Appraisers' Free Forum

I've been working on an estate for months (literally). Now they need a value for improvements.

Situation

320± acres. About 70% woodlot. Two executive dwellings (~3500 SF and 5500 SF), both 20ish effective age, good quality. A small airport strip and hangar and office - modest. Sited on the rest are small research barns for a poultry company and also includes a commercial hatchery (not in use) and the research lab and a washdown bay where you drive thru to sanitize an auto before entering the area....

I broke the property up according to uses - all on one tax card under one ownership

Woodlot ~200 ac
Pasture ~80 ac
Commercial site (hatchery, facilities, airport) ~40 acre.
Residential site (s) - 2 acres or so.

Seems that one dwelling is owned by a daughter. The hatchery and facilities, which are in another name, are selling with little more than the footprint of the land. The airport is owned by the industrial corp as is the other dwelling.

So I have appraised the land as if vacant (as part of the estate) and for purposes I do not know, they want to value the two dwellings and airport /hangar, runway sans any land...

Now that's tough. How do you value the runway surface without valuing the land?

Any ideas?

Likely, you'll have to find a sale or two of rural land with house, hangar, and runway, then deduct the depreciated value of the improvements (not counting the runway) to find out the value of the land improved with a runway. Subtract from that the value of land that sold vacant. The residual is the contributory value of the runway. Reduce it to a percentage of premium over vacant land. Apply it to your own vacant land values. Ex: Land w/ runway: $6000/acre; Land unimproved: $5,000/acre. Premium: (6000/5000)-1 = 0.20. Your local land value: $3,500/acre. Value of runway: 0.20 x $3500 = $700/acre. Area of runway: 75' x 2400' = 180,000 sf, /43560 = 4.132 acres; x 700/acre = 2,892 or roughly $3,000 contributory value of runway.

You could also fake it by using depreciated cost, but IRS will likely balk at it. They like market evidence.

You might point out to the accountant that the estate tax is levied on the WHOLE estate, and not on any component part, nor on anybody's individual inheritance. Market value should reflect the most probable transaction price if the property were sold in an orderly disposition. IRS won't take liquidation value, but they will (personal experience) accept disposition value. So if you were going to sell this property in an orderly disposition, would it be sold as a unit, or would it be sold as separate parcels? Value it the way the market would buy it. Whatever you do, support it with market evidence.

One of the estates I did involved consideration of forced partitioning. I included in the report interviews with professional real estate auction companies which established the loss from normal market as a result of auction sale. I included interviews with three local attorneys establishing the cost of forced partitioning through the appellate level. I used the money market rate for a safe rate over the estimated four-year litigation period for a liquidity discount. Then I backed all that up with a recent forced partitioning sale of a similar sized tract. So interviews with other professionals can help support discounts for control, marketability, and liquidity. Market evidence clinches the deal: IRS and TN tax guys accepted my report without objection, and the estate was over $1,000,000.

but they will (personal experience) accept disposition value. So if you were going to sell this property in an orderly disposition, would it be sold as a unit, or would it be sold as separate parcels? Value it the way the market would buy it. Whatever you do, support it with market evidence

That's the problem....

The whole property contains personal, commercial, and agricultural property. The commercial property is being liquidated and I suspect at a fraction of what I think it should be worth. Some part of the land will have to go too or some sort of long term lease made out, but that is all undergoing negotiation... The only improvements not included on this particular tract (out of say, 80 parcels) are the two dwellings, the airport runway, and the hangar. The ag land will stay.

This is a 9 figure estate in total - I am only working on a portion of it and one heir just lost $60 million when a bank "went down"....

Can't for the life of me figure out why they'd want a contributory value on the dang runway.

Liquidating the commercial property at a severe discount wasn't too bright. A well-publicized auction would've cost them only about 20-30% off of market price, depending on the nature of the property. My heirs shot themselves in the foot. I had their motel discounted to under a million, and they got a 1.2 million offer on it--and promptly informed the accountant, so he had to use that figure. Full fee-simple market value was 1.4 million, and I had solidly supported discounts taking it below the $1MM threshold for TN; they took 1.28 MM, three weeks after the appraisal went in. That little stunt cost them about $100,000 in extra taxes because of the accountant's having to use the higher offer instead of my discounted value.

Sounds like an interesting assignment you've got yourself. But the client doesn't sound very well-informed.