Every now and then there is a really good response or explanation that comes from city staff that I feel the public might be interested in seeing. The following is a note from Mike Nigbur, who is the city’s property manager. This is responding to a question about how we arrived at a decision to purchase the relocation site for Fire Station #2.
First of all I would like to begin by stating the City’s process for acquiring properties is similar to that of the average buyer. Meaning we find a parcel we are interested in and negotiate the best possible price. Just like in private transactions the seller can ask any price they want for the property…..however, that price determines how fast the property will sell. Again, just like the private transactions if the seller chooses not to negotiate on the price then the buyer has two choices…..buy the property or walk away.
In the City’s situation, even though we may act like a normal buyer we are bound by state and federal regulations on our acquisitions related to federal and state projects. These requirements do set specific requirements as to the methodology we must follow for those types of acquisitions. In federal/state funded acquisitions an appraisal is required as part of the process. Sometimes values identified in the appraisal support the prices desired by the owner and other times they do not. In this case the fire station is not a federal or state funded project so the City does have more latitude to act like a normal buyer and no appraisal is necessary.
Being in the banking industry you may be aware that the use of appraisals is not a hard and fast science but rather it is an opinion of value. I would also presume you are aware that there is a clear distinction between price the property may bring and what that value may be identified in an appraisal of that same property. Price is based on a what a willing buyer and willing seller agree upon for the sale of a property. The Appraiser’s opinion of value is based on that appraiser’s judgment after reviewing the historical sales information, making ‘adjustments’ and even considering the market trends. However in the end the opinion of value is just that….an opinion, even though it is based on years of expertise of the individual appraiser. It is common that two appraisers reviewing the same parcel often come up with two very different values.
This same concept holds true for buyers and sellers when determining price. The criteria used by the buyer and seller to settle upon that common price could and often do consist of a multitude of variables or restrictions ( ie property scarcity, the need to purchase versus desire to purchase, property characteristics, price, age, etc). Some items considered by a buyer may not be those typically considered by the appraisers. Those other items considered by the buyer likely have a value to the buyer that may not be reflected in the normal market…..thus the perceived willingness to tolerate a price on the higher end of the range for the property. This same consideration holds true for sellers. Some sellers may be willing to accept a lower price due to issues they may be considering, ie the need to sell due to lack of funds or relocation or other personal issues. Whereas other sellers may have no need to sell the property or they may have the ability to hold the property for a long period. In those situations the sellers tend to be less willing to negotiate on the price. In the long run trends for value are supported based on what the properties (or price) are sold for.
As Michael mentioned in his response, for the fire station the main criteria for selection of a fire station is location for proper access, coverage and overlap to maintain a safe city. Lower on the list for site selection by the Fire Staff is the price for the property. Based on that locational criteria used for the fire station and the availability sites (willing sellers) in the area, these criteria narrowed the City focus and desire on acquisition of property to the preferred location. Based on this preferred location staff provided the information to the City Council for their approval. The Council always maintains the final determination on the acquisition of property. In this situation there was good discussion on the merits of price & location. In the end each council member made their own decision and casted their vote on the basis of ‘criteria’ they believed to be critical in determining if this acquisition should move forward or not.
Obviously, there is much more detail that goes into any acquisition but I hope this helps provide the overview you were looking for.
Michael J. Nigbur
Real Estate Broker * Landscape Architect * Real Estate Appraiser
Infrastructure Asset and Property Manager
City of Rochester Public Works Department
507-328-2410 Office 507-328-2401 Fax