Appraising Vegas High-Rise Condos 101

What Does Highest Price Mean in the Revised Nevada NRS Value Definition?

Laws are invariably compromised by politics, and in Nevada we have seen the definition of value for condemnation change repeatedly. The revision of our condemnation law today states that "Value" means "the highest price, on the date of valuation, that would be agreed to by a seller, who is willing to sell on the open market and has reasonable time to find a purchaser, and a buyer, who is ready, willing and able to buy, if both the seller and the buyer had full knowledge of all the uses and purposes for which the property is reasonably adaptable and available." [N.R.S. 37.009] This definition of value is not the one most often used by appraisers when they complete appraisal reports for banks, the IRS or other governmental agencies. In my opinion, and please note that I am not an attorney nor do I claim special legal knowledge, this definition within the law has been changed in an overt attempt to benefit trial attorneys and land owners.

How do appraisers interpret the change? I can only speak for myself, and in my opinion the changed definition within the law does nothing to effectively change the value of a real property either before, during or after the acquisition process. The highest price that a seller can achieve for his or her property is the one that is agreed to by a buyer and the seller in the open market with a typical marketing time when the property is offered for sale. If multiple offers are tendered, with financing and buyer credit being equal, a seller will always accept the highest offer submitted.

You can call the price reached through negotiation the highest price or you can call it the most probable price, the fact is that regardless what you call it, the negotiated price between a seller, who always seeks the highest price, and a buyer, who always seeks the lowest price, is the same. The only way that the value would differ is if you removed the open market condition within the value definition.

Why is time not an important factor with regard to the highest price definition? It takes time to sell a property, as measured by the number of days on the market that similar properties took to sell. Usually appraisers express a value opinion with an anticipated marketing time associated with it, the marketing time is provided after research has been completed by the appraiser into past exposure times for similar properties. The marketing time forecast concluded by an appraiser tells a reader of an appraisal report how long they can expect to market the appraised property to make a sale at the market value.

Varying the marketing time of a property in an attempt to achieve a sale with a different result is not a reasonable strategy since markets change dynamically, and a price that could be achieved for a property after a typical marketing period, say 90 days, may not be achieved if marketing continues for 120 days. No one can read the future and thus no one can know whether a longer marketing time would provide a higher or a lower price. The correct answer to the question "is a higher price attainable if a property is given more time on the market?" is "no one knows." It is a question that has to do with changing markets and speculation. If the market is moving up, maybe you will achieve a higher price, if the market moves down it is likely that you will receive lower offers. There are no statistical studies that provide means, medians, modes or standard deviations of prices over time for a given property or a given property type.

From an appraisal perspective, changing the words in a value definition from "most probable price" to "highest price" does not really accomplish much. Well, maybe if you are making an argument at trial to a jury, the words "highest price" may sound better. In the final analysis, however, all real property sales, from which value opinions are derived, depend entirely on market conditions. The change in the Nevada law definition of value does not, in my mind, present a serious interpretation problem for a real property appraiser.

Commercial Real Estate Appraisals in the Las Vegas & Henderson, Nevada Area.