In appraisal theory, there are six methods of valuing a site. They are:
SALES COMPARISON - Comparison with recent sales
EXTRACTION - Subtracts estimated improvement value to arrive at land value
ALLOCATION - Uses land-to-value ratios based on improved sale comparables
SUBDIVISION DEVELOPMENT - Subtracts estimated development
Sales Comparison Method
The most commonly used method for valuing sites is the sales comparison method. It is the preferred method, the most credible, the most understandable, and should be utilized whenever possible.
The only limitation to this method is that you must have adeq
Sales Comparison Adjustments
The adjustments that we make in the sales comparison method should be derived from the market, just as when we use the sales comparison approach in appraising improved properties.
Hopefully, we will have adequate data so as to be able to derive adjustment
Types of Adjustments
Quantitative adjustments may be made either on a dollar amount basis or on a percentage basis. Usually we will make specific dollar amount adjustments. As in all appraising we walk a fine line between art and science. It's a balancing act between being to
Percentage Adjustments
When we are comparing one neighborhood or market area to another, it is common to think in terms of percentages. There are many factors to compare in such a catch-all category as location, but when all is said and done, we may feel confident that one loca
Adjustment Grid
Here is the adjustment grid from the most commonly used land appraisal form. By the way, please note that this is not a Fannie Mae appraisal form. (Fannie Mae does not purchase mortgages on vacant land.) This form is a generic form that has been around fo
Possible Adjustments
So what kind of possible adjustments could we make on those four blank lines? Again, it could be anything - anything that could cause a difference in value between two individual sites. They could be very minor differences or they could be strong, readily
Traffic
Traffic can be a good thing or a bad thing. In commercial properties one of the more important factors in value is the amount of traffic or the number of vehicles or pedestrians that go past a site every day. When comparing commercial sites, investors man
Size
Size is a very relative thing. You might have two acres in an area where everybody else has 20 or 30 acres. Your two acres would seem pretty puny. On the other hand if everyone in the neighborhood has a quarter acre to a half-acre, your two acres would ma
Topography
Topography certainly can have an impact on the value of the site. Some people believe that a tabletop-level site is the most valuable. It may be easy to work with but if we want to build on it we will have to create some drainage. We don't want runoff wat
Usable area
Remember the picture we had of a star-shaped lot? We have to study the subject site and determine how much of the property is usable.
We may have a total property area of 10 acres, however eight acres may be swampy or low land. Perhaps there is a restrict
Exposure
In northern climates, a southern exposure may be preferable. In mountain valleys a northern exposure is a good thing for ski areas but it could leave a home in the shade almost all day and leave snow on the ground until late spring. Even in other areas a
Corner Location
Does a corner location add to or subtract from the value of the site? Well...it depends!
I was glad to see that, several years ago, they removed that field (corner lot) from the URAR appraisal form. In older appraisal texts, the corner location situation
Floodplain
All or part of a property may lie in a designated floodplain. This will not necessarily prohibit development but it may make it more expensive. The site may have to be filled or protected with drainage systems, walls or dikes. Existing residential propert
Wetlands
Similar problems may occur in designated wetlands areas. Prior to the 1970s, wetlands were considered nuisances and breeding grounds for insects. The federal government used low-interest loans and subsidies to encourage the drainage and conversion of wetl
Wetlands Maps
There is a website of the National Wetlands Inventory that covers all wetland designations. It will provide one-stop shopping - a place to find all wetland areas. Check back periodically, as wetland areas do change over time. Some areas have been designat
Utilities
The presence or absence of municipal utilities at a site may have a major impact on value. A lot with a well, septic, water or sewer line should have a higher value than one without any.
What does it cost to drill a well today? Obviously it will depend on
Soil Conditions
There is an almost infinite variety of soil conditions. Soils vary tremendously in terms of bearing strength, stability, and permeability.
Some soils are strong and can support large weights. Other soils may require substantial footings or pilings to supp
Soil maps
It is impossible to know precisely what is underneath all of the soil. However, using soil maps can alleviate a lot of the uncertainty.
The USDA Soil Conservation Service is now known as the Natural Resources Conservation Service. Their maps show soil typ
Soil Conditions - Drainage
One of the most important considerations of any site is the drainage capacity of the underlying soil. Some areas are very sandy and drain well. Some areas have a heavy clay content in the soil and drainage is very slow.
The basic permeability of the soil
Zoning
Zoning may be a prime determinant of value. One of the required tests for highest and best use is that it is a legal use. A particular use may be physically possible and economically feasible but it is a moot point if that use is prohibited under local zo
Zoning Variances
What is the probability of obtaining a zoning change? What is the procedure required to obtain a variance? What is the history of applications for zoning change in the local municipality? What percentage have been successful?
It is important to understand
Private Restrictions
Restrictions in the use of the site may be in the form of private, as well as public restrictions. In recent pages we discussed the restrictive nature of public zoning ordinances and environmental agency requirements.
Private restrictions on use may occur
Easements
An easement is defined in The Dictionary of Real Estate Appraisal, Sixth Edition, as:
The right to use another's land for a stated purpose.
A similar definition is found in the IVS Glossary of The Dictionary of Real Estate Appraisal, Sixth Edition:
Nonpos
When a right-of-way is granted it creates two interests.
Affirmative Easement and Negative Easement
Affirmative easement
The right to perform a specific act on a property owned by another
Two additional terms need to be defined to properly understand an affirmative easement. Dominant Estate and Servient Estate. [Dictionary of Real Estate Appraisal]
Dominant Estate.
A proper
Access Right of Way
In the access right of way scenario from the previous page, John Smith probably sustains little diminution of value. The right-of-way is on one end of the property. But what if the easement ran right through the middle of the property? That might make a r
Drainage Easement
Another type of easement may be for drainage purposes. Building or even passing over all or part of a property that has been encumbered by a drainage easement may be prohibited. The property basically must be left open so that water may flow across it.
Ye
Positive and Negative Easements
As stated previously, an affirmative or positive easement allows someone other than the property owner to use the land. A common example is an easement for ingress and egress.
A negative easement prevents a property owner from doing something with his pro
Deed Restrictions
Deed restrictions can reflect almost anything. They could consist of almost anything that a grantor could dream up, as long as it is accepted by the grantee.
Most often they deal with the use of the property or more correctly spell out things that cannot
Conditions, Covenants, and Restrictions are defined as:
A list of expressed assurances and limitations on land use; often found in contracts between a land subdivider and a lot purchaser. CC&Rs should be specified in the conveyance. Also referred to as covenants and restrictions or condominium covenants. See a
Restrictive covenant is defined as:
A private agreement that restricts the use and occupancy of real estate that is part of a conveyance and is binding on all subsequent purchasers; may involve control of lot size, setback, placement of buildings, number and size of improvements, architectu
These covenants or subdivision regulations typically include such items as:
Minimum house size
Minimum number of garages
Minimum house value
No storage of recreation vehicles allowed
No livestock allowed
No real estate for sale signs allowed
No wash allowed to be hung out
Leases
Land or sites may also be subject to leases. A site may be encumbered by a long-term ground lease that stipulates or restricts uses of a property. These leases may run for terms of anything from one year to 99 years.
You would have to read the lease to as
Transferable Development Rights (TDRs) are defined as:
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 transferre
Valuation of TDRs
Although there are variations among the states, transferable development rights are generally considered to be an interest in real property only as long as they are attached to the land and once they are sold they become personal property. Once they are t
A conservation easement is defined as:
An interest in real estate restricting future land use to preservation, conservation, wildlife habitat, or some combination of those uses. A conservation easement may permit farming, timber harvesting, or other uses of a rural nature as well as some types
Units of Comparison
If your comparable sales are not sufficiently similar so as to allow for direct comparison, then we can resort to first breaking them into common units of comparison. We may have three sales where the gross sale prices are $60,000, $95,000, and $140,000.
Price per Square Foot
Obviously, this unit of comparison (price per square foot) has primary usage in urban areas, where there are small lots. Simply divide the sales price of each comparable land sale by the amount of square feet in each. Then compare and reconcile the result
Price per Acre
Using price per acre as a unit of comparison is a similar methodology to what we already did with square footage. Here we would usually be dealing with larger land parcels. The common unit of comparison for larger parcels is the acre. Divide the sales pri
Price per Front Foot
The price per front foot has two major applications. It is a primary measure of value with waterfront properties and for commercial properties along a major roadway.
Property that fronts on a lake or river usually is measured in terms of the amount of dir
Price per Lot
We addressed this earlier. In some cases the market doesn't recognize finite differences between lots. Debbie Developer may carve up a parcel of 80 acres into 40 lots.
Assume that the average density allowed by zoning is 2 acres per dwelling. There are so
Price per Buildable Unit
This unit of comparison (price per buildable unit) is usually employed with a parcel that is capable of a small subdivision. Most often, it is used with multi-unit properties.
Let's say Ben Builder is looking for a site on which to build two fourplexes. I
definition of excess land.
Land that is not needed to serve or support the existing use. The highest and best use of the excess land may or may not be the same as the highest and best use of the improved parcel. Excess land has the potential to be sold separately and is valued sepa
Surplus land is different. It is defined as:
Land that is not currently needed to support the existing use but cannot be separated from the property and sold off for another use. Surplus land does not have an independent highest and best use and may or may not contribute value to the improved parcel
Price per Animal Unit
You will encounter this unit of comparison (price per animal unit) in ranch or farm land. For example in the west and southwest there are extensive lands that are devoted to raising cattle, sheep or horses. Given the arid nature of the area, it is easy to