Appraiser uses land value plus capitalized income?

Just received an appraisal in which the appraiser applied a cap rate to the income stream (11 cap - seems about right), but then he added FMV of the vacant land (at farm land prices due to being rural) Has anyone seen this before? I thought if you used the capitalized income approach, the land value would be embedded in that amount.Bret

This guy is obviously a bad appraiser – but to your benefit so I would not tell anyone (unless you’re the buyer). There are three methods to an appraisal 1) income approach 2) replacement cost approach and 3) comparable sale approach. Somehow this guy got confused and added #1 and #2 together.I’ve still seen worse.

Well, he did cover all 3 methods, so that is why it is even more interesting. However, he did not spend much time on this job and even made some serious math errors (like reporting a monthly value for collection losses when it should have been annual - a difference of about $15k annually) His comps were ridiculous (on the other parks and also the way he did the land only). So this guy overstated the value of the deal by about $300k  and the bank did not even notice the error. It sort of makes me realize why apartments are still so popular with seasoned investors - MHPs are still just too obscure for some appraisers, and that appraisal is a big factor in making the deal work. The irony is the bank is going over the borrower’s financials (me) with a fine tooth comb - tax returns on all properties, all sources of income, etc., yet now they are willing to increase their loan amount based on some fictitious number from the appraiser.

Sorry I have been away from the forum for awhile, been busy getting another office up and running for our company. This appraiser clearly has no clue what he is doing. Frank is spot on for the correct way to value properties. I have never used a Cost Approach in a MHP appraisal. Income analysis is always the first valuation. Sales are great if you can 1) find sales 2) verify all of the relevant data 3) obtain financial data on the sales such as income, vacancy, and cap rates. Most bad appraisals fail on #2 and #3.

The only reason to add additional land value to the income approach would be if there is excess land not needed or used by the park that could be split off and sold separately.

I run into this all of this time, property owners always tell me how bad the previous appraisal was. Good news is that smart investors see trough the b.s. and they know what the park is worth anyway. As long as you don’t get a lowball appraisal the deals still work.

One suggestion would be to tell your bank how mad you are that you had to pay anything for the appraisal and how bad it was. If they want your business the bank needs to find someone who is competent.