Estate Counsel Asks for Three Numbers: Market, Liquidation, and Rezoning
An attorney representing an estate asks you to appraise a 12-unit apartment building. The attorney writes: 'We need a market value for the estate tax return, a quick-sale number in case we have to liquidate within 30 days, and a number as if the property were already rezoned to allow 24 units, because we are negotiating with a developer. Please use the date of death, six months ago.' The property is 100% occupied. Four units are covered by a project-based rental assistance contract with 18 months remaining; contract rents are $1,050 per unit while market rents for similar unassisted units are $1,350. The remaining eight units rent at market. The jurisdiction is a nondisclosure state, and the attorney says 'just use the tax assessor's value as a sanity check.' The estate's executor has offered to provide interior access, but the attorney says a drive-by is enough since 'we only need a number.'
1. Distinguish the three values requested and identify which require a hypothetical condition or extraordinary assumption.
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The three requests are not the same value. Market value is the most probable price in a competitive and open market under fair sale conditions, with a reasonable exposure time. Liquidation value assumes a shorter exposure period and a seller under pressure; it is usually lower and must be defined separately. Rezoning value is a prospective value under a different legal regime. The rezoning request requires a hypothetical condition because the property is not currently rezoned; I would value it as if the rezoning were in place, disclose the condition, and not present it as the as-is market value. If I am uncertain whether the rezoning would be approved, that is better handled as an extraordinary assumption or a scenario, but a hypothetical condition is appropriate when the client wants the value under an assumed legal status. The quick-sale number is a liquidation value, not market value; I would define the exposure period and any duress assumptions. The estate tax value should be market value as of the date of death.
2. How should the project-based rental assistance contract be treated? Address leased fee versus fee simple and contract versus market rent.
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The four assisted units are encumbered by a project-based rental assistance contract. If I am appraising the leased fee interest, I use the contract rent for those units because the lease is an encumbrance, and market rent for the eight market units. Because contract rent is below market, the leased fee value will be lower than the fee simple value, and I should show the impact. If I am appraising the fee simple interest, I use market rent for all units, but I must still disclose the contract and analyze it. The contract expires in 18 months, so I should consider the risk of renewal, tenant income limits, and the potential for market rent after expiration. I would not simply use the contract rent for all units or ignore the assisted units. The choice of interest must match the client's intended use and be stated in the report.
3. What are the issues with the retrospective date, the drive-by scope, and the tax assessor 'sanity check'?
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A retrospective effective date is acceptable if the data support it and the date is not misleading. The date of death is a legitimate retrospective date; I would disclose it and use sales and market conditions as of that date. The drive-by scope is a bigger concern. For a 12-unit building, an exterior-only inspection may not be enough to assess condition, deferred maintenance, and unit interiors. I can accept a limited scope only if it is sufficient for credible results; otherwise I would request interior access or make a clear extraordinary assumption about interior condition. The tax assessor's value is not market evidence, especially in a nondisclosure state, and I would not use it as a sanity check for market value. I would explain that assessor values reflect assessment policy, not market sales.