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VALUING THE SITE

Chapter 10. VALUING THE SITE. 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

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VALUING THE SITE

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  1. Chapter 10 VALUING THE SITE

  2. 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

  3. LEARNING OUTCOMES Name five different uses of site value appraisals. List the five methods of appraising land. Name five physical characteristics of a site that affect its value. Name three legal and economic considerations in site value.

  4. PURPOSE OF LAND VALUE ESTIMATES • Sale and Purchase • Development • Financing • Land Leasing • Government Actions • Agriculture • Court Actions

  5. SITE VALUE ESTIMATES • Allocation for Tax Purposes • Ad Valorem taxes • Land and improvement values are often separated • Income taxes • Building value is allocated for depreciation purposes

  6. SITE VALUE ESTIMATES • Site Value in the Three Approaches • Cost Approach • Land + Building = Total Value • Income Approach • Certain techniques require allocated site value • Sales Comparison Approach • Estimate of land value is often needed for comparison techniques

  7. METHODS OF APPRAISING LAND • Market/Direct Comparison • Allocation or Abstraction • Land Development • Land Residual

  8. APPRAISING LAND Figure 10-1

  9. 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

  10. Highest and Best Use Criteria

  11. STEPS IN THE MARKET METHOD Appraising Land

  12. 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.

  13. 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

  14. The Lots May Be of Equal Value Figure 10-5

  15. LAND RESIDUAL METHOD • Version of the Income Approach • Based on the Principle of Surplus Productivity • Used when no Comparable Sales are Available • Suitable for Vacant or Improved income properties • Estimate net operating income for property • Estimate income attributable to improvements • Capitalize residual income to the land

  16. 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.)

  17. 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

  18. Important Site Characteristics Figure 10-7

  19. PHYSICAL AND LEGAL FACTORS IN LAND VALUE • Physical • Size • Shape • Frontage • Width • Depth • Plottage • Type of Lot • Topography • Other • Legal • Legal Entity • Zoning • Environment • Protection • Laws • Use Restrictions • Negative Loc. Factors • Utilities & Municipal Services • Level of Taxes

  20. Major Physical Features Affecting Land Value Figure 10-8

  21. ANALYING SALES DATA Elements of Comparison • Terms • Time • Location • Physical Features • Units of Comparison • Physical • Economic Example

  22. LAND SALES ADJUSTMENT GRID

  23. SUMMARY • The five primary methods used by appraisers for land values are: • 1. The market method • 2. The allocation method • 3. The abstraction method • 4. The land development method • 5. 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.

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