Appraisers' Free Forum

Jim Plante wrote:

Denis DeSaix wrote:H&BU is as a medical office.

Have you proven that? Is it a zoning/CC&R restriction? Or are you simply accepting the client's finding and desires as an assignment condition?

I was going to answer to this, but you and Jim already hashed it out. Just don't forget that the final condition in the H&B hierarchy is highest income or value (I think you already answered that, too, but I skimmed it).

Between Jim and PC, everything has been said on this that I could possibly think of. But, I did want to say "hi" and welcome you back.

Thanks, Steve!

Steve,
I've just re-read this thread, and something that PC said caught my eye:

PC wrote:It is perfectly legitimate ... to appraise to a hypothetical benchmark that might satisfy both parties. That is, since these parties might agree in principle that the market value of the (hypothetical) fee simple of the land as if vacant is a reasonable basis of exchange, then an independent appraiser is the likely candidate estimate that value for them. You just have to make it clear in your engagement documents and report, that you are not advising either of them that this is the “right” amount to pay or accept; that this is, in your opinion, the the amount that reflects such an agreement in principle (or to support an opening offer, as you said).

If the parties have agreed to the as-vacant land value as a benchmark, then you're right back to the HBU problem. As-vacant means just that: assume no improvements exist.

But this is something to settle with your clients well before you put electrons to work analyzing anything. Be sure this benchmark is what they want. If it is, then disregard any improvements, and pay attention to POA/Condo restrictions that would bear on empty dirt. Let me emphasize that if this is the basis of your assignment--empty dirt value equals a fair price--then the restrictions on vertical building go away to the point allowed by the condo restrictions. Zoning, from your information, restricts you to medical offices among other similar uses. But you could go vertical if that shell were absent, as it must be posited in order to appraise the land as though vacant.

When the assignment requires hypotheticals in order to establish benchmarks, practically anything goes. They can require you to assume that the shell exists, for example, and prohibit appraising as if it were bare dirt. Just be absolutely certain of the assignment before you begin, and be sure the engagement contract says what all of you mean.

Just to give you boys fair warning .... after a long absence Edd is going to jump into this discussion. He just can't resist .... and I am glad because I missed him!

Good work, Denis! We've lured Edd out of hiding.

Hi guys,
Just the kind of stuff that is worth appraising.
First for Jim's assertion/question about appraising something for which there is no market and comparing it to conservation easements. Jim, conservation easements are bought and sold some where I am, but with respect to conservation easement "market value", the IRS has said that, sans sales of easements, the difference in value before and after is the "market value" of the easement, at least it reflects the "fair market value." So chill out.
Something seems relavent to the assignment that hasn't been hammered much here and that is the size of the parcel he wants to buy. Just the fact that a subdivision has to occur brings up zoning questions beyond what uses are permitted by zoning. Can it be subdivided? Then after that, how big does a parecel have to be in order to meet set-backs, parking, etc. How many exemptions would have to be issued to build on this little piece if it were vacant? Can he count the commons in his parking and set-back, etc.?
Assuming the client only wants to buy the land right under the building, what is he going to do, give the HOA an easement to maintain the exterior walls?
Where I am real estate is being included in the condos and the HOA gets the parking lot. But there are no sales like you describe. My guess is that it hasn't happened anywhere.
I think Jim is right about value in use. Only the occupant, or in the vacant scenario, the potential occupant or the HOA has any use for the land immdiately under the building. A market of one. Why do the brain damage looking for market value when there is none?
The value of the parcel is equal to the relief from liabilty relief the client and the HOA get. If the dollar value is different, then move to the middle or take the highest as the case may be. These guys are attached at the hip no matter what.

Great, Edd! You're finallty flushed out of hiding and I get to abuse you first!

First of all, the IRS doesn't define MV. They use FMV, which is different in that it pays no attention to market/exposure time, among other things. Secondly, conservation easement appraisals don't measure the MV of the easement; they measure diminution to the servient estate, which is not the same thing. But that diminution in value is what the donor can deduct. The deduction is compensation for loss, and the amount of that compensation is measured by the loss in MV to the servient estate. IRS can consider diminution of one estate to equal MV of a different estate all they want; they make so many other mistakes, so no one will notice.

But read my last post on this subject. PC pointed out that the parties MAY be using the MV of the site as-vacant as a proxy for MV. So this is something Denis needs to settle with his client(s), i.e. whether they want the dirt appraised with the building shell or without it; how much of the commons is considered, etc.

And welcome back!

Better keep reading the cases, code and regs on the donated conservation easement value thing, Jim. I will likewise. Until something better comes along, I'll try your objection to the IRS value definition in tax court and see what happens. If it doesn't go well, I'll give you the credit. What is your TIN?

OK. Back to the thread.
In the H&BU, there are likely some significant legal and physical considerations in this assignment before one needs analyze feasibility. And, if Denis hurdles those and makes it to feasibility, he may well conclude there is no market. Who would buy this thing, other than the guy with the building sitting on it who wants to limit his liability? Looks like the H&BU vacant analysis is sort of academic, but I guess the rules require appraisers to show they know how to follow the rules.
It really seems much simpler to me than it did when I first read Denis' post. The guy wants to buy a piece of land that maybe can't be sold.
And I think ASB pretty well dispatched any concern to use an HC even though the piece of land in question has no separate legal description.

Jim Plante wrote:But read my last post on this subject. PC pointed out that the parties MAY be using the MV of the site as-vacant as a proxy for MV. So this is something Denis needs to settle with his client(s), i.e. whether they want the dirt appraised with the building shell or without it; how much of the commons is considered, etc.

And welcome back!

Just a thought... but I might guess that MV at H&B of the land, as if vacant might not be the value def they are looking for. Since the condo exists, and will probably continue to exist, they could be looking for a benchmark value that is value of the land as contribution to value of the whole. Dennis needs to find that out, IMHO.

And, congratulations, Dennis... I've been trying to coax Edd out of hiding for some time. Welcome back, Edd.

I'd go with that Steve, and Denis already said after the Pineapple/Plant posts that he needed to discuss the assignment with the client so I guess that is where he went. I do think this thing is being made a lot more complex than it needs to be from an appraisal perspective, but then I don't think the KISS principle is in USPAP yet so the AI isn't teaching it.
At this point in the discussion I think Denis is after value in use rather than market value, but that is something he needs to decide.
Thanks for welcoming me back guys. I'll keep myself under control as long as it doesn't hurt.

Edd-

Sound like you and I both come out of hiding at the same time!

To all-

I learned a very valuable lesson today in my research of this assignment. In sum, my original understanding of what the problem to be solved was incorrect . Although there were some language challenges between me and my client's point of contact, the fault of the misunderstanding is 100% mine.

The short story is that this is not a "vacant land" hypothetical. It is a condo appraisal, period. The condo is the shell (walls and roof). The way my client's contact explained it to me (which I repeated back to him in a written confirmation) was that the HOA was splitting this area away from the existing condominium project and selling it to my client as its own individual site/parcel.
What actually exists is that this lower level is all one existing condo unit (shell, dirt on the ground) and the area that my client is improving is being partitioned as its own condo unit (but still remains a condo in the larger project); it is this new, partitioned unit that my client is purchasing. I have the preliminary legal description identifying this new unit and am awaiting confirmation via the new recorded condo map.

I discovered this when I was reviewing some of the correspondence between the HOA and my client's attorney and when I interviewed the larger building's leasing agent this morning.

On the one hand I sure feel stupid . On the other, I'm happy I found my mistake now during the research stage rather than after report delivery. I learned two very important lessons:
1. When an assignment appears "oddball" (like this one did to me), be very certain about confirming the components of the assignment: the oddball aspects may be due to a mis-identification of the problem.
2. Regardless how simple or complex the assignment appears to be, be very certain about confirming the components of the assignments so that the problem to be solved is correctly identified.

Sounds like you still have some of the same kind of work ahead of you, although now I guess the subject is an office building improvement to real estate.

Can't think of another guy I'd rather "come out" with.

Edd wrote:What is your TIN?

Are you in Tax Court, Edd? For a client, or pro se? And Defendant has performed no act and has knowledge of no fact now on the record on which a conclusion can reasonably be based that he has a TIN. So there!

Just an observation, but why would a taxpayer be allowed to deduct the value of something he does not own? What he's entitled to deduct is what he lost, not what the lost property became worth after he lost it. You can run that past the TC if you're tired of twiddling your thumbs, but neither of the two TC judges I've dealt with were being sought by the Nobel committee. You're not gonna win, especially if you're representing a client.

I guess you've got a point if a taxpayer was trying to deduct the value of something he lost. I haven't been involved in that sort of a situation yet.