Suburban property valuation: premium or discount for non-residential outbuildings?

[JHZR2]

To start, I know the whole real estate is local, consult a Realtor... Not sure thst will help...

Situation: In my neighborhood, there is an undersized property that has only an outbuilding, a two car garage with loft. It has street access but is otherwise locked between two residential properties that do not own it.

It seems that the owners of the property are going to sell it, and I suspect that at minimum, there will be interest from the two neighboring properties and myself, if not others. It is too small in multiple dimensions to be developable into a residential property, but if bought by a neighbor, could expand their lot.

So, how do I come up with a valuation?

Around here, I’ve found that the valuation versus tax assessment is in the range of 1.25-1.35x. That is, a property thst has a tax assessment of $100 woukd likely sell for $125-$135. This is based upon recent sales and current tax records. The house across the street sold in a bidding war, significantly above asking. But it’s a house, not an outbuilding only.

It really only has utility to the two neighboring properties, and someone like me who wants the space and is a few houses away. It is not an investment, it’s not well set up to be a rental space (coming from someone who in the last year bought and owns a 10-rentable bay garage building, and understands the cap rate and NOI values to cost such a thing). This is different. It is niche.

I want to be able to give a strong but reasonable offer. I like to have rationale. So... any expertise or thoughts on this?

Would the value:
1) Be a lower ratio than the typical ratio of assessed tax value to saleable price, because it’s an outbuilding and not developable (rationale too small a willing market versus a house)

2) Be the same ratio of assessed tax value to saleable price, because one could assume that a neighbor’s property value would increase commensurate to that ratio, if they bought it?

3) Be a higher ratio because of interest and the fact that at least for the neighbors, the whole may be worth more than the parts, given scarcity of space in mature, safe Suburban towns?

thanks!

 

[fsdork]

As someone who is also not a realtor, my first thought would be to find a property which is comparable to what one of the residences adjacent to the property in question would be when combined with that property. In other words, if a typical lot is 9000 sq ft, and the property you are looking at is 4000 sq ft, is there a ~13000 sq ft lot with a house and detached garage you could use as a comparison?

 

[JHZR2]

As someone who is also not a realtor, my first thought would be to find a property which is comparable to what one of the residences adjacent to the property in question would be when combined with that property. In other words, if a typical lot is 9000 sq ft, and the property you are looking at is 4000 sq ft, is there a ~13000 sq ft lot with a house and detached garage you could use as a comparison?

That’s a good idea!

This garage has a loft, in the neighborhood, garages (such as mine) don’t. So that’s unique.

But worth some research to get a delta...

 

[390pcode]

I would pay market rate for the dirt plus a SF allowance/comp for the improvement (structure) and then maybe add a small premium given the circumstances.
Make sure the parcel is clean (environ Phase 1) to ensure it doesn't have contamination from previous historical uses.

This is what I do for a living...

 

[JHZR2]

I would pay market rate for the dirt plus a SF allowance/comp for the improvement (structure) and then maybe add a small premium given the circumstances.
Make sure the parcel is clean (environ Phase 1) to ensure it doesn't have contamination from previous historical uses.

This is what I do for a living...

SF?

 

[Leo99]

I would pay market rate for the dirt plus a SF allowance/comp for the improvement (structure) and then maybe add a small premium given the circumstances.
Make sure the parcel is clean (environ Phase 1) to ensure it doesn't have contamination from previous historical uses.

This is what I do for a living...

This is a good plan. What is the land worth by itself and then tack on whatever the building is worth. And then take into consideration any zoning or access rules that might interfere with your planned usage of the property.

 

[Zee09]

The property probably
will not sell anywhere near its actual value because in this case it boils down to who wants it the most.
I suspect someone local will have to over pay to get it. Bid high if you really want it.

 

[Carmudgeon]

Sounds like a flag lot, or key lot.

Consult a real property appraiser, that's their job. Not a real estate agent. Not a loan officer. Not the tax collector.

The appraiser will assess the property, do some research, and weigh it against the market value of the three closest comparables they can find, and adjust for the differences to arrive at a final valuation. They won't guess as to what it should sell for, may sell for, or engage in that type of conjecture. Their judgment is based on what such properties have sold for.

In cases where the subject property is a real oddball and can't really be compared to others, they will use a cost approach -- the costs of the land, and the improvements upon it -- to arrive at an equivalent of the subject property.

If it were a piece of commercial real estate, the valuation would be appraised based on the income it generates.

Governments don't really pay close attention to the small fish, and in extreme cases like in California, the valuations they have on file can be way off the true market value. They keep their eye on the big fish, the large companies, and their holdings. Even things like airports, and the airlines that use them. An airport can be owned and operated by a government entity, but if it is situated outside that jurisdiction's boundaries, it will be assessed and taxed by the authorities of the jurisdiction where it sits. Not unusual for airports to be at a distance from their namesakes, or the cities they serve.

The appraiser's conclusion is the one the lender will consider if money needs to be borrowed to make a purchase. But, also keep in mind, their assessment is still only an opinion of value, not a declaration of value. Only the market can pronounce that.

 

[Leo99]

The property probably
will not sell anywhere near its actual value because in this case it boils down to who wants it the most.
I suspect someone local will have to over pay to get it. Bid high if you really want it.

I don't understand how you can separate its actual value from what it sells for on the open market. To me they are the same thing. The price on the open market at which a seller and buyer agree is the actual value at that point in time.

 

[390pcode]

SF?

Square feet

 

[RhondaHonda]

Valuation is going to be based on what you and the immediate neighbors are willing to pay. If I lived directly next door I’d be very interested in this. Do you know if the seller is going to have a realtor list it? You could always come up with an offer and go directly to the seller and see if they bite.

 

[Zee09]

I don't understand how you can separate its actual value from what it sells for on the open market. To me they are the same thing. The price on the open market at which a seller and buyer agree is the actual value at that point in t

It's all relative.
Locals are usually shocked when an outsider sees value in a property they take for granted and pays accordingly. Money talks.

 

[JHZR2]

I don't understand how you can separate its actual value from what it sells for on the open market. To me they are the same thing. The price on the open market at which a seller and buyer agree is the actual value at that point in time.

What I was looking for is what would be appropriate. Ive seen slivers of land for sale before, but not with a useful outbuilding. The challenge here is thst it can provide useful value to the neighboring properties, to myself or any other very local folks, but much less to anyone else.

Valuation is going to be based on what you and the immediate neighbors are willing to pay. If I lived directly next door I’d be very interested in this. Do you know if the seller is going to have a realtor list it? You could always come up with an offer and go directly to the seller and see if they bite.

Yeah, if I lived in the neighboring properties, I too would be interested. It’s suburban zoning, so it’s essentially street-lot-lot-street, within the block, and this small property makes the two residential properties (corner properties) not as deep to accommodate. Ive been in communication with the seller. I don’t think they have it all worked out yet, but Id argue avoiding 6% woukd be in their favor. I guess the flip side is if they anticipate interest and a bidding war, they may do better if listed.

It's all relative.
Locals are usually shocked when an outsider sees value in a property they take for granted and pays accordingly. Money talks.

There may well be outsiders, but I can’t see how they would find the same value in this lot. I’m more of an outsider, but I’m only a few houses away...

 

[Zee09]

Best of luck with it.

 

[Leo99]

What I was looking for is what would be appropriate. Ive seen slivers of land for sale before, but not with a useful outbuilding. The challenge here is thst it can provide useful value to the neighboring properties, to myself or any other very local folks, but much less to anyone else.



Yeah, if I lived in the neighboring properties, I too would be interested. It’s suburban zoning, so it’s essentially street-lot-lot-street, within the block, and this small property makes the two residential properties (corner properties) not as deep to accommodate. Ive been in communication with the seller. I don’t think they have it all worked out yet, but Id argue avoiding 6% woukd be in their favor. I guess the flip side is if they anticipate interest and a bidding war, they may do better if listed.



There may well be outsiders, but I can’t see how they would find the same value in this lot. I’m more of an outsider, but I’m only a few houses away...

Sounds like it's worth more to the adjacent neighbors than anyone else so it's almost impossible to put a dollar figure on it. If both neighbors want it, they could drive up the price. If both adjacent neighbors are not interested then you could get it for a song. The seller might be motivated or they might be holding out for some exorbitant price.

 

[alarmguy]

This is going to sound like a copout. But the property is worth what someone is willing to pay. Valuations are set by the public not government, banks then follow those numbers on how much money they are willing to lend for someone to purchase it.

In your case, its an odd lot only valuable to someone who has a use for it and what people are willing to pay for it, anything goes I guess.
Good luck, Kind of funny, I have a small patch of community property behind my home and why we built on the property that we did.

I often wonder how much the community might sell the property to me as it is worthless to anyone BUT another home on the next block. Since it is treed and will always be undeveloped I haven't brought up buying it out of fear I might give the other home a chance to bid on it. *L*

 

[Cujet]

As mentioned above, look at the price of the land, in value per acre/or square foot, and what the structure would cost to build/is worth.

In my neighborhood, they simply use $230 per square foot for home valuation.

 

[MNgopher]

If, and its a big if, the neighbors are willing to pay for it, then its worth whatever they are willing to pay. The questions there are two fold: Are they interested, and if so, in a financial position to do something.

After that, one can then apply a rational cost basis behind an offer - but only if the neighbors don't or can't buy it.

 

[PandaBear]

Depends on the neighborhood, if there are lots of redevelopment activities going on then it may attract squatter investors trying to ransom the bigger development project or use it to prop up the appraisal of other properties. Other than that you may want to use it for future development.

Maybe you can put down what you think is worth and see what the seller wants to do, and if your neighbor doesn't put in a counter offer and you win that's good for you. Put down something that you don't think it will make or break whether you win or not and something that you are comfortable walking away and not kicking yourself later on.

Most importantly the seller has to accept it. If you and your neighbor both put down something and both got rejected that won't do any good.

 

[JHZR2]

The owner wants to sell. I don’t think the property is developable based upon size versus % of coverage to build a normal house. It’s a very old building, surely over 100 years, and just grandfathered there.

I submitted an offer in writing with rationale. The neighbors were supposedly interested, but I’m hoping that a cordial cash offer will be convincing. I’m sure they would love to get three parties in a bidding war, but I’m hoping my initial bid is high enough to turn one or both parties off.

What I heard was one party wants to tear it down, two (myself included) want to use it. I think I know which is which. I can’t imagine it’s worth THAT much to the one that wishes to tear it down. It will give a bigger yard, but so what?!? Not that much. These are suburban blocks. There is much utility on the building. But how much the other person is willing to pay for it is another matter...