can take from a week to several months. Your engagement letter requires that the 100 acre subject value definition be market value under an "as is" valuation premise.

If as of the date of valuation the subject 100 acre tract as described is not a legally subdivided parcel, then a sales comparison approach with comparable sales which were subdivided parcels would not produce an indication of the subject market value "as is". Rather the indicated value would reflect the market value of the subject tract "as if" it were already subdivided and a legal saleable property. In fact, this methodology is employing the hypothetical condition (HC) that the subject is stand alone. Because an HC has been employed the "as is" valuation premise assignment condition would not be realized. The Appraisal Institute and USPAP agree on this principal as evidenced through guide notes, advisory opinions and within the 2024-2025 USPAP Update course materials.

So, then, what would be the proper method of developing an opinion of market value "as is" of the 100 acre subject tract? Could the above noted subdivided comparable sales be used in a sales comparison approach with a market derived adjustment for the lack of a subdivision permit? How would such an adjustment be derived from the market if this is an acceptable method to find MV "as is"? Would the contributory value of the subject property to the market value of the whole parent tract reflect the market value of the unsubdivided 100 acres? How would this be extracted from the market? A yellow book before and after analysis would possibly reflect severance damage to the remainder, which would be over and above the value of the subject. Please comment.

 

[BRCJR]

I think the answer to the question may lie within the client and intended use of the valuation.

 

[TerryRohrer]

USPAP allows the appraisal of a physical segment of a property. If you are just appraising 100 acres, that is the subject. The (minimal) tie to the remainder is not part of the stated appraisal problem and is ignored.

 

[Terrel L. Shields]

If as of the date of valuation the subject 100 acre tract as described is not a legally subdivided parcel, then a sales comparison approach with comparable sales which were subdivided parcels would not produce an indication of the subject market value "as is". Rather the indicated value would reflect the market value of the subject tract "as if" it were already subdivided and a legal saleable property.

What @TerryRohrer said. You can value a physical segment and only address the impact of the remainder upon the subject. The impact is likely not much if anything. You are not playing a "what if" game.

Your comps are going to be comparable to the 100 acres - similar, same utility (HBU), same access preferably, etc. Don't over think this.

 

[bsilver]

USPAP allows the appraisal of a physical segment of a property. If you are just appraising 100 acres, that is the subject. The (minimal) tie to the remainder is not part of the stated appraisal problem and is ignored.

This is not a USPAP issue. Of course you can value the 100 acres no problem. But if you do so by using sales that are stand alone when the 100 acres can not be seperated, then you have employed a hypothetical condition. Which is fine. But in doing so you can no longer report that you are developing a market value appraisal "as is". That isn't a USPAP regulation / requirement, although it is prevalent in this years update course. An as is appraisal can not have a hypothetical condition premise because it is misleading, So for the sake of this exercise lets presume that there an inheritance argument over a poorly worded will, and the document states that for some purpose the 100 acres must be appraised some date certain, and it has to be as is, and it is not a stand alone parcel as of the date of valuation. How can the as is market value be determined?

 

[bsilver]

What @TerryRohrer said. You can value a physical segment and only address the impact of the remainder upon the subject. The impact is likely not much if anything. You are not playing a "what if" game.

Your comps are going to be comparable to the 100 acres - similar, same utility (HBU), same access preferably, etc. Don't over think this.

Believe me, I am not over thinking this. I have a situation where the client demands an as is market value appraisal. Ueah yeah yeah, USPAP says you can do this. So why when I took the USPAP update, yesterday, there is a definitive statement from the Appraisal Foubdation that says, point blank, no interpretation, appraisal development which utilize hypothetical condition premises can not be used to report as is values without being misleading. Those aren't my words, it's the Foundation as well as the Institute. And I'm not a newbie here. Desginated in two orgs and 35 years of nothing but very complex assignments. This is a serious question, and ah whayeveer you're overthinking it is not an answer.

 

[bsilver]

What @TerryRohrer said. You can value a physical segment and only address the impact of the remainder upon the subject. The impact is likely not much if anything. You are not playing a "what if" game.

Your comps are going to be comparable to the 100 acres - similar, same utility (HBU), same access preferably, etc. Don't over think this.

I agree that you can value the 100macres. This is not the focus of the question. The subject is not legally seperable from the larger parcel as of the date of valuation. Simple comps are comparable, however, if the fact that the subject is not seperable similar to the comps requires addressing, due to the as is requirement. This assignment condition is non-negotiabkle. So sure you can use those comps, but if you dont check the market for differentials, you won't be making an as is valuation, because if you presume the sales are the same, then you have employed a hypothertical condition.

 

[Mark K]

The only way I see to do it is to find and use comparable sales of similarly affected land, i.e., raw land that has not been approved for subdivision.

Otherwise you're looking at a 'subject-to' value or using a HC, something the client says they do not want.

Sometimes a client wants things that appraisers cannot provide.

 

[TerryRohrer]

This is not a USPAP issue. Of course you can value the 100 acres no problem. But if you do so by using sales that are stand alone when the 100 acres can not be seperated, then you have employed a hypothetical condition. Which is fine. But in doing so you can no longer report that you are developing a market value appraisal "as is". That isn't a USPAP regulation / requirement, although it is prevalent in this years update course. An as is appraisal can not have a hypothetical condition premise because it is misleading, So for the sake of this exercise lets presume that there an inheritance argument over a poorly worded will, and the document states that for some purpose the 100 acres must be appraised some date certain, and it has to be as is, and it is not a stand alone parcel as of the date of valuation. How can the as is market value be determined?

If your subject is the 100 acres, it is as if the other has no relationship to the subject, just like the other neighboring tracts. USPAP allows that without invoking a hypothetical condition.

If you think your stuck on the as is value because a hypothetical is required (not sure by who) and the property is not separable, then the only comps are part of nonseparable tracts, meaning there will be absolutely no market data by which to measure any impact from the inseparability, leaving you with a problem that cannot be solved.

 

[Raven59]

Estimate the Market Value of the Entire 200-acre Tract. Use the appropriate approach to determine the overall market value of the 200-acre property. Estimate the Value of the Remainder (the front 100 acres) using a special assumption. This assumption estimates the market value of the remaining 100 acres, assuming the back 100 acres are sold separately. The special assumption is that the subdivision process will be completed without significant issues. Calculate the Contributory Value and subtract the estimated value of the remainder (the front 100 acres) from the value of the whole 200-acre property. The difference represents the contributory value of the back 100 acres, reflecting its market value 'as is' under the special assumptions.

A special assumption is an assumption specific to the assignment that is presumed to be true for the appraisal, even though it might not be known to be true as of the appraisal's effective date. Special assumptions are used when certain conditions are likely to be true or expected to occur, but they are not necessarily the current situation. Disclose the potential impact on the valuation conclusions if found to be false. Your Special Assumption for this Appraisal: The 100-acre tract will be able to obtain all necessary subdivision permits and approvals within a typical timeframe and cost without encountering major obstacles.

Differences: Special Assumption: An assumption that could reasonably be true, but if proven false, it would alter the conclusions. It reflects a condition that might be expected or likely to be true for the purposes of the assignment. Hypothetical Condition: An assumption known to be false at the time of the appraisal but used to analyze a scenario as if it were true. It is explicitly contrary to the actual facts as of the effective date of the appraisal. Special assumptions are used for conditions or scenarios specific to the particular assignment, often relating to future events or conditions that are expected to be true. Your description made me believe this could happen with little effort.