MHP & POH Valuation Article

[Kevin D.]

In need of your help... I’m negotiating with a seller of a mobile home park (MHP) and the seller is insisting that the park value should include the capitalized rents of 20 park owned homes (POH). We all know that’s not the correct way to value a park, but I need to point to some article, blog post, or resource to show to the seller so they understand. I’ve been searching and can’t come up with anything. Can anyone share a link to an article that explicitly states to not capitalize the rents of POH?

[Frank Rolfe]

You cannot educate a seller that their homes are personal property and therefore not justifiable on a "cap" valuation. The only way to pull that off is to use a banker or loan broker to explain to them that the banking industry only values the real property and will not use personal property in the appraisal or loan. Or you can get an appraisal and show them it won't work (although that's an expensive test). But you can show them the 1,000+ articles I've written on the subject and they'll still say "that guys an idiot -- my homes are worth a fortune". It happens to us all the time.

Of course, the way the free market works, the simple fact that the park never sells because 1) nobody is dumb enough to cap the homes or 2) the bank and appraiser ruins the dumb person's plan will be the best evidence. Once a park has sat around unsold for a while, those sellers get a little more desperate.