If a real estate broker informs you of a potential “hidden gem” that has “great potential” it is natural to be skeptical. After all, what may be a gem in one broker’s eyes may simply be junk in another’s. Moving past speculation to reasonable projections may not be easy, but with shrewd planning you separate truth from fiction.
This post will highlight two important considerations in performing a real estate valuation analysis.
Code examinations – Part of the “hidden gem” theory is that the building may not be compliant with current or updated building codes. This may call into question whether environmental regulations are being met, plumbing or electrical issues need to be resolved, or energy efficient materials must be added. Regardless of the issue, a cost benefit analysis must be performed to determine whether the repairs justify the purchase.
Zoning regulations – Additionally, the proposed building must comply with current zoning regulations. Essentially, the business purposes must align with the allowed uses under the applicable zoning ordinance. It is also useful to examine the zoning of plots or buildings around the proposed property to determine whether the business purpose will be compatible. Simply put, a property is more valuable if it is located around similarly situated properties.
As we alluded to earlier, if a building is not up to code or does not comply with current zoning regulations, these impediments could be overcome with appropriate repairs (for code compliance) or variance requests (for zoning changes). If you have questions on legal issues pertaining to these, an experienced real estate attorney can advise you.