Value of Building To Be Demolished

[KHS445]

The way I'm reading this is the value of the existing improvements is the total current value PLUS the cost to remove the improvements minus the site value?

That is correct. The resulting number will leave you with the contributory value for the existing improvements, via the Sales Comparison Approach. Now if you are doing a thorough job, which we should all do every time, one should also look at the Cost & Income Approaches. Cost could be a little tricky when trying to calculate the various forms of depreciation, as you have to be careful that you are using market based depreciation and not personal opinion. Income would interesting also. Based on the OP's comments I think you would have to consider the income potential "as is" and also if you were to split it up into smaller units and then factor in your conversion costs. Also I would generally assume an older building would have higher maintenance, repair, reserve, etc. requirements versus a new building. Not sure how much support would be provided by Cost & Income Approaches, but I would think they should at least be considered even if just some rough numbers written down to check validity.

Myself, based on what little we know about the actual assignment, I would run thru the Sales Comparison scenario to see what sort of values I can support. I would then talk with the client and say this is what I am finding do you have any additional information you should be sharing with me. Sometimes I find clients will spoon feed information in an effort to influence the outcome. Many times the information that is not provided is more proprietary and not readily available thru traditional research methods.

 

[NP_MAI]

"as is" market value- The market value of the older building as it currently sits plus any contributory value from the partially completed improvements
prospective market value "upon completion"- The market value of the new building where it will sit with the assumption that the old building will be demolished at that point

easy peasy....don't over complicate this

 

[Scott.A]

I have a scenario I would like to run past you:

Appraisal Date: 3/1/2019

There is an older, yet functional large office building on site that is set to be demolished upon completion of a new office building (on the same site) that is approximately 10% complete as of the appraisal date. The jurisdiction allowed the current tenant to occupy the existing building until the new building is completed and ready to occupy. The existing building is owner occupied by a single tenant, but they made a business decision to build a new building that matches their identity (recognize the building and recognize the company/name recognition). They have operated their business out of the existing building since the mid-70's and have expanded the building over the years as their business grew. The new building will actually be slightly smaller in size and be more functional and efficient for their business. It will be will be completed 3/1/2020, at which time the tenant will move in and then demolish the existing building. . The owner/tenant will occupy the existing building until they move into the new building.

My Question: As of 3/1/2019, I believe the existing building was still functional and had a real market value for of typical, older single office building, but their opinion is that the existing building has no value since it is set to be demolished, and construction was started on the new building. Owner/tenant will have occupied the existing building for an entire year after the start of construction of the new building. They say zero value on the existing building. I disagree.

Opinions?

Yes the building has value. Market value is not the same thing as the value to an individual owner.

 

[glenn walker]

I have a scenario I would like to run past you:

Appraisal Date: 3/1/2019

There is an older, yet functional large office building on site that is set to be demolished upon completion of a new office building (on the same site) that is approximately 10% complete as of the appraisal date. The jurisdiction allowed the current tenant to occupy the existing building until the new building is completed and ready to occupy. The existing building is owner occupied by a single tenant, but they made a business decision to build a new building that matches their identity (recognize the building and recognize the company/name recognition). They have operated their business out of the existing building since the mid-70's and have expanded the building over the years as their business grew. The new building will actually be slightly smaller in size and be more functional and efficient for their business. It will be will be completed 3/1/2020, at which time the tenant will move in and then demolish the existing building. . The owner/tenant will occupy the existing building until they move into the new building.

My Question: As of 3/1/2019, I believe the existing building was still functional and had a real market value for of typical, older single office building, but their opinion is that the existing building has no value since it is set to be demolished, and construction was started on the new building. Owner/tenant will have occupied the existing building for an entire year after the start of construction of the new building. They say zero value on the existing building. I disagree.

Opinions?

I agree with your client the existing structure is owner occupied and not leased out and has no income and you know the building is going to be demolished within a year or so. The other factor is demo-costs ? and depending on what City or County that can be costly because some ( in my area ) even require an-environmental impact report, and God forbid if there is any asbestos , lead or other issues in or under the existing structure. Over the years we have ended up paying some substantially larger-demo cost than what we had originally figured. Sounds like the owners construction approval is also Subject to them removing the old structure once the new building is completed. So there is no future sale or marketability. Anyway if the old building was able to remain for a period of years ( NOT 12-MONTHS ) then yes it may have some value but that Bad-Boy under this scenario has less value than one of the 20 foot construction trailers we leave on construction sites because at least we can-hook that bad-boy up to a truck and tow it to another site to use during construction of a new building and it's got a 15 year remaining economic life

 

[glenn walker]

That is correct. The resulting number will leave you with the contributory value for the existing improvements, via the Sales Comparison Approach. Now if you are doing a thorough job, which we should all do every time, one should also look at the Cost & Income Approaches. Cost could be a little tricky when trying to calculate the various forms of depreciation, as you have to be careful that you are using market based depreciation and not personal opinion. Income would interesting also. Based on the OP's comments I think you would have to consider the income potential "as is" and also if you were to split it up into smaller units and then factor in your conversion costs. Also I would generally assume an older building would have higher maintenance, repair, reserve, etc. requirements versus a new building. Not sure how much support would be provided by Cost & Income Approaches, but I would think they should at least be considered even if just some rough numbers written down to check validity.

Myself, based on what little we know about the actual assignment, I would run thru the Sales Comparison scenario to see what sort of values I can support. I would then talk with the client and say this is what I am finding do you have any additional information you should be sharing with me. Sometimes I find clients will spoon feed information in an effort to influence the outcome. Many times the information that is not provided is more proprietary and not readily available thru traditional research methods.

"as is" market value- The market value of the older building as it currently sits plus any contributory value from the partially completed improvements
prospective market value "upon completion"- The market value of the new building where it will sit with the assumption that the old building will be demolished at that point

easy peasy....don't over complicate this

Appraisers love to complicate things even when they get an-easy assignment.