MARKET VALUE WHEN THERE IS NO MARKET

Appraisers have traditionally been needed in instances where a property has failed to generate the income necessary to cover debt service. These properties are usually unfinished, deteriorating and with poor operating histories. For most distressed properties, the presumptions of early appraisals have not yet been realized. Therefore, methods are needed to deal with the property "as is" in relation to its market. A variety of adjustments are necessary to reflect the time and expenditure needed before market acceptance can occur. The three types of adjustments used and described in this study are the income approach, the market approach, and the cost approach. A major fallacy is noted in the reasoning behind the use of rent-loss deductions in that it acknowledges that rent losses will occur in the future but does not recognize that the appraiser's estimated values at stabilization is a future benefit and not immediately realizable as of the valuation date. It is further noted that invalid presumptions have no place in the methodology that has developed to estimate the market value of distressed property. Whenever an appraiser imposes conditions at a client's request, he should clearly indicate that the value estimated is not the market value and should not define it as such. The new procedures developed to replace presumptions with adjustments should have a beneficial long-term effect and, ultimately, may help borrowers and lenders minimize the number of distressed properties.

• Corporate Authors:

  American Institute of Real Estate Appraisers

  155 East Superior Street
  Chicago, IL  United States  60611
• Authors:
  • Baumgarten, J
• Publication Date: 1978-1

Media Info

• Pagination: p. 79-89
• Serial:
  • APPRAISAL JOURNAL
  • Volume: 56
  • Issue Number: 1

Subject/Index Terms

• TRT Terms: Adjustment factors; Appraisals; Costs; Equipment maintenance; Estimates; Income; Losses; Market value; Present value; Property
• Uncontrolled Terms: Equipment adjustment; Value
• Subject Areas: Finance; Highways; Law; Maintenance and Preservation;

Filing Info

• Accession Number: 00172913
• Record Type: Publication
• Files: TRIS
• Created Date: Apr 12 1978 12:00AM