Appraisal Review Challenges: Reviewing Outside Major MSAs and Reviewing Another Institution’s Report

PresentersStephen S Wagner, MAI, SRA, AI-GRSChief Appraisal Officer, VPOld National BankIndianapolis, IN765-427-5414

M. Ralph Griffin, MAI, AI-GRSMarion R. Griffin & Co., Inc.Spartanburg, SC

Slide 2

Definitions

Primary Metropolitan Statistical Area (PMSA) An area of more than one million people that consists of a large,

urbanized county or a cluster of counties with very strong internal

economic and social links; designated under standards established in

1980 by the Federal Committee of MSAs.

Metropolitan and Micropolitan Statistical Areas The general concept of a metropolitan or micropolitan statistical area

is that of a core area containing a substantial population

nucleus, together with adjacent communities having a high

degree of economic and social integration with that core.

Rural Not urban or suburban

Slide 3

Definitions Continued

Each metropolitan statistical area must have at least one urbanized area of 50,000 or more inhabitants.

Each micropolitan statistical area must have at least one urban cluster of at least 10,000 but less than 50,000 population

Metropolitan Area

Micropolitan Area

CBSA Code CBSA TitleMetropolitan/Micropolitan Statistical Area Principal City Name

FIPS State Code

FIPS Place Code

21780 Evansville, IN-KY Metropolitan Statistical Area Evansville 18 22000

CBSA Code CBSA TitleMetropolitan/Micropolitan Statistical Area Principal City Name

FIPS State Code

FIPS Place Code

27540 Jasper, IN Micropolitan Statistical Area Jasper 18 37782

Slide 4

Example-Metropolitan

Evansville -120,235 (2012)

Evansville is the commercial, medical and cultural hub of Southwestern Indiana and the Illinois-Indiana-Kentucky tri-state area. It is the third-largest city in the state of Indiana and the largest city in Southern Indiana.

Slide 5

Example-Micropolitan

Jasper -15,157 (2012)

Jasper is a city in Dubois County, Indiana, United States. The population was 15,038 at the 2010 census. The city has been the county seat of Dubois County since 1830, succeeding Portersville.

Slide 6

Geographical Perspective

Jasper to Evansville is about a 45 to 60 minute drive.

Slide 7

Low Density/Rural Markets

Discussion Buyer/seller motivations Level of sophistication

• Income producing properties• Owner Occupied

Demand Drivers• Population• Income• Employment

Data Available• MLS• Informal Data Banks

Slide 8

Residential Low Density Markets

So what’ll we do with this thing in NoWhere Indiana?

Slide 9

Residential Low Density Markets

Slide 10

Residential Low DensityResidential Low Density Markets

Slide 11

Residential Low DensityResidential Low Density Markets

Slide 12

Residential Low DensityResidential Low Density Markets

Slide 13

Residential Low Density

DOM 573;The Subject was listed for sale for $3,950,000 on 09/13/2011 and was lowered to it's current list price of $3,500,000 on 07/31/2012.

With a loan of $2,000,000 to $2,400,000 ADS would be $128,000 to $155,000 At a 28% debt to income level it requires

an annual income of $460,000 to $555,000

Residential Low Density Markets

Slide 14

Residential Low Density

Only 2.5% of the subject county population has an income above $200,000 per year.

Land to Value Ratios for higher end properties in the subject area are 15 to 20% at best. The subject waterfront site is estimated to be $400,000. That would indicate that the overall value could be as follows:

$400,00015.00%

$400,00020.00%

$2,666,667

$2,000,000

Residential Low Density Markets

Slide 15

Residential Low Density

Buyers will most likely have to come from a larger Metropolitan or Micropolitan area.

Have to get comparables on a regional basis.

Examine other sales to estimate and determine functional obsolescence.

Residential Low Density Markets

Slide 16

Commercial Low Density Markets

So what’ll we do with this, in SomeWhere Indiana? Is that a Strip Center?

Slide 17

Commercial Low Density

Out of 4 sales, the report showed one cap rate and a Band of Investment

Little in the way of expense comps, but did have subject alleged past performance

As a Reviewer, is there more you can or should do?

Commercial Low Density Markets

Slide 18

Commercial Low Density

So what’ll we do with this, in WhoKnowsWhere?

Commercial Low Density Markets

The Cost Approach is not your friend!

Slide 19

Commercial Low Density Markets

Slide 20

Commercial Low Density

House of Worship Town of 3,000

What the report said– Most Likely Purchaser-The subject is a church

facility. Given the specialized nature of these buildings, conversion of these properties to an alternate use is typically unlikely but possible.

Commercial Low Density Markets

Slide 21

Commercial Low Density

– Therefore, given the physical characteristics of the subject, the most likely purchaser would be another growing congregation or possibly a public use such as a daycare facility considering the gymnasium and overall site improvements.

How many congregations are looking for a church in a town of 3,000?

Have to consider alternative use. Most likely-significant functional obsolescence

Commercial Low Density Markets

Slide 22

Commercial Low DensityFirst 3 sales sold as churches, Comparable 4 sold as a daycare. All comps in major metro. Reconciled to $41/SF.

Commercial Low Density Markets

Slide 23

How to do you calculate the Functional Obsoleence and whaere are th

comparables?

Slide 24

The End

Thank You