How do Lawsuits Impact Land Values?

October 19th, 2009
How do Lawsuits Impact Land Values?

I'm consulting on a property tax appeal of a parcel that has an approved
Preliminary Plat for single family lots. Its beautiful property in a
community where new homes are selling. However, the current lot prices
barely exceed the development costs. As indicated by the data I studied, I
valued the land at $20,000/acre.

The next day I get an assignment to consult on a property tax appeal for the
parcel adjacent to the one I just valued at $20,000 an acre. Its identical
in character with one difference: the Preliminary Plat application resulted
in a lawsuit that is still ongoing.

The Preliminary Plat was denied with a one page memo turning it down because
the Environmental Advisory Committee didn't like the wetland mitigation
plan. Minnesota development applications are impacted by "The 60 Day Rule".
If a development application has not been denied within 60 days, its
automatically approved. The governing body can request a 60 day extension.
While the 60 day extension was provided by the developer for the Preliminary
Plat application, a request was not signed by the developer for the Wetland
Mitigation plan.

The developer then submitted an application for Final Plat approval-which
was denied with a 25 page finding. The primary reason for the Final Plat
denial was the previous denial of the Preliminary Plat.

So the developer sues-wins the first battle with a Summary Judgment from
District Court. The lawsuit, more than 2 years later, is very much alive and
headed toward hearings at the Minnesota Court of Appeals.

So I had to decide how much, if, any, this lawsuit impacts the value of the
property. Accounting for the uncertainty of the lawsuit outcome, the expense
of pursing the lawsuit and the time factor, I discounted the land 25% to
$15,000/acre.

How would you account for the lawsuit when valuing the land?