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Home My WebLink About0344.093--------------- ~ I I I t .. L'~'··';·>r ----> .; .June 1." 199) THE HONORABL£ CITY CO~~CIL Palo Alto, california Melllber s ¢ f the COUT.C i 1 -: This is an informational report and no Council action is requixed~ The purpose of this report is to describe the procedures used to obtain real property appraisals for establishinq property value. ~r.i,a1 Itoce •• An appraisal is an estimate of value. It is an opinion, based upon professional expertise. Appraisals may have a number of purposes, including a certain value for purposes of trarlsfer of ownersr."ipi a.:: qu is ition or disposition of property; t inancial reporting requirements; litigation; financing and credit requirements; j~st compensation in condemnation proceedings; as a basis for taxation; and fer insurance purposes~ The most common value sought from an appraisal is -fair market value~w defined as "the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale: the buyer and seller eacl"a. acting prudently and xnowleageably, and assu:ming the price is not affected by undue stimulus,-To establish the fair mark~t value of a property, the "highest and best llse n is consid ered:. Highest and best use is defined as the "most profitable, likely use of the property at the ti:me of the appraisal~· An appraiser is required to conside.r looning ordinances and private restrictions in determining the highest and best use for a property. only currently legal uses and changes of use that are believed to be reasonable and legal should be considered. CMR:3H:93 L .'71. ~J • • j- - According to the ~...m~r-ican Institl.lte of R€al Est.ate Jl.ppraL;ers, -~s a rule, the owner is allowed to establish the highest and best use of his property regardless of present use, if such potential use is reasonably probable, net speculative~ Uses permitted by zoninq regulations may be less valuable than the potential uJS.e to which the l~nd is a:i,,-pted •.• P ... ~rchasers of l~nd will sometimes pay more for a parcel for its pctential use than could be supported by its legally permittee. prEsent use. Such purchasers buy in anticip<!IItion of a r.eas:on~bly expected change in the permitte~ use. Accordingly, a market value estim3te takes into account net only current zoning, but the market's estimate of the added value with the probability of a zoning cnanqe permitting the highest and best u~e. "Estimating the futUre highest and best '.lse depends on many factors in additicn to the site's physical features. These may be legal, contractu!!l, or economic restr ictions on the \!S~ of the site; or they may relate to market conditions such as suP?ly and dem~nd.· Proeed.ures for Appraisa.ls of proper_t::y tc> be Acquir0d nmtnor City Purpo8e~ The City's normal procedure in cases wbere the property is to be valued strictly for City purposes of aC~.Jisition, disposition~ etc., is to contract for appraisal services. ~he ~ajority of the Johnson Park acquisitions were handled this way, as ~ag the Winter Lodge exchange.. On an a.nnual basis, the City has usually contract ed for one or two appraisals~ It an eminent domain action is anticipated, two separate appraisals ~re obtained to confirm value. An example \oIould be acquisi ·~ion of the K~ystone lot on Cambridye Avenue, 'Which has been tl1e C.:.ty's only et:linent do:rnain action in the last seven year5. R..roc_~4ure!!l fer Appr_,"..i~na1.s of Property to b._n~~_j.red for the Use o~ O~h.r (Nonprofit) Orgaailstiona Until the Lytton IV project was considered by th.e Council in 1992~ the City's practice in the case of prope.rty being acquired by nonprofit organizations receiving city funds, or City-controlled state or federal funds such as Community Development Block. Grant (CDBG) or HOME funding I 'Was to require the organization applj-·ing for funding to furnish the property appraisal for City staff to review. Examples of this type of appraisal include the Plum Tree Apartments and oak Manor Townhouses (Housing in Lieu) for the Palo Alto Housing Corporation, a residence in Palo Alto for the Veteran's Task Force (CDBG) 3nd a residence in East Palo Alto for CMR: 344: 93 2 L , , i li ! -. .. --,", "-'. -:-I '-'-.' - I _'·.1 Innovative HO\...lsi.,g (CD8G). Upon receivinq an appraisal of this type, staff checks it for content, technique and accuracy. Staff also inspects the subject property and views the comparable properties listed in the appraisaL This practice has recently changed, hO·oiev'7r, as a result of concerns raised by the Counci 1 during a r€V1e. of th~ appraisal submitted by Community Housinq Inc. (CHI) in 1992 tor the Lytton IV prQject. CHI propoaed to purchase and improve the real property for the Lytton IV project, using City CDBC and Housing in Lieu funds. During the Council's review of this ~roject, questions ~e~e raised about staff's reliance on the applicant's appraisal, althouqh staff had verified the information provided by the appraiser according to nOr1:l.al staff procedures~ As a result of issues raised in the Lytton IV project review, staff amended the appraisal procedure to require appraisals submitted with funding applications to be confirmed by a city-co~tracted appraiser. bRX'al ... 1 aevil. staff is in the p~ocess of creating a procedure for both revia~ of requests for proposals (RFP) for appraisals and for their a~alysis after they are received. Preliminary plans are to have a commit tee l composed of representatives from the Real Estate Division of the Finance Department. the City Attorney's Office, and the Plannill9 Department; and trolt any departmen.t specifically interest ed in the appraisal, such as Utilities or Public Works. The committee would jointly rev-iew the instructions given to the appraiser prior to beginning work and would be responsible for validation and acceptance of the final appraisal. Respectfully submitted, o .' ~ .. :0: .tt1..'-"--~ .EMILi HARRISON Dire~tor O~F nance ~!ty Manager ~ CMR: 344: 9) 3 L