S5/P13 Land or Site Valuation

Question 1

7 Reasons why apprsisers might need to value land or a site in an appraisal assignment:

1 - 3

Answer 1

1. Vacant land or site. The appraiser would need to value the land or site in this type of assignment. This could include raw undeveloped land or a finished site.
2. Highest and Best use as though vacant. If the land is improved with buildings, the appraiser still has to estimate the value of the site as if it were vacant and available to be put to its highest and best use.
3. Cost approach. As part of the cost approach, the appraiser values the land or site separately as if vacant and then adds the depreciated value of the building and site improvements.

Question 2

7 Reasons why appraisers need to value land or a site in an appraisal assignment.

4 - 7

Answer 2

4. Income capitalization approach. Some techniques in the income capitalization approach, in particular residual techniques, require an estimate of the land or site value.
5. Property taxation. When assessed values are calculated, a separate valuation is performed for the land or site.
6. Insurance. Fire insurance is typically written on the building improvements - not on the land or site.
7. Condemnation. When a portion of a property is condemned in eminent domain proceedings, it is often necessary to identify separate values for the area acquired by the condemning authority and the remaining land or site area.

Question 3

Approaches to Value

Answer 3

• Sales Comparison Approach
• Income Capitalization Approach
• Cost Approach

Question 4

Relationship to appraisal concepts

Highest and best use

Answer 4

• Land has first claim on any income generated by the property and takes priority over any return on the improvements.
• Land is said to have value, while improvements contribute to value.
• When improvements no longer contribute to property value, demolition is indicated.

Question 5

Relationship to appraisal concepts

Land and site value is influenced by “economic principles”.

Answer 5

a. Anticipation
b. Change
c. Supply and demand
d. Substitution
e. Balance
f. Externalities

Question 6

The supply of land is ____________.

Answer 6

relatively stable, so it is particularly sensitive to laws of supply and demand.

Question 7

Land has value because _________________.

Answer 7

it provides potential utility for development.

Question 8

Property rights attached to the land are the focus of the appraiser’s initial analyses. Of particular interest is the infuence of government or public controls that may limit development of land, such as

Answer 8

a. Zoning
b. Master plans
c. Other restrictions placed on land for development, such as moratoriums, open space or green belts, and environmental screening.
d. Eminent domain is one of the four power of government and can be used to remove land from private use and augment the supply of public land.
e. 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).
f. Open space and conservation easements. These are permanent encumbrances that limit or prohibit future development.

Question 9

Land cannot physically _______________.

Answer 9

depreciate in value, although the value of land and sites can be affected as a result of external conditions and market forces.

Question 10

The six procedures for analyzing and deriving a land value opinion:

Answer 10

1. Sales comparision
2. Extraction
3. Allocation
4. Land residual
5. Ground rent capitalization
6. Subdivision development analysis