A while back, a local school district requested that I submit a proposal on some excess property owned by the school district. The property was an elementary school which had recently been replaced on a new site. In researching the property, I discovered that the property was already listed by another commercial real estate firm and had been listed for some time.
The building was a one story elementary school and was probably 50 to 60 years old. The building was not well suited to other uses and it would even have some challenges for other parties to continue to use it for similar purposes. Given the probable costs to renovate the building, the building would not be competitive with other options. In other words, you could have probably built a brand new building to specifically suit your purpose less expensively than you could have bought and renovated this building.
Whatever value the property had was in the land. The land had several things going for it. It was about 10 acres, which was a good size parcel. It was fairly level and many of the utilities (gas, electricity, water and sewer) were obviously to the site.
The company which had the property listed at the time, had it listed around $250,000 per acre. Unfortunately, at that time, only 2 other parcels of land had ever sold for that much in the entire county. Both of those sales occurred at the top of the market before the beginning of the recession. Of the two parcels which had sold, one was in a large retail development at an Interstate Interchange with very high traffic counts, a good number of roof tops in the area and very high visibility. The other was a one acre hotel site at an Interstate Interchange with very high traffic counts and highway visibility.
Determining the value of the land would depend on the purpose you could reasonably expect the land to be used for. In this case, the land did not have enough traffic, population or visibility to be a good candidate for a retail use. For similar reasons, it probably would not be a great fit for office, either. It could possibly be used for single family residential, multifamily residential, or possibly industrial use. Of these possibilities, the best the school district could hope for was either multifamily or industrial use. Land for these purposes would probably sell in the $80,000 to $100,000 per acre range.
The school board was really unhappy to hear this news. They were unhappy with me but they were REALLY unhappy with the company that had originally listed the property. I explained to the board that I hated to bring bad news. Obviously, if I were to list the property, I would love to be able to sell it at $250,000 per acre. After all, I get paid on commission and that would only mean more money for me. BUT in a recession, where no commercial property had sold at all in the last year, you could not reasonably expect that land to sell at a price higher than anything had ever sold before in the county.
Bottom line is that unless the property sells, no one will make any money. Pricing a property at a level where I know it will not sell is a disservice to my client and to me.