Tuesday, May 25, 2010

Conditional Use Permits and Valuation

Conditional Use Permits and Valuation

Osseo is a small city east of Maple Grove. Like many communities, Osseo took
pride in their Osseo Elementary School. ISD 279, Osseo Schools, is the 5th
largest district in Minnesota. The District determined they had too much
classroom space. Since Osseo Elementary is an older, smaller building with
higher maintenance costs the District closed this school.

The city of Osseo was livid. Even though the school had been there since
1953, the land is zoned Residential. The school operated on a Conditional
Use Permit. When the school closed the City of Osseo yanked the CUP, even
though the District owns the property.

Now the school district wants to relocate a program for troubled teenagers
from leased space to Osseo Elementary. And the city of Osseo said "not so
fast". The CUP is gone. And the City of Osseo has no legal requirements to
grant another one to the School District.

If I was given the assignment to appraise the 10 acre Osseo Elementary
school site, what is the highest and best use? Its zoned Residential.

My very first day of real estate agent school the teacher grabbed a bunch of
pencils, held them up, and said "real estate is a bundle of rights". A
Conditional Use Permit is not a permanent part of that bundle.

A Conditional Use Permit is a like parking an RV on a property. Its a
temporary use that doesn't necessarily run with land. In my opinion, a
Conditional Use Permit should NOT come into play in valuing property.

Do you agree?

Tuesday, May 18, 2010

Detached Townhomes

Detached Townhomes

The data has shown us if you price a townhome below $200,000 in a good
location they will sell. And that empty-nester products at higher price
points are struggling.

I have observed that the detached townhome product isn't selling well
anywhere. Maple Grove, Lino Lakes, Otsego, Blaine, Lakeville, Woodbury.
Locations that were doing well before the market crashed these detached
townhome products weren't selling. And as some of these communities are
again leaders in building permits these products are still struggling.

There are legal barriers to changing the product. In Maple Grove K Hovnanian
platted 300 lots for a detached empty-nester townhome product in Four
Seasons at Rush Creek. At a time when Maple Grove was bursting at the seams
with new homes K Hovnanian couldn't move this product. K Hovnanian made 3
unsuccessful appeals to the Maple Grove City Council to re engineer the
product and lift the 55+age restriction the developer had originally
requested. Now all they can do is radically strip down the home sizes and
amenities and radically lower the price. Even though the development is
located across the street from Rush Creek Golf Course and contains a 13,000
foot plush club house, tennis, putting green, plus indoor and outdoor pools.
A beautiful development. A home sold for $475,000 in February 2008. Two
years later a new construction home sold for $234,900

I can speculate on why the the detached townhomes don't sell. The general
weakness in the market at the upper end. The wrong floor plans. Or the
healthy empty nesters, once they make the decision they are done with the
single family home and yard, don't want a product that resembles it.
Otherwise they wouldn't move - which most don't because they don't have to.
If they do move they may have a second home in Florida or Arizona and they
want a product in Minnesota they feel comfortable leaving empty for the
winter. Perhaps they don't feel secure leaving a detached home unoccupied
for so long.

Whatever the reasons, this product is not selling well.

The product that seems to be selling well is a 2 story on a small single
family lot. Without association maintenance. Have detached townhome products
that aren't moving? You may want to contact your land use attorney and city
planner and see about changing your product to the 2 story and yanking them
or limiting their participation from the association.

Wednesday, May 5, 2010

Would you trade?

Would You Trade?

On April 14, Nebraska signed into law legislation that will permit brokers
to provide Broker Price Opinions and even Comparative Market Analysis for
loan origination. You read it right! Loan Origination. A broker whose
commission depends on the deal closing can now provide the estimated value
for the property. The law became effective April 15th.

In Minnesota a Broker Price Opinion can only be done for the purpose of
securing a listing. While I agree the Nebraska law is really stupid, I don't
believe all appraisers always understand property values better than
realtors. And both can be influenced to come up with a number that pleases
the client.

I got a call last week from a homeowner going through the Board of Review
process for his tax assessment. While I haven't seen his house, he told me
its an older home on 5 acres of waterfront property. The assessed value was
around $570,000 and the board of review reduced it to around $530,000 yet he
had an appraisal of $380,000 he ordered for the tax appeal.

The appraiser ignored acreage sales in the community and used comps in the
next town of similar homes on non waterfront ½ acre lots.

"Would you trade? ", I asked him. "Would you live in one of those comparable
properties instead of your 5 acre waterfront home?"


"Would you trade?" is the essence of appraising.