State Board of Equalization · ATT00004.htm; RoyalR51A.jpg; ATT00005.htm CAUTION: This email...

www.nd.gov/tax ▪ 701.328.7088

Office of State Tax Commissioner ▪ Ryan Rauschenberger, Tax Commissioner

State Board of Equalization

August 14, 2018

File No.: 2018- DICKINSON-ROYAL MANOR County Tax Director: Natalie Wandler

County or City: City of Dickinson City Assessor: Joe Hirschfeld

Appellant: Carlos Royal

Issue: Protests the assessment of parcel number 004-11200-0200-0500

Summary: Carlos Royal, owner of Royal Manor Apartments, protests the assessment on the complex located within

the City of Dickinson.

Notes:

1

From: Carlos Royal <[email protected]>Sent: Saturday, June 30, 2018 5:42 PMTo: -Info-TAX Property TaxSubject: Carlos Royal Property Appeal/State Board of Equalization'Attachments: Century Apartments Joe Ibach.pdf; ATT00001.htm; Challenge 2018 Tax Assessments

State (dragged).pdf; ATT00002.htm; Challenge 2018 Tax Assessments State (dragged) 2.pdf; ATT00003.htm; Challenge 2018 Tax Assessments State (dragged) 3.pdf; ATT00004.htm; RoyalR51A.jpg; ATT00005.htm

CAUTION: This email originated from an outside source. Do not click links or open attachments unless you know they are safe.

Dear Governor and State Board of Equalization,

My wife and I purchased these properties for our retirement. We will soon be 76 years old and we live off the income or we did when they had income. We started investing in Dickinson, North Dakota some 33 years ago. I am appealing my assessments because they are over assessed and have been since 2015, and not by a little bit, but by over 100% in some cases like Century Apartments, assessed 2018, $7,890,300, appraised $3,250,000 by Joe Ibach, MAI appraiser, Bismarck, ND. That is 142.78% over assessed based on appraisal. Net operating income was just $60,000 in 2017, not sure how that can equal almost $8 million dollars in assessed value. The assessor thinks .76% cap rate is market rate for 40-year-old apartments in a bust market. To be blunt, I think he is nuts! Or suffering from “OBDS.”

1. Century: 120 Units Parcel # 1160-0100-0101

2. Eighth Ave East: 23 Units Parcel # 0050-0810-0000

3. Park Place 12 Units Parcel # 0010-2400-1100

4. Royal Manor: 24 Units Parcel # 1120-0200-0500

5. Silvergate: 12 Units Parcel # 0050-0302-0000

I have repeatedly requested spot checks of my values for 2015, 2016, 2017 and 2018 but the City, the County and the Assessor have all refused my request each year even though spot checks are provided for in NDCC 57-12-01.1. Also, I would like to point out as per 57-02-27.1, the standard of value is true and full fair market value not Mass Model Appraisal Value produced by the assessor. And finally, I would like to point out that if a property is determined to be above or below its market value the board is required to correct it to it true and full fair market value as per NDCC 57-12-05.

2

If you watched or watch the 3 minutes 47 second video of the City Board of Equalization meeting you will see every City Commissioner say my properties are over assessed, yet no changes have been made. Link to video https://www.youtube.com/channel/UCYgse9Lk0vcpK6nuOdNov6A?view_as=subscriber

I have provided income, expenses, comparable sales and independent appraisals plus for Century Apartments multiple appraisals by two different appraisers. One of the appraisers is Joe Ibach of Bismarck one of the most respected appraisers in North Dakota.

If you doubt my values or the values of the independent appraisers, then please order spot checks of my properties and when I say spot checks I don’t mean just a physical inspection. I mean an appraisal to determine their true and full fair market value as required by the code.

Also, if you do nothing else please review the charts attached to this letter. They show a summary of the appraisal compared to the assessed value for Century Apartments. There is also a chart that shows the complete history of Century apartments showing assessed value to income scaled by cap rate and when the assessments went off the rails starting in 2015. I have attached a listing of 61 units currently on the market for half of their assessed value and finally I have attached comparable sales of properties like mine. One is an identical sale.

If you have any questions or need any information, please let me know.

Carlos Royal More files to follow.

PREPARED FOR

MR. CARLOS ROYAL 1745 VICTORIA WAY

SAN MARCOS, CALIFORNIA

September 6, 2017

RESTRICTED APPRAISAL REPORT

OF THE

ROYAL MANOR APARTMENTS 1612 PRAIRIE AVENUE

DICKINSON, NORTH DAKOTA

PREPARED BY

KASCHMITTER APPRAISALS, INC. 405 WEST 34TH STREET, SUITE 300

SIOUX FALLS, SOUTH DAKOTA

Royal Manor Apts – 1612 Prairie Ave – Dickinson, ND | Kaschmitter Appraisals, Inc. 1

KASCHMITTER APPRAISALS, INC. Real Estate Appraisers/Consultants

GREG J. KASCHMITTER, MAI, CAE

BENJAMIN B. GREENLEE JOEL L. TUCKER

MAIN OFFICE WEST OFFICE 405 W. 34TH STREET TELEPHONE NUMBER: (605) 336-1552 P.O. BOX 647 PIERRE, SD 57105 FAX NUMBER: (605) 336-2660 DEADWOOD, SD 57732

September 6, 2017

Mr. Carlos Royal 1745 Victoria Way San Marcos, CA 92069 RE: ROYAL MANOR APARTMENTS 1612 PRAIRIE AVENUE DICKINSON, NORTH DAKOTA

Dear Mr. Royal:

At your request, attached to this letter of transmittal is a restricted real estate

appraisal report of the Royal Manor Apartments complex located at 1612 Prairie Avenue

in Dickinson, North Dakota. The following report describes the scope of work and

appraisal process applied in concluding an opinion of value of the subject. The client

has requested an opinion of value of the subject in the fee simple estate in the “as is”

condition. The “as is” date of value is August 15, 2017.

This appraisal assignment was accepted by Kaschmitter Appraisals, Inc. from

Mr. Carlos Royal. Mr. Carlos Royal is considered to be the client and intended user for

this appraisal and appraisal report. The intended use of this appraisal and appraisal

report is to assist the client (user) to appeal property tax assessment.

In each appraisal report, consideration is given to whether hypothetical

conditions or extraordinary assumptions are necessary throughout the appraisal process

in reporting an indication of market value. The following whether a hypothetical

condition or extraordinary assumption has been included. The following hypothetical

conditions and extraordinary assumptions may have affected the outcome of this

appraisal. The definition of these terms is outlined later in this report.


HYPOTHETICAL CONDITIONS:

None noted.

EXTRAORDINARY ASSUMPTIONS:

1. Features of the subject site such as legal description, dimensions, size, etc. were

obtained from publically available sources. All information obtained is assumed

to be reasonably correct.

2. Details of the improvements were obtained by personal observation on the

interior and exterior of the subject. It is assumed that the subject has no hidden

defects. The appraiser did not attempt to study, probe, investigate, remove

materials, or discover unfavorable physical features.

3. Real estate tax information for the subject was acquired from the City of

Dickinson Department of Equalization and Stark County Treasurer’s Office and

is assumed to be reasonably correct.

4. A recently issued title policy for the subject was not made available to the

appraiser. Unless specifically identified in the scope of work, value impairment

identified by or suggested in a recent title policy or other professional report or

some other document is not addressed in this appraisal.

After viewing the subject property, and based upon facts and opinions described

in this report, my opinion of the market value of the subject in the “as is” condition, as of

August 15, 2017 in the fee simple estate is $760,000.

SEVEN HUNDRED SIXTY THOUSAND DOLLARS

The above value includes FF & E necessary for the operation of an apartment

complex. The FF & E is estimated at $24,000.

This letter must remain attached to the report in order for the value opinion to be

considered valid. If after reading this report you have any questions, please do not

hesitate to contact me. Respectfully submitted, Benjamin B. Greenlee State Certified General CG-21252-2017 BBG/do


TABLE OF CONTENTS Limiting Conditions .................................................................................................................. 4 Scope of Work .............................................................................................................................. 6 Identification of Subject Property ............................................................................................ 12 Site Data ...................................................................................................................................... 13 Description of Improvements ................................................................................................. 19 Subject Photos ............................................................................................................................ 22 Highest and Best Use ................................................................................................................ 26 Appraisal Process ...................................................................................................................... 29 Sales Comparison Approach .................................................................................................... 31 Income Capitalization Approach ............................................................................................ 43 Reconciliation ............................................................................................................................. 47 Certification .............................................................................................................................. 49

ADDENDUM Personal Data Sheets ............................................................................................................... 51


LIMITING CONDITIONS

CERTIFICATION AND STATEMENT OF LIMITING CONDITIONS Certification: The Appraiser certifies and agrees that: 1. The Appraiser has no personal interest in or bias with respect to the subject matter of the appraisal

report or the participants to the sale. The “Estimate of Market Value” in the appraisal report is not based in whole or in part upon the race, color or national origin of the prospective owners or occupants of the property appraised, or upon the race, color or national origin of the present owners or occupants of the properties in the vicinity of the property appraised.

2. The Appraiser has personally viewed the property, both inside and out, and has viewed the exterior

of all comparable sales listed in the report. To the best of the Appraiser’s knowledge and belief, all statements and information in this report are true and correct, and the Appraiser has not knowingly withheld any significant information.

3. All contingent and limiting conditions are contained herein (imposed by the terms of the assignment

or by the undersigned affecting the analyses, opinions and conclusions contained in the report). 4. All conclusions and opinions concerning the real estate that are set forth in the appraisal report were

prepared by the Appraiser whose signature appears on the appraisal report, unless indicated as “Review Appraiser.” No change of any item in the appraisal report shall be made by anyone other than the Appraiser, and the Appraiser shall have no responsibility for any such unauthorized change.

Contingent and Limiting Conditions: The certification of the Appraiser appearing in the appraisal report is subject to the following conditions and to such other specific and limiting conditions as are set forth by the Appraiser in the report. 1. The Appraiser assumes no responsibility for matters of a legal nature affecting the property appraised

or the title thereto, nor does the Appraiser render any opinion as to the title, which is assumed to be good and marketable. The property is appraised as though under responsible ownership.

2. Any sketch in the report may show approximate dimensions and is included to assist the reader in

visualizing the property. The Appraiser has made no survey of the property. 3. The Appraiser is not required to give testimony or appear in court because of having made the

appraisal with reference to the property in question, unless arrangements have been previously made thereto.

4. Any distribution of the valuation in the report between land and improvements applies only under the

existing program of utilization. The separate valuations for land and building must not be used in conjunction with any other appraisal and are invalid if so used.

5. The Appraiser assumes that there are no hidden or unapparent conditions of the property, subsoil or

structures, which would render it more or less valuable. The Appraiser assumes no responsibility for such conditions, or for engineering which might be required to discover such factors.

6. It is assumed that there is full compliance with all applicable federal, state and local environmental

regulations and laws unless non-compliance is stated, defined and considered in the appraisal report.


7. The Appraiser was not aware of the presence of soil contamination on the subject property, unless otherwise noted in this appraisal report. The effect upon market value, due to contamination was not considered in this appraisal, unless otherwise stated.

8. The Appraiser was not aware of the presence of asbestos or other toxic contaminants in the building(s),

unless otherwise noted in this report. The effect upon market value, due to contamination was not considered in this appraisal, unless otherwise stated.

9. Unless otherwise stated in this report, the existence of hazardous material, which may or may not be

present on the property, was not observed by the Appraiser. The Appraiser has no knowledge of the existence of such materials on or in the property. The Appraiser, however, is not qualified to detect such substances. The value estimate is predicated on the assumption that there is no such material on or in the property that would cause a loss in value. No responsibility is assumed for any such conditions, or for any expertise or engineering knowledge required to discover them. The client is urged to retain an expert in this field, if desired.

10. Information, estimates and opinions furnished to the Appraiser, and contained in the report, were

obtained from sources considered reliable and believed to be true and correct. However, no responsibility for accuracy of such items furnished the Appraiser can be assumed by the Appraiser.

11. Disclosure of the contents of the appraisal report is governed by the Bylaws and Regulations of the

professional appraisal organizations with which the Appraiser is affiliated. 12. Neither all, nor any part of the content of the report, or copy thereof (including conclusions as to the

property value, the identity of the Appraiser, professional designations, reference to any professional appraisal organizations, or the firm with which the Appraiser is connected), shall be used for any purposes by anyone but the client specified in the report, the borrower if appraisal fee paid by same, the mortgagee or its successors and assigns, mortgage insurers, consultants, professional appraisal organizations, any state or federally approved financial institution, any department agency, or instrumentality of the United States or any state or the District of Columbia, without the previous written consent of the Appraiser; nor shall it be conveyed by anyone to the public through advertising, public relations, news, sales or other media, without the written consent and approval of the Appraiser.

13. On all appraisals, subject to satisfactory completion, repairs or alterations, the appraisal report and

value conclusion are contingent upon completion of the improvements in a workmanlike manner. 14. This is a restricted appraisal report which is intended to comply with the reporting requirements set

forth under (Standard Rule 2-2(b)) of the Uniform Standards of Professional Appraisal Practice for an Appraisal Report.

15. Unless otherwise stated in the Appraisal, compliance with the requirements of the Americans With Disabilities Act of 1990 (ADA) has not been considered in arriving at the opinion of value. Failure to comply with the requirements of the ADA may adversely affect the value of the property. The signatories recommend that an expert in this field be employed.


SCOPE OF WORK Introduction The Uniform Standards of Professional Appraisal Practice (USPAP) define scope of work as: “The type and extent of research and analysis in an assignment.” The scope of work includes but is not limited to:

1. The extent to which the property is identified; 2. The extent to which tangible property is observed; 3. The type and extent of data researched; and 4. The type and extent of analysis applied to derive at opinions and conclusions.

Assignment Elements The purpose of this assignment (problem to be solved) is to form one or more opinions about value. The purpose necessitates identification of seven assignment elements listed below: Property Rights Appraised Property rights appraised are fee simple estate. Value(s) Opinion Developed The opinion of value developed in this report is the standard definition of market value as used which is defined later in this report. The value is concluded in the “as is” condition and reflects cash equivalency or conventional financing. Intended Use of Appraisal The intended use of this appraisal is to assist the client (user) for a property tax appeal. This report is not intended to be used in any other capacity other than that immediately stated previously. Intended User of Appraisal The intended user is Mr. Carlos Royal and/or assigns, if any. Key Dates The effective date of this appraisal in the “as is” condition is as of August 15, 2017. The date of this report is September 6, 2017. Assignment Conditions: Hypothetical Conditions - None noted. Extraordinary Assumptions – Several noted later in this report.

Non-Realty Components of Value – F, F & E necessary for the operation of a 24-unit apartment complex.


Jurisdictional Exceptions - None used. Other - None used. Relevant Characteristics The seventh assignment element is relevant characteristics about the property appraised. These characteristics typically are categorized as legal, economic, and physical. These characteristics are summarized on the following pages which encompass the subject city and/or geographical market area as well as specific physical and legal elements for the subject property appraised. Physical

Existing Property Use 24-unit market rent apartment complex

Property Use Reflected in One or More Value Options

Continued use “as is”

Sources of Information About the Property Appraised Included

Personal observation of the interior and exterior, county records, and information provided by the owner

Legal

Category of Property Appraised Real property

Estate Appraised Fee simple estate

Legal Issues Considered No atypical legal issues

Environmental Concerns No known environmental concerns

Economic

Effective lease on value Units are leased at market rates. A current over supply in the market is causing high vacancy citywide.

Appraisal Development The scope of this appraisal encompasses the necessary research and analysis to prepare a report in accordance with the intended use, the Standards of Professional Practice of the Appraisal Institute, and the Uniform Standards of Appraisal Practice of the Appraisal Foundation. With regard to the subject property, this process involved the following steps:

1. Region, city and neighborhood data is based on information available in the data files in the office of Kaschmitter Appraisals, Inc. This material is regularly updated. This information is acquired from the City of Dickinson,


as well as the North Dakota State Department of Revenue and Labor, and various other sources including the Site to Do Business Online.

2. The subject property data is based on information compiled from public

records of Stark County and from the personal observation completed by Benjamin B. Greenlee on August 15, 2017.

3. In estimating the highest and best use of the subject property, an analysis was

made of the data compiled in the two steps noted above. An inferred demand analysis was completed.

4. In developing the approaches to value, the market data used was collected

from the data files in the office of Kaschmitter Appraisals, Inc., real estate agents, and public records of Stark County and other counties. This process occurred between the dates of August 15, 2017 to September 6, 2017.

5. After assembling and analyzing the data defined in the scope of this appraisal, a final value estimate was made.

6. The scope of the appraisal was limited to the Sales Comparison and Income Capitalization Approaches. The Cost Approach was not completed. The subject suffers from both functional and external depreciation. These forms of depreciation are generally extracted via the Sales Comparison and Income Capitalization Approaches. The Cost Approach also is not well suited to valuing income producing properties. For these reasons the Cost Approach was omitted from the appraisal process.

Client/Competency Prior to accepting this assignment, the client was made aware that the signatory to this appraisal has substantial experience in the appraisal of market rent apartment complexes similar to the subject, and all necessary steps have been taken that a proper and competent appraisal has been developed and reported. It is considered by the undersigned that this appraisal report conforms to the standards of an appraisal report under the provisions of USPAP, 2016 - 2017. Definition of Hypothetical Condition The following definition of hypothetical condition is taken from The Dictionary of Real Estate Appraisal, Fifth Addition, “That which is contrary to what exists but is supposed for the purpose of analysis.” Uniformed Standards of Professional Appraisal Practice (USPAP) further defines hypothetical condition as, “A condition, directly related to a specific assignment, which is contrary to what is known by the appraiser to exist on the effective date of the assignment results, but is used for the purpose of analysis.” Hypothetical conditions assume conditions that are contrary to known fact. In other words, an essential premise underlying the valuation of a property is known not to exist on the effective date. USPAP Standard Rule 1-2(g) requires the identification of all hypothetical conditions that are necessary for credible value opinion.


This appraisal employed no hypothetical conditions. Definition of Extraordinary Assumption The following definition of extraordinary assumption is taken from The Dictionary of Real Estate Appraisal, Fifth Addition, “An assumption, directly related to a specific assignment, which, if found to be false, could alter the appraisers opinions or conclusions.” Extraordinary assumption is also defined by Uniformed Standards of Professional Appraisal Practice (USPAP) to be, “An assumption, directly related to a specific assignment, as of the effective date of the assignment results which, if found to be false, could alter the appraiser’s opinion or conclusions.” An extraordinary assumption presumes as fact otherwise uncertain information. USPAP Standard Rule 1-2(f) requires the identifications of all extraordinary assumptions that are necessary for credible assignment results. The following extraordinary assumptions were made.

1. Features of the subject site such as legal description, dimensions, size, etc. were obtained from publically available sources. All information obtained is assumed to be reasonably correct.

2. Details of the improvements were obtained by personal observation on the interior and exterior of the subject. It is assumed that the subject has no hidden defects. The appraiser did not attempt to study, probe, investigate, remove materials, or discover unfavorable physical features.

3. Real estate tax information for the subject was acquired from the City of Dickinson Department of Equalization and Stark County Treasurer’s Office and is assumed to be reasonably correct.

4. A recently issued title policy for the subject was not made available to the appraiser. Unless specifically identified in the scope of work, value impairment identified by or suggested in a recent title policy or other professional report or some other document is not addressed in this appraisal.

Definition of Real Property Estates

One or more of the following underlined legal estates or interests are valued in this report. Definitions of these estates are quoted from The Dictionary of Real Estate Appraisal, Fifth Edition; published by the Appraisal Institute, copyright 2010.

Fee Simple Estate “Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat.” Leased Fee Estate “A freehold (ownership interest) where the possessory interest has been granted to another party by creation of a contractual landlord-tenant relationship.” Leasehold Estate “The tenant's possessory interest created by a lease.”


Conceptually, market value of the leased fee estate is the worth of the property to

the landlord (the lessor) as encumbered by terms set forth in a lease or leases. A

leasehold estate is the tenant’s (the lessee's) interest in a property.

The above definition for fee simple estate is the classic legal meaning. A lease is

an encumbrance. If a property is unencumbered, this could be interpreted to mean the

property is not encumbered by lease. If there are no leases for a multi-tenant facility,

then the building has no income. Under this interpretation, the value of the fee simple

(VFS) would be less than the value of the leased fee (VLF). Accordingly, the VFS < VLF

because lease-up costs must be paid to find tenants and induce occupancy. Examples of

lease-up costs include leasing commissions, concessions, and tenant improvements.

According to the Appraisal Institute course General Appraiser Income Approach,

Part 2 - page 231, there are two interpretations of the term “fee simple estate”. A second

interpretation for fee simple estate is a value-oriented definition used by many real

estate appraisers. For valuation purposes, market value of the fee simple is the worth of

the property assuming it is already leased at market rent to a level of stabilized

occupancy. Under this interpretation, the VFS > VLF because lease-up costs to find

tenants and induce occupancy were already paid.

An extremely important concept in the valuation of leases is the relationship

between market rent or income (IFS) and contract rent, the rent stated in a lease (ILF). If

the contract rent is below market rent (ILF < IFS), the tenant enjoys an advantageous

position called a positive leasehold interest. Then, the value of the leased fee is usually

less than the value of the fee simple (VLF < VFS). If contract rent exceeds market rent (ILF

> IFS), then the landlord has an advantage while the tenant has an unfavorable position

called a negative leasehold interest. When contract rent equals market rent, then the

numerical value of these two estates is equal but the rights of each estate are different.

Definition of Market Value

The following definition of market value is used in all federally related

transactions that exceed a minimum amount. This definition is mandated by Title XI of

the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989.

The additional source is the Office of the Comptroller of the Currency (OCC) 12 CFR

Part 34, Subpart C. Uniformed Standards of Professional Appraisal Practice (USPAP)

provides virtually the same definition on Lines 122-136 of Advisory Opinion 30.

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 each acting


prudently and knowledgeably, and assuming the price is not affected by undue

stimulus. Implicit in this definition is the consummation of a sale as of a specified date

and the passing of title from seller to buyer under conditions whereby:

1. buyer and seller are typically motivated; 2. both parties are well informed or well advised, and acting in what

they consider their best interests; 3. a reasonable time is allowed for exposure in the open market; 4. payment is made in terms of cash in United States dollars or in terms

of financial arrangements comparable thereto; and 5. the price represents the normal consideration for the property sold

unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.


IDENTIFICATION OF THE SUBJECT PROPERTY

The subject is a three-story, garden style, walk-up apartment complex constructed

in 1979. The apartment units within the building include 14 two-bedroom, one-bath

units, and 10 one-bedroom, one-bath units. The property is located in the northwest

portion of Dickinson near the main north – south traffic arterial and the newer

commercial district. The City of Dickinson has assigned a street address of 1612 Prairie

Avenue in Dickinson, North Dakota.

PROPERTY HISTORY

Ownership of the subject according to Stark County records is vested as follows:

Windmore Financial, LLC

The subject has been under current ownership for over three years preceding the

date of this report. The property is not known to be currently listed for sale or subject to

a pending purchase agreement or option.

LEGAL DESCRIPTION

“The South 6’ of Lot 4, all of Lot 5, the North 29’ of Lot 6 in Block 2, Prairie Hills 2nd

Addition to the City of Dickinson, Stark County, North Dakota, according to the recorded plat

thereof.”

The above legal description was provided by the Dickinson County Recorder and

is assumed to be correct for the purposes of this appraisal.


SITE DATA

SITE SIZE

The subject is a rectangular shaped site located on the east side of Prairie

Avenue. The subject has a gross site area according to the plat map of 54,058 square feet,

or 1.241 acres (54,058 S.F. ÷ 43,560 S.F./acre = 1.241 acres). The area of the subject has

been approximated on the plat map above.

UTILITIES

Utilities are provided by the City of Dickinson to include water and sewer

services. Electric service is provided by Rough Rider Electric Cooperative, and natural

gas service is by Montana-Dakota Utilities Company.

STREET IMPROVEMENTS

Prairie Avenue in front of the subject is a residential style street with a 66’ right-

of-way. This is a hard surface street with concrete curb and gutter, storm sewer and

sidewalks. The street also has street lights.


TOPOGRAPHY

The topography of the site generally slopes from north to south and east to west.

Site drainage appears to be adequate and away from the existing structure.

SOIL CONDITIONS

No soil report was made available. An inspection of the subject building and

buildings in the neighborhood indicate properties constructed with concrete slab on

grade improvements are typical for the area. No evidence of soil problems in the form

of excessive cracking or settlement was noted within the neighborhood or subject

property. Based on my analysis and investigation, the soil is assumed to have adequate

load bearing capacity for the existing improvements.

NUISANCES AND HAZARDS

Overall the area offers good compatibility and good accessibility. There are no

known nuisances or hazards encumbering this property.

EASEMENTS

The subject has normal utility easements running along the lot lines of Lot 5

between Lots 4, 5 and 6, as well as the rear lot line along the entire platted area. Other

than these easements, no other easements are noted which would limit development of

the site.

FLOODPLAIN

The subject site has been located in FEMA Flood Hazard Map #38089C0193E,

dated November 4, 2010. The area of the subject appears to be in a low risk flood zone.

These areas generally are not considered prone to flooding. Low risk areas generally do

not require flood insurance as a prerequisite to conventional lender financing. A copy of

the flood map is located at the end of this section.

SITE LAYOUT

The site is improved with a 24-unit, three-story apartment building. The

apartment building is located in the western portion of the site, faced in a northeast to

southwest direction. Primary entrances are on the northwest side and the southeast

side. Located in the southern and southeastern portion of the site is the off street

parking lot. In the north east portion of this site is a playground. The remaining site


area is finished with typical residential landscaping to include sidewalks, sod,

hardwood trees and bushes. The subject as improved has adequate ingress and egress

as well as onsite parking. The site does not include any excess or surplus land.

SURROUNDING PROPERTY USES

Property uses to the north and south, as well as west of the subject are residential

in nature, to include multi-family and single family development. Located adjacent to

the east of the subject is a Microtel Inn & Suites Hotel. Development generally to the

east of the subject is commercial in nature with residential development generally to the

west.

ZONING

The subject is zoned R-2, Medium Density Residential district zoning

classification. This zoning allows for single and multi-family development similar to the

subject. A copy of the Dickinson zoning map is located on the following page, depicting

the location and zoning of the subject. Subject site as improved appears to be in

compliance with the zoning regulations.


SUBJECT


TAXES AND ASSESSED VALUE

The City of Dickinson Assessors Office and Stark County Treasurer’s Office

report the 2017 assessment and 2016 real estate taxes due and payable in 2017 as follows.

Full and True Value

Land $155,000

Building $799,500

Total $954,500

Assessed Value $477,250

Commercial Classification 10%

Taxable Value $47,725 Real Estate Taxes $10,647.45 Parcel ID 004-1120-0200-0500

The current assessment, as the appraisal process will demonstrate, is above the

concluded market value of the subject. This is noted citywide in Dickinson as property

value increased sharply beginning in 2011 – 2012 due to the oil boom. The boom has left

the area, and rents have declined to levels which are at or lower than they were prior to

2011. However, assessed values have not decreased to those prior levels. It is

recommended that the property owner contact the local assessor’s office regarding a

reassessment for real estate taxes. Real estate tax based upon the assessment in 2011

would be significantly lower. The assessment for 2011 for full value was $569,200.


DESCRIPTION OF IMPROVEMENTS

The Royal Manor apartment complex is a 24-unit garden style apartment building.

The following description of improvements is based upon personal observation

completed on August 15, 2017, accompanied by the property manager, Mr. Dave Bauer.

The following description is in a summary format.

AGE

1979

SIZE

The subject has a gross building area on the main floor of 6,572 square feet, with

a lower level with 6,437 square feet. The upper level is also estimated at 6,437 square

feet, for a total gross building area above grade of 19,466 square feet. Gross building

area is based upon exterior measurements. One-bedroom units have an estimated living

area of 600 square feet with two-bedroom units at 800 square feet.


INTERIOR LAYOUT AND FINISH

The complex is improved with a total of 24 units. Fourteen units are two-

bedroom, one-bath, and 10 units are one-bedroom, one-bath units. General finish in the

units includes residential style carpeting with either laminate or vinyl flooring in the

kitchens and bathrooms. Walls and ceilings are typical drywall walls and ceilings which

have a textured and painted finish. Lighting is typical residential lighting.

Each two-bedroom, one-bath units includes a living room, eat-in kitchen, and

two bedrooms with a single bathroom. Each unit has a concrete patio or deck.

Kitchens within each of the apartments include laminate counters and hardwood

cabinets. Each kitchen includes a range with hood fan and refrigerator. The complex

has common laundry rooms on each floor with one washer and one dryer each.

EXTERIOR AND FRAMING

The building is estimated to be a 2” x 6” wood stud framing with a vinyl siding

exterior wall covering. Exterior walls are insulated and each floor has an estimated

sidewall height of 9’. Windows in the building are slider type windows in metal frames.

Exterior entrance doors are fixed thermal pane glass in metal frames. Interior apartment

entrance doors are solid wood doors. Each of the units also has a glass sliding door

providing access to the deck or patio.

BASEMENT / FOUNDATION

The subject is constructed with a garden level basement. The foundation walls

are assumed to be poured concrete which rest on sub-frostline concrete footings.

ROOF

The roof over the building has a gable pitch roof which is estimated to be frame

with pre-designed wood trusses. Exterior roof covering is a shingle covering with

exterior gutters and downspouts providing drainage.

PLUMBING

Each of the apartment units has a full bathroom which includes a lavatory, toilet,

and fiberglass tub and shower with surround. Each kitchen also has a double basin

stainless steel sink.

HEATING AND LIGHTING

Heating and cooling to the building is provided by a hot water boiler with

through the wall A/C units.


The overall electrical is in flexible conduit. Each unit has 100 amp electrical

service with residential style lighting.

There are a number of exterior light fixtures that provide illumination of the

subject buildings, parking and garage areas for safety and security.

MISCELLANEOUS

In addition to the building, there is a hard surface parking area in the southeast

portion of the site. The remainder of the site is finished with landscaping to include sod,

hardwood trees and shrubs.

SUMMARY

The subject is a typical older style garden walk-up apartment complex with a total

of 24 units. The property offers overall average quality and appeal, and average sizes

for the unit styles. The subject has had new common area carpeting installed in 2012.

The apartment complex also had all new windows installed, as well as patio doors.

FUNCTIONAL UTILITY

The property as improved is typical of a garden style apartment. One item of

functional obsolescence noted is the lack of an elevator. This is a three story building

with two staircases providing access at the north and south ends. Unit sizes and layouts

are typical of modern construction and do not display any functional inutility.

EFFECTIVE AGE/ECONOMIC LIFE OF IMPROVEMENTS

The subject improvements have been well maintained and have been updated

over the years. Buildings such as the subject generally have an economic life of 45 years.

The property has a physical age of 38 years. Based upon routine maintenance and

updating, the structure is estimated to have an effective age of approximately 15 – 17

years, with a remaining economic life estimated at 28 – 30 years.


SUBJECT PHOTOS

SUBJECT FRONT VIEW LOOKING SOUTHEAST

PRAIRIE AVENUE LOOKING SOUTH


TYPICAL KITCHEN

TYPICAL LIVING ROOM


TYPICAL BATHROOM

TYPICAL KITCHEN


TYPICAL BATHROOM

COMMON LAUNDRY


HIGHEST AND BEST USE

The Dictionary of Real Estate Appraisal, 5th Edition, published by the Appraisal Institute, defines Highest and Best Use as follows:

“ the reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible and that results in the

highest value. Four criteria that the highest and best use must meet are legally permissible, physically possible, financially feasible and maximally profitable”.

The definition immediately above applies specifically to the highest and best use of

the land. It is to be recognized that, in cases where a site has existing improvements, the

highest and best use may very well be determined to be different from the existing use.

An existing use will continue, however, unless and until the land value in its highest and

best use exceeds the total value of the property in its existing form.

In analyzing the highest and best use of the subject site, as vacant and ready for

development, the first step is to determine what type of development will produce the

greatest return on and to the land. It is to be recognized that, in cases where a site has

existing improvements, the highest and best use may very well be determined to be

different from the existing use. An existing use will continue, however, unless and until

the land value in its highest and best use exceeds the total value of the property in its

existing form.

In determining the highest and best use, analysis can be categorized in two

different levels of detail: inferred and fundamental. The fundamental analysis forecasts

future demand from projects of broad demographic and economic data to include

income, population, and employment. The relationship between supply and demand is

weighed to determine net demand. If the net demand is positive, more of that property

is needed.

Inferred analysis is based upon local trends and patterns from which inferences

can be made. This type of analysis presumes that recent past trends will continue for the

near future. Items to consider in an inferred analysis include competitive listings,

market intervals, price changes, sales prices of similar properties to determine if there is

adequate demand for the subject at a price level inferred by the available data.

The highest and best analysis also includes two different types of highest and best

use which are “as though now vacant” and “as improved.”


BUYER TYPES

The consideration of highest and best use also considers buyer types. There are

essentially five different buyer types in real estate markets. Different buyer types have

different motivations and perceptions of risk. The buyer should be identified to better

understand applicable approaches to value and the selection of capitalization and yield

rates. The five different buyer types are defined below.

Owner/User Acquires real estate primarily for own use. Vacancy and

investment yield are not the primary criteria. Property suitability is a major objective.

Passive Investor Seeks an established income stream, does not change the property in any meaningful way, and generally prefers long term ownership

Developer Requires real estate to physically and legally change it in some significant fashion and accepts fairly substantial risk with the expectation with a major reward. Ownership period is generally short to medium.

Speculative Investor Usually buys during weak market conditions and accepts huge risk. Property use is not a primary consideration. The investor seeks the most reward at termination of the holding period. In other words: buy low; sell high.

Pure Speculator Buys real estate solely as an investment with most of the reward at termination. The property use is usually not a major consideration, and this speculator buys during periods of rapidly appreciating prices with short to medium ownership periods.

IDEAL IMPROVEMENT

The identification of an ideal improvement is considered an essential element of a

highest and best use. If the land is valued as though vacant, the ideal improvement

describes what should be built. If the existing improvements (i.e. one or more buildings

and site improvements) have the same or similar attributes as the ideal, then the existing

improvements have no or minimal depreciation. The description of the ideal

improvement is as specific as market data will allow. The subject’s ideal improvement

would be a 24-unit apartment complex. This would allow for adequate off-street

parking and maximize the overall net return to the land. The ideal improvements would

be brand new.


HIGHEST AND BEST USE “AS THOUGH NOW VACANT” Physical Use Any use allowed with in the R-2, Medium Density Residential

district Timing of the Use Current over supply would indicate 2- 5 years Interim Use None Market Participants Most Likely Buyer Passive Investor Most Likely User Apartment Tenant

HIGHEST AND BEST USE “AS IMPROVED” Physical Use Market rent apartment complex Timing of the Use Immediate Interim Use None Market Participants Most Likely Buyer Passive Investor Most Likely User Apartment Tenant

The subject has operated since its construction in 1979 as a market rent

apartment complex. The current market conditions in the greater Dickinson area

indicate a severe over supply of apartment units. The market has been overbuilt in

response to the vast increase in population fueled by an oil boom. The oil boom has left,

and the population growth has subsided to a level well below developer’s expectations.

Current vacancy citywide is estimated at around 30% for multifamily units. Therefore,

there is significant external obsolescence present in the market.

While the subject meets the tests of physical possibility and legal permissibility,

the test of financial feasibility would indicate that if the site were vacant it would remain

vacant until a shift in supply and demand occurred within the marketplace. The

subject’s maximally productive use would be an apartment complex at stabilized

occupancy which may take two to five years to achieve. At stabilized occupancy, the

subject meets the test of financial feasibility and maximum productivity. Therefore, the

subject as stabilized is concluded to be the highest and best use as improved. Based

upon the above analysis, comparables were selected for valuation. This data is very

influential in forming a value opinion for the subject appraised property.


APPRAISAL PROCESS

The estimate of market value of a property typically involves the application of

three approaches to value. These approaches to value are identified as follows:

Cost Approach

Sales Comparison Approach

Income Capitalization Approach

In the application of the Cost Approach, the appraiser estimates the difference in

worth between the property being appraised and a newly constructed building with

optimal utility. To complete the Cost Approach, the appraiser;

1) estimates the value of land as though vacant and available for development to its highest and best use; 2) estimates the replacement cost new of the improvements and personal property (if appropriate) inclusive of all hard and soft costs as well as entrepreneurial incentive/profit; 3) estimates accrued depreciation due to physical depreciation, functional obsolescence, and negative external obsolescence; 4) deduct the estimated accrued depreciation from the replacement cost new to derive an estimate of the depreciated cost; 5) adds the depreciated cost of the improvements to the value of the site to obtain a value indication for the fee-simple estate.

In the application of the Sales Comparison Approach, the appraiser compares the

subject property by using an appropriate unit of comparison to similar sale properties.

Adjustments are made for factors of dissimilarity recognized by the marketplace. The

Sales Comparison Approach is based on the premise that the market value of a property

is directly related to the prices of comparable, competitive properties. The value of the

property in the market is set by the availability of substitute properties of similar utility

and desirability. After all adjustments have been analyzed, the sales comparison data is

correlated into a final value estimate by this approach.

In the application of the Income Capitalization Approach, the appraiser estimates

the subject property’s economic potential gross annual income. The estimated potential

gross annual income is based on an analysis of similar properties in the marketplace and

sub-market of the subject. The next step in the Income Capitalization Approach, the

appraiser estimates a vacancy and rent collection loss. The estimated vacancy and rent

collection loss is based upon analysis of supply and demand for similar properties in the


market and sub-market of the subject. The appraiser then deducts the estimated

vacancy and rent collection loss from the potential gross annual income to indicate an

effective gross annual income. From the effective gross annual income, appropriate

operating expenses are deducted to indicate an estimate of the net annual operating

income of the property. The estimated net annual operating income is then capitalized

to indicate a value indication.


SALES COMPARISON APPROACH

The Sales Comparison Approach is the process in which a market value estimate is

derived by analyzing the market for similar properties and comparing these properties

to the subject property. As applied in the Sales Comparison Approach, the principal of

substitution holds that the value of a property tends to be set by the price that would be

paid to acquire a substitute property of similar utility and desirability, within a

reasonable amount of time. The comparable sales are analyzed and relevant units of

comparison are extracted from each sale. The comparable sale properties are compared

with the subject property using the elements of comparison. The 10 elements of

comparison are listed below:

1. Property rights appraised

2. Financing terms

3. Conditions of sale

4. Market conditions at the time of sale

5. Expenditures made immediately after purchase

6. Location

7. Physical features

8. Economic characteristics

9. Use (zoning)

10. Non-realty components of value

On the following pages, three sales which were compared to the subject property

are summarized.


Improved Sale #1 Control# (306)

Location Data Sale Data

Address 423 Simms Street, Sale Status: Sold

Dickinson, ND Closing/Sale Date: December 31, 2016

County Stark Marketing Time: 5 Days

Location: Suburban Grantor: Richards and Barbara

Blount

General Physical Data

Grantee: Venture Property Group

Market Type: Multi-Family Document No:

Land Area Acres: 0.324/Acres Sales Price: $360,000

Land Area Sq. Ft.: 14,100/Sq.Ft. Property Rights: Fee Simple

Gross Bldg Area (SF): /Sq.Ft. Financing:

Number of Units: 12 Cash Eq. Price: $360,000

Year Built: 1970 Price Per GBA:

No. of Stories: 3 Price Per Unit: $30,000

No. of Buildings: 1 Confirmation Source: Broker

Garages Units: None Prior Sale: None prior 3 years

Building Class: D

Property Condition: Average Apartment Type: Conventional

Analysis Financial Data

Overall Cap. Rate: Potential Gross Inc: $72,540

(GIM): 4.96 Vacancy & Collect Loss $14,508

(EGIM): 6.20 Expense Ratio:

Owner Paid Utilities: Gas, Water, Trash Collection, Sewer

Unit Amenities:

Building Amenities: Laundry


Comments This is a twelve plex comprised of all two bedroom 1 bath units. The complex has off street

parking. Heating is hot water boiler and paid by the landlord. The property was listed for sale

with The Real Estate at an asking price of $360,000. Multiple offers were received and the

highest offer at list price was accepted. The buyer also purchase 2 other apartment complexes

from the same seller at a price of $30,000 per unit. The complex had a 58.3% occupancy rate.



West Side Terrace Location Data Sale Data

Address 138 13th Ave West, Sale Status: Sold

Dickinson, ND Closing/Sale Date: December 31, 2016

County Stark Marketing Time: 5 Days

Location: Suburban Grantor: Richard & Barbara

Blount


Grantee: Venture Property Group









Garages Units: None Prior Sale: None prior 3 years

Building Class: D




(GIM): 5.43 Vacancy & Collect Loss


Owner Paid Utilities: Electricity, Gas, Water, Trash Collection, Sewer

Unit Amenities:

Building Amenities: Laundry


Comments This complex has 5- two bedroom, 7- one bedroom and 5 studio apartments. The three story

building has common laundry and off-street parking. The buyer also purchased two other

complexes at the same time.



Location Data Sale Data

Address 145 10th Ave W, Sale Status: Sold

Dickinson Closing/Sale Date: October, 2017

County Stark Marketing Time: > 1 year

Location: Suburban Grantor: DSU Alumni

Foundation


Grantee: Porter Wilk Properties






Year Built: 1948/66 Price Per GBA:

No. of Stories: Price Per Unit: $30,333

No. of Buildings: Confirmation Source: Broker

Garages Units: 1 Stall Prior Sale: None prior 3 years

Building Class: D




(GIM): 5.95 Vacancy & Collect Loss $6,120


Owner Paid Utilities: Electricity, Gas, Water, Trash Collection, Sewer

Unit Amenities: Building Amenities:


Comments This is a six plex conversion. The building includes 4- 1 bedroom, 1- 3 bedroom and 1- 2

bedroom units. The property was purchased at auction along with two other complexes the seller

owned. The sale is arm’s length and was exposed to the market. The seller had entered

bankruptcy but this was not considered a liquidation or quick sale. The property had 1 garage

stall.



Hudson Terrace Location Data Sale Data

Address 2821 5th Avenue

West, Sale Status: Listed

Dickinson Closing/Sale Date: August, 2017

County Stark Marketing Time:

Location: Suburban Grantor: Noel Radowkoski


Grantee:









Garages Units: 10 Prior Sale: None prior 3 years

Building Class: D



Overall Cap. Rate: Potential Gross Inc:

(GIM): Vacancy & Collect Loss

(EGIM): Expense Ratio:

Owner Paid Utilities: Gas Water Trash Collection Sewer

Unit Amenities: Patios Balconies


Building Amenities: Laundry Comments This is a current listing. The apartment complex has 11-2 bedroom units, 12-1 bedroom and 1

handicap unit. There are also 10 garage units. The building has hot water heat and wall AC

units. Tenants pay electricity and the landlord pays heat, water, sewer and trash removal. This is

a listing with West Plains Realty.


PROPERTY RIGHTS APPRAISED

The first of the ten elements of comparison are property rights appraised. The

three consummated sales were all purchased in the fee simple estate. No adjustment for

property rights is necessary.

FINANCING TERMS

All sales were purchased utilizing either cash or conventional financing at market

rates and do not require adjustment for financing terms.

CONDITIONS OF SALE

Comparables 1, 2, and 3 were arm’s length transactions and were exposed to the

market. Comparable 4 is a current listing. As the list price likely would be negotiated, a

downward adjustment was applied.

BUYER EXPENDITURES

The sale prices of the improved sales are not adjusted for buyer expenditures.

MARKET CONDITIONS

Market conditions in Dickinson are in a declining stage. However, the sales are

recent enough as to reasonably accurately reflect the current market. No adjustment for

market conditions was applied.

USE (ZONING AND NON-REALTY COMPONENTS OF VALUE)

All four comparables include F, F, & E necessary for the operation of an apartment

complex. The subject’s F, F & E include appliances, laundry facilities, window

coverings, etc. are estimated at $24,000.

PHYSICAL FEATURES

Adjustments are applied to the comparables for physical features. An adjustment

was made based upon the perceived effective age of each comparable. The difference in

effective age as compared to the subject was taken into consideration, and an adjustment

of 1% per year perceived difference in effective age was applied. This was taken from

the MVSM depreciation tables.

All four comparables are concluded to have similar quality and unit amenities. An

adjustment was applied for the inclusion of garage stalls. The subject has off-street


parking only. Comparables 1 and 2 have similar improvements. Comparable 3 does

have an attached one stall garage. It is estimated that the market would make a nominal

adjustment for this. Comparable 4 had a 10 stall garage. A downward adjustment was

applied as almost half the units had a garage stall available.

An adjustment is applied for difference in unit mix. The subject is comprised of 14

two-bedroom and 10 one-bedroom units. Comparables 2 and 4 were concluded to have

a fairly similar unit mix. Comparable 1 is comprised of 10 two-bedroom units. The one

and three-bedroom units were estimated to offset each other indicating an equivalent

two-bedroom unit. This has a superior income potential to the subject. Comparable 3 is

comprised of a majority of one-bedroom units indicating an upward adjustment.

The final adjustment applied is for difference in location. Comparables 1, 2, and 4

were concluded to have similar locations. Comparable 3 was concluded to have a

superior location next to the university. Units in this proximity generally have a much

higher occupancy.

After adjustments, the three comparables indicate a fairly consistent range in

market value from a low of $30,900 per unit to a high of $34,920 per unit. The average

adjusted sale price is $32,817 per unit. Comparable 4, the current listing, sets the upper

range of value. Market value is concluded at $32,000 per unit, or $768,000 (rd).

Market Comparison Approach - Multi-Family

FEATURE Subject 1 2 3 4

1612 Prarie Ave 423 Sims St 138 13th Ave W 145 10th Ave W 2821 5th Ave W

Address / Legal Dickinson Dickinson Dickinson Dickinson Dickinson

Name (If Applicable)

Adjusted Sale Price 360,000$ 510,000$ 182,000$ 960,000$

Date of Appraisal/Sale 15-Aug-2017 Dec-16 Dec-16 Oct-16 Aug-17

Units of Comparison:

# and $/Unit 24 12 30,000$ 17 30,000$ 6 30,333$ 24 40,000$

ADJUSTMENTS TO COMPS.

Property Rights Fee Simple Fee Simple Fee Simple Fee Simple Fee Simple

Financing Terms Typical Typical Typical Typical Typical

Condition of Sale Typical Typical Typical Typical Listing -10%

Market/Time Cond. 0%

Net BEGINNING ADJUSTMENTS 0.0% 0.0% 0.0% -10.0%

Other Adjustments:

Age/Condition 1979/Avg 1970/Avg 5% 1965/Avg 10% 1948/66/Avg 10% 1980/Avg

Quality Average Average Average Average Average

Unit Amenities Typical Typical Typical Typical Typical

Garages None None 3% None 3% 1 Stall -1% 10 Stall -3%

Unit Mix 1, 2 Bed 1, 2 & 3 Bed -5% 1, 2 & Studio 1 ,2 & 3 Bed 5% 1 , 2 Bed

Location Average Average Average Above Avg -10% Average

NET OTHER ADJUSTMENTS 3% 13% 4% -3%

Adjusted Units of Comparison:

$/Unit 30,900$ 33,900$ 31,547$ 34,920$

High Low Median Mean (Avg.)

$/Unit 34,920$ 30,900$ 32,723$ 32,817$

Application to Subject: # Units 24 x 32,000$ = 768,000$

Reconciliation Comments:

Value Estimate for Subject by Market Comparison Approach: . . . . . . . . . . . . . . . 768,000$

32,000$

Application to Subject:


INCOME CAPITALIZATION APPROACH

The Income Capitalization Approach to Value arrives at an estimate of value by

estimating the future operation experience from comparable market data. Under the

“principle of substitution”, value tends to be set by the investment necessary to acquire,

without undue delay, a comparable substitute income property offering an equally

desirable net income return. Gross rental schedules, vacancy and collection losses, fixed

expenses, operating expenses, and reserves are estimated, resulting in an estimate of net

income. This net income is converted to an estimate of value by a capitalization process.

The capitalization rate (interest rate and recapture rate) is based on demonstrated rates

found in the market. The method and technique of capitalization are determined by the

nature of the property in the market.

In arriving at an estimate of potential gross income, the appraiser is concerned

with the quantity and durability of income. Allowance for vacancy is estimated from

the market and relates to potential gross income, as errors in judgment in either may be

offsetting or compounded. The various expense items vary with the type of property

and with the rental or lease provisions, but usually include real estate taxes, hazard and

liability insurance, management and other administrative expenses, utilities, cleaning,

repairs, and decorating. Provision is sometimes made for the replacement of short-lived

items such as furniture, carpeting, stoves and refrigerators, storefronts, and elevators.

There is very little agreement among appraisers as to the proper method of handling

“reserve-for-replacements”. One guide is to handle reserves the way the market handles

reserves, using different methods depending on the type of property.

There are several methods for obtaining the proper rates for interest, recapture,

and capitalization. They are called rate selection by summation, rate selection by the

band-of-investment theory, rate selection by comparison of quality attributes, rate

selection by direct comparison, and rate selection by the mortgage/equity technique.

The one that is the most practical and probable is the direct comparison, where the

appraiser develops the applicable rates by analysis of sales of income property.

This portion of the appraisal process analyzes the income expectancy versus the

expected stream of income to arrive at an indication of value. The income capitalization

approach consists of two elements, both of which require accuracy of computation and

judgment. These two elements are:


1. The amount of net income per year which may reasonably be

expected over a period of years, during which income exceeds

expenses.

2. The rate and method by which such net income is to be

capitalized into a sound estimate of value.

The application of the Income Capitalization Approach was considered using various

methods. It is almost impossible to extract a capitalization rate from the marketplace due to

the declining market conditions. In addition, property value assessments appear to be well

above actual market value which results in higher property taxes. Vacancy rates can vary

significantly from property to property which further compounds the ability to extract a

capitalization rate.

The gross income multiplier and effective gross income multiplier are effective

applications of the Income Capitalization Approach. This is the sales price divided by the

potential, or effective, gross annual income. In this market with such wide variables and

declining market conditions, it is estimated that a typical buyer would use this method

rather than trying to develop a capitalization rate.

The following chart summarizes a number of rent comparables within the local area.

The comparables summarize the rents for one and two-bedroom units. The range of

market rent for a two-bedroom unit for the subject is from $500 to $595 per month. At the

upper end of the range is a property on Prairie Avenue. All units however are larger than

the subject two-bedroom units and have dishwashers. The one-bedroom units in this

property are also larger and include a dishwasher. Management reports that the subject

Dickinson Rent ComparablesAddress Unit Rent Size Ameneties671 24th St W 2 Bed/1 Bath 500$ 875 SF

127 8th Ave E 2 Bed/1 Bath 550$ 950 SF

2068 Prairie Ave 2 Bed/1 Bath 595$ 950 SF Dishwasher

2068 Prairie Ave 1Bed/1 Bath 495$ 800 SF Dishwasher

177 10th Ave E 1Bed/1 Bath 450$ 625 SF

1156 21st St 1Bed/1 Bath 525$ 750 SF Dishwasher


one-bedroom units are 700 square feet and the two-bedroom units are 825 square feet. The

subject would be most comparable to the property at 671 24th Street West for a two-bedroom

unit with market rent at $500 per month and the property at 177 10th Avenue East for a one-

bedroom unit at $450 per month. Market rents are estimated at $500 per month for a two-

bedroom unit and $425 for a one-bedroom unit. Laundry income for the subject is also

included. 2016 laundry income was just under $3,400. Potential annual gross income for

the subject is calculated below.

14 Two-Bedroom Units @ $500 per month $84,000

10 One-Bedroom Units @ $425 per month $51,000

Laundry Income $3,400

Potential Gross Annual Revenue $138,400

The four comparables used in this report each had a potential gross annual income

multiplier which could be extracted. These are summarized below.

SALE MULTIPLIER

1 4.96

2 5.43

3 5.95

4 6.41

Comparable 4 was adjusted as it was a list price to equivalate an approximately

purchase price. This does represent the upper limit of value and still have the market value

after all adjustments in the Sales Comparison Approach. Comparables 1 and 2 are

concluded to be the most similar to the subject as Comparable 3 is a conversion property

with a superior location.

The subject has a current vacancy rate, as of the date the property was viewed, at

around 14%. Long-term this property has good income potential, but in the current market,

as previously discussed, it is likely three years before the property would reach a normal

occupancy rate of ±95%. Market also may still be in a decline. The bottom of the market,

however, may have already been met or would likely be set sometime in 2017. The best

available gross income multipliers suggest a multiplier between 4.96 and 5.43. A multiplier

of 5.4 is concluded. The indicated market value to by the Income Capitalization Approach is

summarized below.


Potential Gross Annual Income $138,400

Gross Income Multiplier x 5.4

747,360

Rounded to $747,000


RECONCILIATION OF FINAL VALUE

COST APPROACH TO VALUE N/A

SALES COMPARISON APPROACH $768,000

INCOME CAPITALIZATION APPROACH $747,000

The application for the Sales Comparison Approach included three comparable

sales and one listing. The best available market data was selected for comparison. There

have been few sales within the marketplace. Each of the comparables was confirmed,

however, and the data is considered reliable. Good reliability is placed with the Sales

Comparison Approach in the final reconciliation.

The Income Capitalization Approach was applied by using a gross income

multiplier. There were varying factors within the marketplace including declining rents,

high vacancy, and slowdown in growth of the community all of which have contributed

to these factors. Therefore, extracting a capitalization rate from the marketplace was

extremely difficult. It was also determined that a typical buyer likely would use a gross

income multiplier rather than a capitalization rate. A sufficient number of comparables

were available for extracted gross income multipliers. While the analysis is considered

reliable, overall the Income Capitalization Approach is given consideration with slightly

more weight given the Sales Comparison Approach in the final reconciliation.

Therefore, my opinion of the market value of the subject in the “as is” condition, in

fee simple estate, as of August 15, 2017, is $760,000.

SEVEN HUNDRED SIXTY THOUSAND DOLLARS

The value is allocated as follows.

Real Estate $736,000

F, F & E $24,000

Total $760,000


MARKETING/EXPOSURE TIME

It is considered that the estimated marketing time (i.e., the amount of time it

would probably take to sell the subject property if exposed to the market beginning on

the date of this valuation) is estimated at one year or less. This assumes a relatively

aggressive marketing program be implemented and the list price be set in close

relationship to market value.


CERTIFICATION I certify that, to the best of my knowledge and belief:

The statements of fact contained in this report are true and correct. The reported analyses, opinions, and conclusions are limited only by the reported

assumptions and limiting conditions and are my personal, impartial, and unbiased professional analyses, opinions, and conclusions.

I have no present or prospective interest in the property that is the subject of this report

and no personal interest with respect to the parties involved. I have performed no services, as an appraiser or in any other capacity, regarding the

property that is the subject of this report within the three-year period immediately preceding acceptance of this assignment.

I have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment.

My engagement in this assignment was not contingent upon developing or reporting

predetermined results. My compensation for completing this assignment is not contingent upon the

development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal.

My analyses, opinions, and conclusions were developed, and this report has been

prepared, in conformity with the Uniform Standards of Professional Appraisal Practice. I have personally viewed the property that is the subject of this report.

No one provided significant real property appraisal assistance to the person signing this

certification.

The reported analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute.

The use of this report is subject to the requirements of the Appraisal Institute relating to

review by its duly authorized representatives.

As of the date of this report, I have completed the Standards and Ethics Education Requirements for Candidates of the Appraisal Institute.

Benjamin B Greenlee State Certified General CG-21252


ADDENDUM


PROFESSIONAL QUALIFICATIONS

BENJAMIN B. GREENLEE

BUSINESS ADDRESS Kaschmitter Appraisals, Inc. 405 W. 34th Street Sioux Falls, South Dakota 57105 605-336-1552 (office) 605-336-2660 (fax) Email Address: [email protected]

PROFESSIONAL AFFILIATIONS Appraisal Institute MAI candidate Candidates of the Appraisal Institute must abide by the Uniform Standards of Professional Appraisal Practice as developed by the Appraisal Foundation and adhere to a Code of Professional Ethics. Professional Appraisers Association of South Dakota - Member

EDUCATION-ACADEMIC

University of Colorado (1987) – BS, Business Administration

Appraisal Institute

Course 320, General Applications, 2004 Course 420, Business Practices and Ethics, 2009 Course 400, USPAP Update 2009 Course 510, Advanced Income Capitalization, 2007 Course 530, Advanced Sales Comparison and Cost Approach, 2010 Course 540, Narrative Report Writing and Valuation Analysis, 2006 Course PC503, Advanced Concepts and Case Studies, 2014 Course PC500, Advanced Market Analysis & Highest and Best Use Analyzing Distress Real Estate, 2006 Analyzing Operating Expenses, 2006 Eminent Domain and Condemnation, 2009 New Technology, 2009 Subdivision Valuation, 2009

Prosource Education Courses

Course 101, Appraisal Principles I, 2003

mailto:[email protected]


Course 102, Appraisal Principles II, 2003 Course 103, Appraisal Practices I, 2003 Course 104, Appraisal Practices II, 2003 Course 105, Appraisal Standards & Ethics, USPAP, 2003

PROFESSIONAL EMPLOYMENT Associate, Kaschmitter Appraisals, Inc. (January ’05 – present) Associate, Rogers Appraisal Service, Inc. (October ’03 – December ’04) Associate, Ace Appraisal, Inc. (July ’03 – October ’03) Owner, Greenlee Insurance (January ’94 – July ’03)

LICENSES AND CERTIFICATION State Certified General Appraiser South Dakota – 901CG-2016 Minnesota – 40040827 Iowa – CG03276 North Dakota – CG-21252

PARTIAL LIST OF PAST & PRESENT CLIENTS City of Sioux Falls, South Dakota City of Madison, South Dakota City of Tea, South Dakota South Dakota Dept. of Transportation South Dakota Dept. of Game, Fish & Parks United States Postal Service American Bank Center BankWest, Inc. Dacotah Bank First Bank and Trust First National Bank Sioux Falls First National Bank South Dakota First Dakota National Bank First Interstate Bank CorTrust Bank Home Federal Bank Frontier Bank US Bank Wells Fargo Bank Great Western Bank First Savings Bank Sioux Falls Federal Credit Union First Premier Bank MinnWest Bank MetaBank


---- plus many others Numerous appraisals for real estate companies, attorneys, corporations, private parties, etc.

State Board of Equalization · ATT00004.htm; RoyalR51A.jpg; ATT00005.htm CAUTION: This email...

Documents

Transcript of State Board of Equalization · ATT00004.htm; RoyalR51A.jpg; ATT00005.htm CAUTION: This email...