A wealthy Korean
immigrant died in California and his will left a commercial property in Seoul
solely to his only daughter, thereby disinheriting her brothers. Two brothers traveled to Seoul to have a
Korean court overturn the will and obtain partial interests in the
building. They succeeded. The daughter, in turn, sued her brothers in
California court for full ownership, as California Estate Law had been
violated. She won.
My assignment was to
review a translated Korean language appraisal that had been ordered by a Korean
court, in order for me to figure out the damages her brothers had to pay her
for stealing part of her inheritance, and testify to this in a California court.
I had been a speaker at a
conference sponsored by the Korean Association of Property Appraisers in Seoul
in 2008, and was familiar with some of their valuation methods and the
differences there are with U.S. valuation methods.
Two differences are:
Land and improvements are
valued separately. This is similarly
done in Germany and by U.S. tax assessors, and I’m finding it increasingly necessary
in Los Angeles County, where land values are spiraling upwards, calling into
question the highest and best uses of many older properties.
Because Seoul is built
out and there is a lack of land sales, The Minister of Land, Transport and
Maritime Affairs also compiles a “Officially Announced Price System”. I
often find that such price announcement systems fail to keep pace with changing
market conditions, especially if created by a government bureaucracy.
The Government's computer-generated land valuations are overly general, too. Theoretically,
the appraiser should adjust land values for accessibility, size, and developability. This appraiser made no adjustments.
In this case no
adjustment was made for a 4-story. 7736 square foot building that had no road
access (see photo). It was situated on a
241.3 square meter (2597 square feet) lot in Jongno-gu, which is one of the wards that compose the central business district of Seoul. The building itself is
situated behind and obscured by a taller building and thus had no street access
or visibility.
The appraiser stated land
value to be 12,210,000 Korean won per square meter, equivalent to $10,912 per
square meter or more than $1000 per square foot. I have seen such land valuations in
Manhattan, and since Seoul is a city of 10.2 million people with twice the
population density as New York, I did not immediately doubt such a figure.
Nevertheless, the zoning
for the site allowed only one extra story of height, and the site was already
fully covered. Accessible only by alley
way, there would have to be an assemblage of adjacent parcels if any type of redevelopment
could be done, but this is done commonly in Seoul if 80% of property owners consent to join a "redevelopment union".
Although this building
was classified as an office building, its employees were more likely to be
employed as seamstresses than office workers.
The lack of vehicular access limited this property’s highest and best use.
The size of the lot, less than 2600 square feet, was only about half the size
of a typical residential lot, which is not conducive to high-density
redevelopment, and the space between buildings was so tight that I could not get a photograph of the whole building in one frame.
To find comparable sales
and listings I turned to the auction houses which publish details of their real
estate auctions. They typically publish
the original reserve price, which is based on appraised value, and then
subsequent reserve prices which are discounted by 20% each month until they
attract bidders. The subject property
itself had failed to attract bidders at two auctions and the reserve price for
the next auction is now set at 64% of appraised value.
In the end, the client was able to get compensation from her brothers based on the original Korean appraisal.
One hidden treasure in these alley ways off of the street are blocks of street markets and food stalls.
2 comments:
Thanks
When you got the property, you might have face the tax facts on the property. I think this is all good. But when you there has rise of the tax, there might not have any sense. A few days ago I face the same situation about property tax.
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