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Thumb of Michigan | Won't speak for anyone else's methods, I use appraised value as a good start. In Michigan, we also have State Equalized Values that are determined by the local tax assessor. Sometimes they are accurate, sometimes not so much. The property taxes are sort of based on the SEV number. If I was basing a potential purchase on a recent sale of very similar land, I'd want to know the details of things like who bought the last farm. If it was a 1031 buyer, I guess a good starting point would be the previous sale price - 15%. Obviously a lot of variables come into play.
I can't imagine a 1031 buyer showing up to buy some real estate in any way different than anyone else. They decide they'll go to X, and if its more than that they go home without the land. If its a land auction, and 2 1031 buyers are the last bidders, I'd be quite surprised if they have exactly the same price in mind that they will pay.
Regardless, I've seen enough sales reports, especially recently, where a 1031 investor and a farmer were the last 2 standing, and the farmer ended up with the farm. I'm going to assume that the 1031 buyer made a assessment of what the value of the real estate was, and then added his potential capitol gains tax payment on top of that. Once it got higher than the sum of those numbers, he quit bidding. Cheapest thing he apparently could do was cash the check from his sale and pay the capitol gains tax. A 1031 doesn't override basic economics. There are many times that even though someone has all the intentions in the world of selling a property and trading into another property, it doesn't work. Pay the tax and move on.
Again, all I'm saying is that the sky still has limits even if a 1031 buyer show up at a land sale.
Edited by pat-michigan 12/5/2010 00:58
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Someone explain to me how a 1031 exchange is good for farmers...
