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the city of Pleasanton. At the time of decedent’s death, other
Pleasanton residential developments were in progress.
The record reflects that, at the time of decedent’s death,
the climate for residential development in Pleasanton was
weakening, and, to that extent, we agree with petitioner that the
price that a willing buyer would offer to a willing seller would
be affected. See, e.g., Estate of Ratcliffe v. Commissioner,
T.C. Memo. 1992-305. Any such price differential, however, would
normally have been accounted for in Ponderosa’s offer and the
acceptance of same. Ponderosa’s offer, in effect, was not to pay
$150,000 per acre at the time the agreement was made, and it was
contingent on acquiring approval to develop from Pleasanton.
Ponderosa, aware of the risks, was willing to invest its money
and time in pursuing development. In that regard, Ponderosa
expended between $500,000 and $1 million in the form of payments
to the sellers and expenses in pursuing the entitlements for
residential development.
In order to adjust for the passage of time in connection
with the difficulties expected in obtaining development approval,
we must decide upon an appropriate discount rate to adjust the
$150,000-per-acre cash price. Respondent’s expert used a present
value approach to account for the delay in payment. Respondent’s
expert, however, applied the discount to a gross value inflated
by attributing an optimum approval of 360 housing units. Geller
started with the $150,000-per-acre contract price and added
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