New appraisal needed for Launiupoko land
The County Council is being asked to authorize the purchase of 186 acres in Launiupoko based on a $13 million appraised value that is fundamentally flawed. The land consists of a 148-acre parcel and part of a 214acre parcel.
The valuation is surprising when compared to an appraisal done on the same 214-acre parcel five years earlier by the same appraiser. The appraised market value in 2007 was $6.25 million – even though overall prices then were 40 percent higher than today. Adjusted to today’s values, the price could be $4.2 million.
It is time for a new appraisal by a different appraiser.
The first indication something was amiss came when the council heard there had been an earlier draft of the appraisal at a much lower value. Members requested a copy of the draft from the administration and were told it had been destroyed.
We then requested copies of correspondence initiating the job, a copy of the draft that could have been retrieved from the appraiser and copies of subsequent correspondence with instructions on how the appraisal was to be done. The administration refused to provide the committee with the requested documents.
After learning of the earlier draft, council members took a closer look at the appraisal. It is fundamentally flawed because the county administration provided the appraiser with certain conditions and assumptions to be used in calculating value. The result is an inflated price rather than an estimate of fair market value, which would likely have been achieved without such directions.
There are two problems with the appraisal. The first is that the appraiser was told to value the 148-acre parcel as a completed eight-lot subdivision but only deduct estimated construction costs, or a portion of the cost normally used to adjust gross value to arrive at a valid estimate of what the parcel is worth.
The appraisal further states that the “highest and best use” for the 37.7-acre and 32.7-acre nondevelopable properties is open space or park use. Yet, both properties are valued using comparable sales of developable lots. These properties account for $5.8 million of the purchase price even though these lots, once subdivided, have no market value because nothing can be built on them.
On Sept. 20 the council passed a resolution authorizing a reappraisal by the same appraiser, but without relying upon dissimilar land sales, hypothetical conditions and extraordinary assumptions in valuing the properties. The appraiser responded, agreeing to do a reappraisal, but indicating it could take up to 90 days, past the Dec. 31 deadline set by the seller.
In the past, the same appraiser completed a reappraisal on the county’s purchase of 63 acres in Paukukalo within a matter of days.
Is the 90-day time frame part of a strategy to allow the clock to run on the council making an informed decision? Why? We should take the time and do everything possible to make sure we have the value right.
It is my understanding that the appraisal presented would not be deemed acceptable by a financial institution as a statement of value in a bank-funded transaction. Why, then, should the council accept it?
The council is being asked to make a $13 million purchase based on only one opinion of value. For office purchases or travel arrangements, the council typically requires three quotes. More information is needed.
To provide the appropriate oversight and due diligence, the council must now move ahead with at least one new appraisal done by a different appraiser without the flawed conditions and assumptions provided by the administration.
Last November voters approved a charter amendment declaring it to be the policy of the county to “promote economy, efficiency and improved service in the transaction of the public business in the legislative and executive branches of the county by: (1) Limiting expenditures to the lowest amount consistent with the efficient performance of essential services, activities, and functions.”
A second and separate appraisal is needed to know whether this purchase is prudent. My request to authorize the council chairman to obtain such an appraisal will be considered at the Budget and Finance Committee meeting Tuesday.
* Maui County Council Member Mike White is the chairman of the council’s Budget and Finance Committee. He holds the council’s Makawao-Haiku-Paia residency seat.