Part 13 Land Valuation Flashcards
When would an appraiser ever need to know the value of the land or site?
Vacant land. Highest and best use as though vacant Cost approach Income capitalization approach Property taxation Insurance Condemnation.
The land is said to have value,
while improvements contribute to value
The concepts and principles that have particular importance in the valuation of vacant land include the following:
Anticipation Change Supply and demand Substitution Balance Externalities
In mid-2005, the U.S. Supreme Court ruled in the case of Kelo vs. New London that jurisdictions may
exercise the right of eminent domain to acquire private property for development by other private entities providing there is an economic benefit (such as an increase in tax revenue).
The supply of land is relatively stable, so
it is particularly sensitive to laws of
supply and demand.
Land has value because
it provides potential utility for development
What is the appraiser’s initial analyses in regards to land?
Property rights
Of particular interest is the influence of government or public
controls that may limit development of land,
A development right that cannot be used by the landowner, or that the owner chooses not to use, but can be conveyed to landowners in another location or leased for a period of years to then revert back to the original owner; TDRs are said to be transferred from a landowner in a sending district to the use of a landowner in a receiving district. TDRs are generally used to preserve agricultural land; may also be used to preserve historic sites or buildings and open space or to protect scenic features.
Transferable development right (TDR
Examples of TDRs might be
excess
water and sewer capacity, air space, and builder’s density rights (such as
in the use of FAR).
Open space and conservation easements are
permanent encumbrances that limit or prohibit future development. Jurisdictions at all levels (federal, state, and local) can use these types of easements to preserve natural wildlife areas and parks.
By definition, land does not depreciate in value,
By definition, only improvements depreciate in value
although the value may change as a result of external conditions and market forces.
The six procedures for analyzing and deriving a land value opinion
Ground rent capitalization Land residual Allocation Development (subdivision) Extraction Sales comparison
In this procedure
- appraiser selects sales of similar
parcels. - sales are analyzed, compared, adjusted, and reconciled into an indicated value for the subject property.
Sales comparison
Most common procedure to value land
Is the preferred method
Sales comparison analysis is also the preferred method for
valuing improved
properties
When selecting comparable sales, an appraiser must consider the following factors about how the sales relate to the subject property:
– Zoning
– Highest and best use
– Site improvements, if any
– Physical characteristics
can be used to analyze current market competition.
Listings
when available, can give the appraiser the most
current picture on what is taking place in the market.
Offers to purchase
provide the appraiser with information on potential competition.
Options
According to our professional standards, appraisers must
verify (or confirm) their data, in order to ensure that it is authentic.
The characteristics or attributes of properties
and transactions that cause the prices of real property to vary.
Elements of comparison.
In land and site valuation (as well as for improved properties), the
adjustments for the elements of comparison are usually applied in the
following order:
a. Property rights conveyed.
b. Financing terms.
c. Conditions of sale. The sale is analyzed for any unusual motivations
d. Expenditures made immediately after purchase
e. Market conditions. Market conditions can quickly change
f. Location and geography. Land and sites are particularly sensitive to their
immediate environments.
The increment of value that often occurs when two
or more sites are combined to produce greater utility. The process
that creates plottage is called assemblage.
Excess land and surplus land
Plottage value
The components into which a property may be
divided for purposes of comparison, e.g., price per square foot, front foot,
cubic foot, room, bed, seat, apartment unit. These units usually facilitate
analysis even when the properties are not very comparable.
Units of comparison
Common units of comparison are
a. Acre
b. Square foot. Used for smaller-sized parcels, usually less than 1 acre.
c. Front foot. Usually used in waterfront or commercial properties where the most important consideration is how much frontage there is on the water
or on a busy thoroughfare.
d. Lot or plot. In some instances, an appraiser may observe a pattern in lots that are ready for improvement in which the price does not vary
based on discernible differences. In other words, a 1.5-acre parcel may sell at the same price as a 2.5-acre parcel because buyers treat them as
comparable lots.
e. Buildable unit. For development land, a pattern may develop where
builders pay consistent prices for a site based on how many units the site
will support (depending on what is allowed by zoning, topography, access,
and utilities). Some parcels may sell at a certain price per permitted unit.
