Value in Use and Plottage Value

[fedresource2]

Requested to consider an assignment that revolves around a title error, which missed an easement; client purchases a subdivision with multiple residential lots and 2 undevelopable lots to be utilized for front and rear access to the residential subdivision. Only one access point is necessary to the residential subdivision, the other access point dissects a commercial operation. Commercial owner has been using the access and expresses interest in purchasing the lot. It appears the only value of the access is to the commercial operation as aesthetically rear access to the subdivision is far superior than access through a commercial operation. Subdivision purchaser recognizes the value of the access point and offers to sell to commercial owner and they come to a purchase price. Just prior to executing the purchase, commercial owner finds he already had an easement to the access, which was missed by subdivision owners title company prior to the purchase of the entire subdivision. Establishing the value to the commercial operation is pretty simple as they stated the value in their negotiations. Court has already found title company at fault and is now requesting damages. Title company appraisal before and after is the same with no consideration by the appraiser for the value in use as a commercial access easement. Question is, would a before and after appraisal, with the before value being supported by the "value in use" to the commercial operation be favorably considered by the courts. Thank you for any advice, Happy Thanksgiving.

 

[hastalavista]

Are you trying to determine a value of the rear site with and without the easement (I presume to be used in some lawsuit against the title company)?

 

[fedresource2]

Yes; trying to determine value of ENTIRE SITE with and without easement, which was not reported by title company at time of purchase.

 

[hastalavista]

I hope I don't cloud the issue by asking this question (if I do, just tell me that it isn't relevant).

The developer purchased the subdivision site.
There are two parcels on it that are not buildable; they were going to be dedicated to creating ingress/egress points. One is located at the "front" of the development, the other is located at the "rear" of the development. The parcel at the rear is located among commercial use properties.
Access to the development via both front and rear isn't a requirement. Indeed, the front site is the more appealing of the two as the rear site traverses through commercial-use properties.

When the developer purchased the entire site, it was presumed that there were no easements at the rear. The developer (apparently deciding that it wasn't going to use the rear parcel) decides to sell it to the commercial landowner who does want it (and apparently uses it) for access to its operation.

Right before that sale is consummated, it is discovered that the site has an easement for the commercial landowner. In essence, the commercial landowner can use it and not pay a dime. Not only can he/she use it, but the developer has to pay the taxes on it. The deal falls apart.

The title company is found liable for its error in not discovering the easement. Had it found the easement, who knows what the developer would do?

If those are the basic facts, it seems to me the value of the rear parcel is not related to the value-in-use of the commercial operation. The commercial operation had an easement already.

It sounds to me like the value of the rear parcel is surplus land value to the development: (a) it isn't needed to support the development and (b) was only of value to the neighbor under the assumption that without purchasing it, the neighbor would not be able to use it.
The developer wasn't going to use it as evidenced by his/her willingness to sell it to the neighbor.

I don't see how the parcel's value to the commercial operation affects what the developer paid for the development site.

What am I missing?

 

[CANative]

Was the "back lot" a separate tract when the developer assembled the land or is it an orphan lot left over after creating the lots?

 

[fedresource2]

I think you have a good understanding; except for; the property had not been subdivided but was purchased with a plan that had a very good chance of being approved and subsequently was approved. The developer argues that the value of the surplus access lot was part of the overall value that he paid for, which was the planned subdivision, which included x number of residential lots, 1 access lot to be sold and 1 access lot to be retained. The commercial owner had an appraisal done for the easement value, which is nearly 20X less the negotiated value of the purchase that fell apart.

 

[fedresource2]

the back lot was leftover after identifying creating the residential lots

 

[CANative]

Maybe I'm not seeing this right but it sort of reminds me of a homeowner who thought his "2,500 sf" home was just fabulous for their needs and after buying it found out it was only 2,400 sf because one long wall dimension was measured incorrectly by 1 foot so he wants to sue for the missing 100 square feet that he didn't know about.

The subdivision guy thought he had the commercial guy over a barrel and was greedy... until he found out he had nothing to sell.

No market value because there is a bilateral monopoly (or is it bipolar monopoly). Game theory should apply but there's no prize. One guy already has the rights and the other guy doesn't need the rights.

:laugh:

 

[fedresource2]

I think I agree with "Cannative", but wanted some more opinions. That is why I hesitated to take assignment and the client's retainer. Thanks!

 

[CANative]

I really hate turning down a retainer. Until I'm half way through the job and wish I hadn't taken the retainer and spent it at the casino.