Controlled Markets

Trump Tower
As appraisers we often begin assignments by making assumptions.  One of the assumptions that we often make is that the property that we are appraising and the comparable sales that we select are or will be bought and sold in an open, unrestricted market that is not unduly influenced.  Accepting some Las Vegas appraisal assignments can, however, put you in a world or a market that is
controlled.  Sales in a controlled, or partially controlled, market can contradict one another.

An example of a controlled market is the market for Trump condominium units.  The Trump building is a condo-hotel that contains about 1,232 units, most are less than 1,000 square feet in size.  Without proper research you may assume that the Trump building "it's just another high-rise" with lots of amenities, but you would be wrong. 

To begin with, the Trump building in mid-2012 is about 75% developer owned.  It's a fact, and it's public information that you can confirm like I did by simply making an ownership count using County records.  So there is a limited number of units owned by the public and a limited number of Trump owned units that are made available based on the developers success selling its last offerings.

Most of the recent sales of Trump Tower units have been re-sales of previously sold units.  Many of the original non-Penthouse units sold for $ 700 to $ 1,000 per square foot and some have been lost to financial institutions or they we're short-sales that subsequently sold in the $ 250 to $ 400 per square foot range in 2012.  It was quite a value decrease but in keeping with that noted in other high rise buildings.

The problem for appraisers is that they can find themselves appraising a condo unit that exists in a somewhat unique market that is substantially controlled or influenced by the developer.  Appraisers may find short sales, at times several matched unit short sales, at (for example) $ 300 per square foot and then immediately find other legitimate cash sales by the developer of the same matched unit at $ 500 per square foot as of the same date, and then it's time to realize as an appraiser that you are not in Kansas anymore.

How can nearly identical units with the same size, layout, finish, furniture and view sell on the same date for a $ 150 to $ 200 per square foot difference?  I can attest that it happens, and it is my opinion that it is due in part to the imperfect nature of the real estate market (uninformed buyers) and in part to the fact that the Trump condo market, like other markets, is effectively controlled or influenced by one party (the developer).

Nevada Land
On a grander scale the vacant land market in Las Vegas, and in fact in every part of the State, is effectively controlled by the federal government.  It doesn't take a bright bulb to figure out that with only about 23% private ownership the government has a major influence in the land market.

It also doesn't take a rocket scientist to figure out that the federal government starts to prime its auction sales engine in Las Vegas when there is the perception that there is an improving real property market.  The federal government has no carrying costs, like real estate taxes, and an almost unlimited supply of land at the periphery.  They generally sell their property on cash terms, so they don't have to take property back if the market turns down.

Since the market for vacant land usually includes hundreds of parcels of land it is difficult to see how each federal auction impacts it, but it is difficult not to recognize that as a market participant you are in the cheap seats.  

It's important as an appraiser to take a long, hard look at ownership interests within your market and identify who are the owners and who are buyers within it before making a decision about whether it is a typical "open, competitive market."

For more appraisal information contact Glenn Rigdon MA, MRICS, ASA is a Las Vegas / Henderson Nevada appraiser who can be contacted via email or via his business website Appraiser Las Vegas  (http://www.appraiserlasvegas.com), or you can also click on “Contact Us” on the home page of this website or visit my public profile at LinkedIn at http://www.linkedin.com/pub/glenn-rigdon-ma-mrics-asa/1a/30b/879/.  

Article source: http://www.appraisalarticles.com/Real-Property-Appraisal/3600-Controlled-Markets.html