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

[Red Flint]

Can the market value of a portion of a larger tract that is not a legal lot be ascertained under an "as is" valuation premise? I concur that the answer may be a flat out no. But as I have thought about this, it would seem to me that a market value per acre indication from sales of parcels the size of the subject portion minus the per acre indicated contribution to market value of the 100 acres to a 200 acre holding, reconciled appropriately, would be equivalent to the adjustment factor for the subject being a non-legal lot portion of a larger holding. Would this remove the HC and hence allow for the "as is" valuation?

Yes. Value as surplus land. It is only as excess land, and assuming an approved parcel split, that one needs an EA. Or, a HC for an 'as-is'. I would argue that a HC could be used for the 'as-is', but you seem to have done the research to show that this is not in favor. I actually prefer the EA as there is a time factor involved in parcel approval which is disregarded in the HC.

 

[Terrel L. Shields]

that one needs an EA. Or, a HC for an 'as-is'.

That's not what the 2008 March Q & A says.

 

[bsilver]

wrong. it is NOT CONTRARY TO WHAT EXISTS. You are valuing only a portion of the property. No EA nor HC is necessary. March 2008 Q & A USPAP
View attachment 88086

The question and response quote you have supplied, first of all. Secondly, yes of course the land exists. I'm not suggesting you need a HV that the 100-acre parcel exists. I am suggesting that in a situation where the subject physical segment acreage portion of the parent tract consists of a non-legal lot and is then appraised by comparison to legal lots without consideration of the legal differential, then by definition, the value conclusion is predicated on a condition which is contrary to what exists, hence a HC is present. This is usually not an issue, state the HC or an appropriate EA if that works. In an assignment requiring an "as is" valuation premise this is not acceptable. In the case I am describing neither is an EA. See USPAP 2024-25 FAQ 188, 189, 190. Note the term "specific case", and the lack of an exemption from HC EA discussion in FAQ 190. Further, see Appraisal Institute Guide Note 15. Chapter 6 in the Official Appraisal Foundation 7-hour USPAP Update course is also illustrative.

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.

Thank you for this response. I had considered this avenue. However, the valuation assignment at hand is not a situation where the subject portion is contemplated for separation or subdivision from the parent. The valuation conclusions are to be utilized in the calculation of another figure within an agreement which requires the "as is" market value of the subject acreage portion as an input. I have learned that USPAP requires that an EA may not be used in appraisal unless there is "reasonable basis" that the assumption. If there is not going to be any subdivision, there is no reasonable basis to make an assumption that it will be subdivided in any manner, let alone a timely one. This is actually something I was just made critically aware of, as I took the 2024 USPAP course, which explained in detail the meaning of reasonable basis in this context. The example had an appraiser using an EA for a proposed zoning change. But the zoning change was canceled according to the zoning officials. Since there is no expectation of the assumption happening, there was no basis for assuming it would. The same is true here. Otherwise this could potentially be a work around.

As an aside, USPAP doesn't require the terms extraordinary assumption or hypothetical condition as the labels for the assignment conditions the describe, They can be called anything the appraiser wants as long as the conditions are reported appropriately if the appraisal was developed predicated on conditions which meet the USPAP definition. As a designated member I appreciate that you use the Appraisal Institute term special assumption. Note that there is no difference conceptual difference between the SPV special assumption and the USPAP extraordinary assumption. (A of R E, 15th, 2020, p 44).

 

[RCA]

I just read a scattering of the posts on this thread. As you and some others have stated, the problem here is the "as-is". I would suggest that you cannot find actual comparable sales, because that would require subdivision, which is not allowed. You could get the market value of the 100 acres under the HC that it was subdivided and then attempt to determine the market reaction to the likely costs to effect the subdivision. But there is no guarantee the typical buyer would look at the value this way. The best you can achieve is some kind of approximate value based on uncertain assumptions you might nonetheless hope others would accept as reasonable. So, it is a question of what you can get away with and whether that is acceptable to the client.

 

[Terrel L. Shields]

Assume it has road frontage but is otherwise unimproved acreage, say pasture land with limited development potential.

Does it or does it not have access? If it does not, then you would make a simple EA that an easement across the larger parcel would be granted, that the property would be surveyed, and approved for subdivision. Nothing invites an HC. Nothing requires a survey. Nor subdivision even. So long as you can delineate the property being valued you have "identified" the property. Nothing in USPAP requires even a set legal description.

 

[RCA]

Does it or does it not have access? If it does not, then you would make a simple EA that an easement across the larger parcel would be granted, that the property would be surveyed, and approved for subdivision. Nothing invites an HC. Nothing requires a survey. Nor subdivision even. So long as you can delineate the property being valued you have "identified" the property. Nothing in USPAP requires even a set legal description.

It seems very simple to me. Everything invites nothing but an HC. You don't have a market value, unless you have a parcel. "Market Value" logically requires you have something you can put on the market and sell. That happens only after you have taken care of the subdivision. But this is an AS-IS sale which means that the subdivision has not occured. One could argue that such a Market Value is not even possible, ... except of course under the HC. We can do about anything with an HC.

The EA has to ALWAYS be reasonable. Good luck with that.

It is an AS-IS sale, it is therefore not yet subdivided and 2 weeks-3 months to complete the process with so many engineering reviews and so on begs more than an EA, unless you are going to provide a range. Nothing is said about a range.

 

[RCA]

..

 

[bsilver]

Does it or does it not have access? If it does not, then you would make a simple EA that an easement across the larger parcel would be granted, that the property would be surveyed, and approved for subdivision. Nothing invites an HC. Nothing requires a survey. Nor subdivision even. So long as you can delineate the property being valued you have "identified" the property. Nothing in USPAP requires even a set legal description.

There seem to be some misunderstanding of the function of EAs and HCs with an analysis, how they are appropriately formulated and applied, and their effect on the details of the scope of work. First, simply delineating a property is not a sufficient identification of the relevant characteristics of a property, leaving out in particular in this case the legal characteristics of the property, among other things, but no need to pile on. The subject segment is not simply a 100 acre parcel. An important legal characteristic is that it is not a legal subdivided lotas of the date of valuation. Despite some assertions, there is no exemption of the need for the reportage of a HC in USPAP when appraising a segment portion of a larger parent tract if that tract is not a legal parcel but is valued as if it were. There is no statement or discussion in USPAP that in any way suggest that merely by delineating a parcel from within the boundaries of another allows the valuation of that parcel as if it were a legal lot, if it isn't, as of the date of valuation, without appropriate disclosure that an HC has been utilized. The suggested use of the EA above would mean an appraisal of the subject non-legal lot as of the date of valuation utilizing sale data which reflect the sale of other non-legal lots that were slated to be subdivided at some point in the future when they sold. With both EA and HC, the condition considered true is considered that way on the date of valuation. So the suggested EA says that as of the DoV, it is assumed that the subject property will gain an easement, be surveyed and be subdivided at some point in the future.

Please, this scenario I am describing is a real appraisal problem issue. I am not asking you whether my interpretations of USPAP and other standards are right. I've done that research, and if you think I'm wrong on any of those rules, I challenge you first to read FAQS 188, 189, and 190, and AI Guide Note 15. Those sources support my interpretation explicitly and without reservation, you don't even need to do a careful reading to see it. SO if you do disagree, I am left with trusting the institute advice that is nearly ten years old and has gone through peer revisions, or a forum post. I'm not looking for some short cut or gimmick of wordsmithery to approach this appraisal problem, I'm looking for methodological advice if there is any. I do have several ideas.

 

[Raven59]

The question and response quote you have supplied, first of all. Secondly, yes of course the land exists. I'm not suggesting you need a HV that the 100-acre parcel exists. I am suggesting that in a situation where the subject physical segment acreage portion of the parent tract consists of a non-legal lot and is then appraised by comparison to legal lots without consideration of the legal differential, then by definition, the value conclusion is predicated on a condition which is contrary to what exists, hence a HC is present. This is usually not an issue, state the HC or an appropriate EA if that works. In an assignment requiring an "as is" valuation premise this is not acceptable. In the case I am describing neither is an EA. See USPAP 2024-25 FAQ 188, 189, 190. Note the term "specific case", and the lack of an exemption from HC EA discussion in FAQ 190. Further, see Appraisal Institute Guide Note 15. Chapter 6 in the Official Appraisal Foundation 7-hour USPAP Update course is also illustrative.

Thank you for this response. I had considered this avenue. However, the valuation assignment at hand is not a situation where the subject portion is contemplated for separation or subdivision from the parent. The valuation conclusions are to be utilized in the calculation of another figure within an agreement which requires the "as is" market value of the subject acreage portion as an input. I have learned that USPAP requires that an EA may not be used in appraisal unless there is "reasonable basis" that the assumption. If there is not going to be any subdivision, there is no reasonable basis to make an assumption that it will be subdivided in any manner, let alone a timely one. This is actually something I was just made critically aware of, as I took the 2024 USPAP course, which explained in detail the meaning of reasonable basis in this context. The example had an appraiser using an EA for a proposed zoning change. But the zoning change was canceled according to the zoning officials. Since there is no expectation of the assumption happening, there was no basis for assuming it would. The same is true here. Otherwise this could potentially be a work around.

As an aside, USPAP doesn't require the terms extraordinary assumption or hypothetical condition as the labels for the assignment conditions the describe, They can be called anything the appraiser wants as long as the conditions are reported appropriately if the appraisal was developed predicated on conditions which meet the USPAP definition. As a designated member I appreciate that you use the Appraisal Institute term special assumption. Note that there is no difference conceptual difference between the SPV special assumption and the USPAP extraordinary assumption. (A of R E, 15th, 2020, p 44).

Regarding terminology, you're correct that while USPAP uses "Extraordinary Assumption," other terms like "special assumption" are also acceptable as long as they accurately describe the conditions under which the appraisal was conducted. I believe you are making this more than it needs to be. Explain what you are doing and assuming and move on.

 

[Raven59]

Regarding terminology, you're correct that while USPAP uses "Extraordinary Assumption," other terms like "special assumption" are also acceptable as long as they accurately describe the conditions under which the appraisal was conducted. I believe you are making this more than it needs to be. Explain what you are doing and assuming and move on.

Do you have some reason to believe this is not reasonably obtainable? 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.