Appraisal Matters

So now we know reviewer rules.  Let’s turn the cover page, take a quick look at the value conclusion, page past the table of contents and get right into it.

An Introduction Is In Order

The Introduction section of a marina appraisal seems like a no-brainer.  Just slap some boilerplate in there, right?  That works for some parts, but not all.

Definitive Definitions

The definition of market value is standard and rarely deviates.  Maybe that’s the deviation!  Marinas have a going-concern component, so shouldn’t the market value be reported as “market value subject to the going-concern” or some wordplay on this theme?  Too often, what is reported is just market value.  Taking it a step further, if it is reported subject to or including the going-concern, is there a definition for “going-concern”.  I hope so.

Are We Exposed?

Two other terms are commonly reported:  exposure time and marketing time.  Exposure time is the amount of time a marina would be offered prior to its sale on the date of value.  Marketing time is similar yet instead of being retrospective, it is prospective in that it is the amount of time you would need to market the property starting today to sell it at some future date.

How these two are reported frequently leaves me in a quandary.  When the appraiser says something like “after a review of market transactions”, yet doesn’t include a sales comparison approach, how reliable is their estimate?  If they do include sales and none of them have any detail about who brokered them, again I am left wondering.  Exposure time and marketing time need not be the same thing.  Just look at the difference when banks started to fail and get acquired about a month ago.  Exposure time was certainly shorter than marketing time.

The best answer to applying this to marinas is to qualify it.  There are frequently an insufficient number of brokered transactions to get a reliable estimate.  Even then, there are many different marina tiers, so the marketing time for that plain-jane marina is certainly different than for the boat dealership… especially today.  It is better to explain this in these sections and point out to the reader that this is in no way a reliable number.  Better yet, do not state a pinpoint, finite marketing time - give it a range.

Note that if you report a marketing time greater than 12 months, some clients (mainly banks) require that you apply a discount factor to the market value conclusion.

Sales History

I’ve always found this title to be amusing.  USPAP Standard 1-5 says that the appraiser must “analyze all agreements of sale, options and listings of the subject property current as of the effective date of the appraisal and analyze all sales of the subject that occurred within the three (3) years prior to the effective date of the appraisal”  Did you notice the term “must”?  We don’t run into many options for marina properties, but listings are another story.

That listing two years ago that was on the market for 400 days for $4 million before being withdrawn tells you something about market value and how the market perceives the property.  Yes, I know Standard 1-5 says “current as of the effective date of the appraisal”, but ignoring a listing that is not ancient history is a vital and pertinent bit of information.  It’s easy enough to get and should be mentioned and discussed.  I’m glad I’m not the one who concluded $4.5 million on that marina that was listed for over a year at $4 million in a declining market!  I’m just the reviewer who breaks the bad news.  ‘Glad the marina industry doesn’t kill the messenger.

We’ll start to get into fun stuff in Part 3, the Market Description.  ‘Lots of Halloween treats there!

John Simpson, MAI