Appraisal in Panama

Looks like rice cultivation

This was a litigation situation in Panama in which 3 different Panamanian appraisers had already appraised a group of agrarian properties which were near each other, with the highest appraised value more than 5 times the lowest appraised value. I was asked to make an independent appraisal.

Two appraisals had been done for the respective litigants, and one had been done by the Panamanian government. One of the litigant’s appraisals and the government appraisal quickly became suspect when it became obvious that these appraisers had not visited the properties. One property was actually a revenue-producing rice farm, and another was a residential property, but two of the three appraisers did not know this, casting doubt upon their inspections of the properties. If they had just consulted Google Earth, they would have seen the rice cultivation and the residence.

My appraised value came in second highest because I was only one of the two appraisers to notice a rice farm instead of a vacant agricultural parcel. I elected to use local comps (from the same “corregimiento” which translates as “township”) rather than use superior locations outside of town.

The International Appraiser completes expert witness testimony in a divorce case in Costa Rica

 

A recent marital dissolution trial had me establishing value for proposed luxury lodges near the beach in Puntarenas, Costa Rica, in the Santa Teresa area where famous rich people have also been recently seen vacationing or buying houses, such as Tom and Giselle Brady, Mel Gibson and Matt Damon and family. These types of properties consist of several luxury villas on site renting at $400 or $500 each night, and development restrictions in Costa Rica make these types of properties easier to develop. 

I represented the developer’s wife in the trial. The American husband chose an appraiser from a Costa Rican appraisal firm, although the trial was in Massachusetts. 

Sometimes hiring the local Costa Rican appraiser does not help, if the appraiser uses demonstrably inferior methods (such as not adjusting land prices for differences in zoning), or the appraiser cannot effectively testify in English. 

One point of contention in the trial was that a work stoppage during the COVID crisis signified the failure of the project, particularly since the construction permit expired. 

I pointed out that tourists were coming back to Costa Rica as early as November 2020, and that the architect/builder, Benjamin Saxe, is one of the most famous architects in Costa Rica. A very short distance from this property is Saxe’s famous “Floating House”, a group of three tree houses situated at the top of the jungle canopy near by beach, presenting the illusion of floating in air. Surely he could get a permit renewed. 

Even more surprising, every local lodge near the beach was 100% booked over the next three months.

Appraisal of Coastal Land on a Pacific Island

Notice the proximity of the cliffs and the calm, reef-protected waters. 

Some of my appraisal assignments call for “second opinions”. This one called for a third opinion, as appraisal reports had been respectively submitted by two MAIs who resided on the island. The estimates of value were more than $50 million apart. Who was right? Who was wrong? 

A survey measuring more than 250 acres had been done 8 years previously after an assemblage of smaller lots had been rezoned to hotel use. This survey was officially accepted by the local government, but the survey had a strangely unprofessional appearance. The survey was two-dimensional except for a central portion of the site which was described as “cliff face area” and drawn 3-dimensionally, including ravines within the cliffs, and this area was given a significant amount of site area, 63.5 acres, even though the cliffs appeared to be almost vertical. Had “vertical” become the “new horizontal” on this quaint island? Upland area had been measured at 110 acres and beachfront area had been measured as 105 acres.

Survey  

These cliffs are mislocated on the survey

Google Earth now gives us tools in measuring land, and the differences between the satellite view and the survey were quite apparent. The survey showed the cliffs by the shore at only the northernmost part of the property, whereas they seemed to be touching the shore in 3 different places from south to north in the satellite photo. 

Measuring all site area below 50 feet in elevation, I found only 36 acres of beach land, not 105 acres. 

Surveys of tropical beaches often have to be redone every few years due to beach erosion or accretion as a result of tropical storms, and this island experiences plenty of storms, but the loss of 70 acres of beach land seemed to be too much to be believable for a coral reef-protected beach like this one. 

I had to conclude that the survey was inaccurate to begin with, due to its strange measuring conventions, seemed almost to exaggerate this site's beach land and overall site area. 

In addition, as I have constantly maintained on this blog, the most accurate technique for valuing beach land is the use of “price per lineal meter” or “price per lineal foot” as the unit of comparison. The use of price per square foot or price per square meter yields less precise results, as the value on the beach side of the property is so much more than the value of inland area. Every statistical analysis I have done indicates that price per lineal measure provides the least variance among possible beach land valuation results. 

Nevertheless, the appraisers were both using price per square meter as their metric. I asked one why, and the response was that there was no public data on beachfront or waterfront length on this island, so price per square meter is what they felt that they were limited to.

For certain comparable sales and listings, though, there were satellite photos, some of which were sufficient to make estimates of the beach length. Some times using the right metric requires some extra effort.  The comps for raw beach land were in a range of $1650 to $2500 per lineal foot of beachfront.

That's enough of today's lesson, but I want to discuss the politics I sometimes have to contend with on foreign assignments such as this. The politics typically comes from loan salesmen and/or jealous, mediocre appraisers.

1. "These are the acknowledged appraisal experts for this island! They are MAIs! How dare you challenge their expertise in their own land. You are geographically incompetent!"

First of all, these grand poobahs did not even agree on value. One estimate was almost three times as high as the other one.  They did not even measure the length of the beach, the most important part of the property. They used outdated sales from prior to the pandemic, and did not notice beach property listings at much lower prices than yesterday's sales. I have always wondered why The Appraisal of Real Estate, the most comprehensive real estate appraisal textbook in the U.S today, spends less than one paragraph explaining how listings can be used to estimate market value in declining markets.

I have had no prior experience with this island, but I have spent the last 15 years appraising beach properties in Fiji, Hawaii, Brazil, Barbados, Puerto Rico, the Dominican Republic, Costa Rica, Mexico, U.S. and Canada.  So that is my statement of geographic competency.

Where do U.S. retirees really emigrate to? It’s not what international real estate purveyors would have you believe.

  Harrison Hot Springs, British Columbia. Canada is the preferred destination of U.S. retirees.

While I have addressed International Living and Real Estate Trend Alert before, there are many other vendors of foreign real estate fantasies and get-rich-quick-schemes with their hyperbole about Costa Rica, Panama, Ecuador, Vietnam, etc. 

Every year, though, the U.S. Social Security Administration summarizes the number of Americans in other countries receiving social security benefits, and it paints a much different picture. These are retirees, spouses and those who are on disability. In 2019 the Social Security Administration was mailing checks to 682,888 Americans outside the U.S., an impressive number, but most of the destinations don’t seem to be the ones constantly promoted by Katherine Peddicord or International Living. 

Where in the Western Hemisphere have the most U.S. retirees moved to? Canada. There were 110,626 retirees receiving social security and SDI checks there, although some of these retirees may have already been Canadian, and were returning home with U.S. social security benefits. 

What about the Latin American hot spots constantly featured in the real estate fantasy magazines? Costa Rica – 2551, Panama --2799, and Ecuador – 3879 U.S. retirees. One exception is Mexico, with about 60,000 retirees, but some of these may also be Mexican citizens returning home after a career in the U.S. 

Thailand and Vietnam are mentioned as the hottest retirement hot spots in Asia. The number of retirees is 7262 in Thailand and just 556 in Vietnam. Where in Asia are the most U.S. retirees? Japan, with more than 90,000. 

Portugal and Spain get mentioned as the hottest European retirement hot spots, but Portugal has just 12,910 U.S. retirees and Spain has 12,732. The leading European nations in attracting Americans are Germany (40,000) and the United Kingdom (37,500).

Another appraisal in Seoul, Gangnam-style

 

The subject is a 14-story office tower in Seoul, built in 2006, with a height of 182 feet. Gross building area is 70,310 square feet (6532.81 square meters), covering most of the site.

This was yet another valuation assignment done for inheritance purposes as wealthy Korean immigrants to the U.S. pass on valuable real estate assets to their children. This particular building is situated in Gangnam-gu, one of the three major business districts in Seoul, and the most modern one. Most office buildings in Gangnam were built after 1990.

As luck would have it in this very active Seoul office market, two very comparable sales were found to have occurred in the last month within 2 blocks of the subject, and a third comparable sale was found about one mile west, having occurred three months ago. All were very similar office buildings less than 15 stories in height.

The last measured office vacancy rate in Gangnam was 4.2%, office building sales are amazingly active, and Seoul is a surprisingly easy place to appraise office buildings.