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Calculating Fair Value in today's market
08-04-2015, 09:27 AM,
RE: Calculating Fair Value in today's market
For me Points on paper always help, but intangibles will always be there too.

quote='JimmyWW' pid='6126' dateline='1400784198']
Hi Gang

I thought Skook, Navier and some others might have some perspectives on this. First of all, the situation: after a long period of inflation, many of us here recognise that certain peripheral markets are topping out, to put it mildly, or in slow multi-year decline. And yet certain sellers, or their realtors, are still proposing prices which are >20% over assessment, despite the properties in question not selling for quite a while.

That led me to question how one might calculate a reasonable and fair value in today's market. Where I'm looking, most deals close on average at around 0-4% above assessed value, with some outliers tipping the balance by being up to 10% over assessed value (almost never more than this). Additionally, sold values have decreased by 12% over the last 6-7 years (underlining the "slow melt" I refer to above).

Other than the infinite patience counselled to me by some, how to find a value which will persuade sellers to sell at a reasonable price, their expectations notwithstanding? I've come up with a blended method based on some comments made by other posters, and offer a worked example below:

Seller Wants - $628,000
Assessed Value is : $510,000 of which building is $215 and land is $295K

Valuation 1 - assessed value + 4% = $535,000
Valuation 2 - 50% of difference between ask and assessed = $570K
Valuation 3 - calculate price per square foot of building ($215K/2872)=$73.40 psf, then offer premium of 5% on building = $575K including land valuation.

Then take an average of these three methods and you get to $560,000. I wonder if this is at all useful? To me, this would represent the price I would not be prepared to offer above, given the current and future anticipated longer-term market declines.

Anyone have any views? I know this is a bit wonky, but before I jump in, I really don't want to overpay....


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