Reference no: EM132205603

Captain Morgan and Contessa Rumm of Humdrum are facing a conundrum. They wish to retire within the next year and plan to move from Humdrum, California to a seaside village in Mexico. Therefore they will need to sell their home. Contessa is already in Mexico looking for a new property while Captain Morgan is responsible for selling their existing home.

The subject Humdrum property was built in 1940. The Rumms have lived in the property since 1976 and the house is considered to be in overall poor condition. Their neighborhood has changed dramatically over the past decades. All the other market area homes have been either completely torn down or are far larger sized homes upgraded with pricey renovations. The subject property is a two bedroom bath, 1,250 square foot home surrounded by three to four bedroom 2 - 3 bath homes that are now 2,500 square feet or more in size. The subject property is considered to be an underimprovement for the neighborhood. Their property is also zoned for commercial use as well since the town is under redevelopment and they have one of the biggest lots. Although the lot is oversized, it consists of surplus land that cannot be divided separately.

An appraiser has valued the Rumm's property at $580,000 “as-is” or $610,000 vacant for commercial development. The cost to demolish the house was bid at $35,000. However Captain Morgan’s best friend, who is a state licensed demolition and asbestos contractor, said he would tear down the home for $15,000. This $15,000 demo cost includes clearing and haul away, an asbestos survey and removal of any and all asbestos in accordance with current building code. Please discuss the following:

Discussion Question 1: What should the Captain do and why?

A. Sell their property "as-is"

B. Have their house demolished and sell the vacant lot

C. Remodel the home to improve the value and sell it for more

D. It does not matter whether they decide to tear down their house or not because they would make the same amount of profit in the end

Discussion Question 2: Which of the valuation principles in your 14 Valuation Principles BEST supports the correct choice? Which of the remaining Valuation Principles provide secondary support?

Principle of Supply and Demand

Principle of Substitution

Principle of Anticipation

Principle of Conformity

Principle of Progression/Regression

Principle of Consistent Use

Principle of Highest and Best Use

Principle of Competition

Principle of Change

Principle of Balance

Principle of Contribution (Contributory Value)

Principle of Increasing and Decreasing Returns

Economies of Scale

Opportunity Cost