VALUING THE SITE

Chapter 10

CHAPTER TERMS AND CONCEPTS

Abstraction method

Allocation method

Developer’s profit

Development method

Elements of comparison

Highest and best use criteria

Interim use value

Land residual method

Market method

Plottage value

Sales history

Site characteristics

Units of comparison

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LEARNING OUTCOMES

1. Name five different uses of site value appraisals.

2. List the five methods of appraising land.

3. Name five physical characteristics of a site that affect its value.

4. Name three legal and economic considerations in site value.

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PURPOSE OF LAND VALUE ESTIMATES

• Sale and Purchase• Development• Financing• Land Leasing• Government Actions• Agriculture• Court Actions

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SITE VALUE ESTIMATES

Allocation for Tax Purposes Ad Valorem taxes

o Land and improvement values are often separated

Income taxeso Building value is allocated for depreciation purposes

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SITE VALUE ESTIMATES

Site Value in the Three Approaches Cost Approach

o Land + Building = Total Value

Income Approacho Certain techniques require allocated site value

Sales Comparison Approacho Estimate of land value is often needed for comparison

techniques

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METHODS OF APPRAISING LAND

• Market/Direct Comparison

• Allocation or Abstraction

• Land Development

• Land Residual

APPRAISING LAND

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Figure 10-1

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HIGHEST AND BEST USE

Definition:

“The reasonable and profitable use that will support the highest land value as of the date of value.”

A Highest and Best Use Opinion is Required by USPAP when the assignment is Market Value

Highest and Best Use Criteria

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STEPS IN THE MARKET METHOD

Appraising Land

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SITE VALUE-ALLOCATION OR ABSTRACTION

When to Use When vacant land sales are not available To appraise shared land interests

Example Sale Price $240,000 Dep. Cost of Bldg -$156,000 Abs. Site Value $84,000

Allocation In some jurisdictions, the allocation between land

and improvements by the County Tax Assessor may give the appraiser some guidance. In other jurisdictions, it is meaningless.

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LAND DEVELOPMENT METHOD

Used to Estimate Value of Land Ready to be Subdivided.

Used When no Comparable Sales Available, or Detailed Analysis of Project is Desired.

Procedure for Residential Subdivision: Estimate number of lots to be developed Estimate total gross sales dollars Subtract all direct and indirect costs of

development Conclude the value of the raw land

The Lots May Be of Equal Value

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Figure 10-5

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LAND RESIDUAL METHOD

Version of the Income ApproachBased on the Principle of Surplus

ProductivityUsed when no Comparable Sales are

AvailableSuitable for Vacant or Improved income

properties Estimate net operating income for property Estimate income attributable to improvements Capitalize residual income to the land

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MARKET COMPARISON TECHNIQUES

Comparability Criteria Competitive property Market transaction Recent in time of sale

Sales/Listings of Subject Analyze any agreement of sale/option/listings close to

the date of value Investigate prior sales (36 mo)

Data Needed Size, shape, other physical features Legal data (zoning, taxes, restrictions, etc.)

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MARKET COMPARISON TECHNIQUES

Sales History of the Comparables Important in speculative markets Assess the relevance of any transfer

Data Sources Public records, MLS, commercial

databases

Verification Open market transaction Price and terms Assumed loans

Important Site Characteristics

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Figure 10-7

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PHYSICAL AND LEGAL FACTORS IN LAND VALUE

Physical1. Size

2. Shape

3. Frontage

4. Width

5. Depth

6. Plottage

7. Type of Lot

8. Topography

9. Other

Legal1. Legal Entity

2. Zoning

3. Environment1. Protection

2. Laws

4. Use Restrictions

5. Negative Loc. Factors

6. Utilities & Municipal Services

7. Level of Taxes

Major Physical Features Affecting Land Value

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Figure 10-8

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ANALYING SALES DATA

TermsTime

LocationPhysical Features

Elements of Comparison

Units of Comparison• Physical• Economic

Example

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LAND SALES ADJUSTMENT GRID

SUMMARY

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The five primary methods used by appraisers for land values are:

1. The market method2. The allocation method3. The abstraction method4. The land development method5. The land residual method

The most important physical factors include size, shape, frontage, width, depth, plottage, type of lot, and topography. Legal and locational factors include the most likely profitable use, zoning and other land use regulations, as well as utilities and public facilities available.