I can’t quite believe I’m writing about the GTH again, but I’m in that sweet spot between ham coma and turkey paralysis, so figured I may as well take advantage of the lucidity.
Either way, I’ve been trying to wrap my head how Marquart’s appraisal (herein “The Appraisal”) landed at $129,000 per acre in the first place, when all other appraisals for the same dirt were coming in at $30,000 – $60,000 per acre. (This will make more sense if you read my earlier post on this before continuing.)
I’m referring to The Appraisal that Brad Wall has recently starting pushing the GTH to release. The one that drove the final sale price to the taxpayer up to $103,000 per acre, when everyone else in the area was getting half of that, if they were lucky. The Appraisal no one, beyond a handful of bureaucrats, has ever seen.
Before I keep going, let’s re-establish the glossary:
“The Ladies” – the nuns and their neighbor, whose combined land created the 204 acre monster that this has become.
“The Land” – the 204 acre monster in question, today owned by the Ministry of Highways and the Global Transportation Hub.
“The Appraisal” – the mysterious, yet to be procured appraisal, which Boyd said was for $125,000 per acre, then Wall indicated was actually $129,000 per acre.
After shooting a couple Cadbury’s Crème Eggs – you know, for fortitude – I had a quick peek into the world of land appraisals (hey, you’re not here because I’ve got a full social life).
The standard, and arguably most reliable, appraisal of raw land is by far the Comparison Sale method.
Put simply, this method compares recent nearby land sales and spits out a best estimate of what your dirt is worth. When the market is ‘normal’ and the local demand for land is healthy and strong (remember, the whole reason the GTH bought this land at a premium price was because the area was selling like hotcakes and values were on the rise) the comparative method reigns supreme.
Therefore, it’s no surprise that the Ministry of Highway’s appraisal for The Land was conducted using the Comparison method.
Aha! In January 2013 there was a sale at $120,314 per acre, and another at $99,715 per acre in June 2012.
Sure, the median was $29,000 per acre, but if those two exist, at least the $103,000 per acre the Government of Saskatchewan paid isn’t totally random, right?
Wellllll…yeah, it really is.
The above two quotes appear in the Ministry of Highway’s appraisal, where each comparable sale is analyzed by their appraiser individually.
As for that land flip from The Ladies to Robert Tappauf to Anthony Marquart?
“..considered to be above market value… this report clearly show there have been sales of superior land for less per acre…”
But wait, there’s more.
“Six Regina land developers were contacted…none said they would pay this price even if it was fully available for development…not have been interested at all…”
According to the Ministry of Highway’s appraiser, six local land developers scoffed at the notion of paying $71-$84K per acre for The Land. Four months later the provincial government paid $103K per acre.
Anyway, the point is that after all this, the Ministry of Highway’s appraisal finally washed out at $30K-$35K.
The Global Transportation Hub’s appraisal company also used the Comparison approach, and their valuator did include the Tappauf – Marquart transaction:
Even with the big Tappauf-Marquart sale included, the GTH’s appraisal still came out far less than what they paid for it.
So back to my original question – how did Anthony Marquart’s appraiser, whoever that may be, come up with a value of $129,000 per acre?
A super-smart commenter on my last blog post pointed out that the CBC’s original story said that Boyd referenced Marquart’s appraisal as showing The Land’s value “once developed as an industrial subdivision”.
At the time, the land was raw dirt.
Therefore, and after some research, I’m thinking if The Appraisal is ever released, the much-lauded $129,000 per acre value was calculated using something called the Residual method of appraisal.
If you want an economist’s definition of the Residual appraisal, click here.
Otherwise, put simply, a Residual appraisal reflects the profit the seller could have made, had they gone through with development – in this case, developing The Land as an industrial subdivision.
The formula would look, crudely, like this:
Estimated final sale price of fully-developed, hypothetical, industrial subdivision
All costs to develop the hypothetical industrial subdivision
= $129,000 per acre.
Yes, “hypothetical” – the Residual appraisal method is based completely on hypotheticals. Hypothetical development costs, hypothetical sale price, hypothetical project.
Which is basically the reason most appraisers don’t use it.
“The residual method is not commonly used, as the cost of construction adds another variable that is inherently difficult to quantify. However, the residual method does provide an alternative to the sales comparison approach when no comparable sales can be found.”
We’ve already established that plenty of comparable sales for The Land were readily available at the time.
So, if we paid Anthony Marquart based on what he could have done with The Land, my mind is officially blown.
Blown for the obvious reasons, but also for the fact that everyone involved in the purchase of this land – hell, everyone in Regina, except Marquart, apparently – knew that a hypothetical industrial subdivision project on The Land would never happen, because half of it was destined (though apparently not by expropriation, like every other square inch of dirt in the vicinity) for the construction of the West Regina Bypass.
Anyway, there you go. If The Appraisal surfaces, I suspect it will have been based on hypotheticals.
To bad the same can’t be said for the rest of this gong show, which appears to be grounded very much in reality.
Different versions of reality – but maybe we’re getting used to that by now.