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Land Value To Improvement Value Ratio

Discussion in 'General Appraisal Discussion' started by Willie, Jul 22, 2005.

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  1. Willie

    Willie Senior Member

    0
    May 30, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Tennessee
    A long time ago, an appraiser told me in a typical subdivision, in Nashville TN, that you could do a sales comparison approach, on a typical home, and take 20% of that, and you would be close on your site value. Almost a decade later, I find that this is often the case, in a well balanced real estate situation. I study this fairly closely, and keep a close watch on site sales, in my area. It seems to be a good sound economic reality. Occasionally I see a site value at 10% of the total, and this is where things might be OK, or could become very hairy.

    Today, I just got off the phone from an unpleasant conversation. The lady kept on and on about her Tax Card appraisal was $220,000 and she wanted to add a $50,000 detached garage. I gave her my theory if you are less than 10% on your site value, you have an overimprovment. The tax value of the site was $10,000. I figure it is really worth some $16,000. Needless to say, I hit the garage w' functional depreciation, and the entire property with external depreciation.

    I told the lady about an area where folks are paying $60,000 for sites, and spending a millions, and they too, have over improved their site. She seemed smart enough to understand, but finally told me to "Keep my opinion out of it :blink: :"

    Site value is the first thing I look closely at, to when I suspect there external or functional depreciation.

    Anybody want to discuss Site Values in your area, as a terms of percentage of the entire value?
     
  2. Otis Key

    Otis Key Elite Member

    0
    May 15, 2004
    Professional Status:
    Certified Residential Appraiser
    State:
    New Mexico
    William, was she your client? Did she order the appraisal? If she did, then how can she expect you to keep your opinion out of it if that's what she hired you to do, was provide your opinion? If not the client, then she should have been screaming at the bank.

    Back to your question, there are no normals in our markets. I've seen land-to-appraised value ratios of 50/50 and then I've seen them 40/60 and also, more typical, 35/65%

    We now have an area whereby Mr. Al Unser Jr.'s, homesite has been subdivided and the "brilliant" buying "informed and knowledgeable" public are paying in excess of $500,000 for an acre of land. :shrug: :shrug: :shrug: :shrug:

    Neither I, nor some of my professional and experienced competitors, can really figure this one out, except to say that it must be "that California" money coming in to scoop up the real estate. Almost 1/4 of my purchase order appraisal assignments, not many of those for me, ends up being an investment purchase. Unfortunately, someone at some near future time, is going to loose money. Our economy can't support this investor climate long.

    Does that ratio info help?
     
  3. leelansford

    leelansford Elite Member

    45
    Mar 29, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    Illinois
    The relationship of site value to market value for SFR detachd varies widely in Chicago and suburban areas.

    Some times the site represents 10%-20% of the MV; other times the site represents nearly 100% of the MV.

    Some where in-between these two percentages are the majority of the SFR detached.
     
  4. Verne Hebert

    Verne Hebert Senior Member

    0
    Feb 25, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Montana
    This should be an interesting thread. I am heading out the door to float and flyfish the Bitteroot River for a couple of days near Hamilton, but I'll post a little something.

    This is a tool I use a lot. Here most often there are no restrictions to the land owners desire to construct...and most are too cheap pass a little dough over to a good appraiser to perform some analysys on improvement ratio.

    Here I have seen them go from 11 % to over 400 % (200 acres with a manufactured home). The low end is normally large executive homes. Waterfrontage here is nearly always high 60 to 90 %.

    This is my tool for scooping up investment deals, and I always crunch the land to improvement ratio, then confirm zoning. Just takes a few minutes, and I find a couple of deals a year that I buy. I am looking for "underimproved" property,
    transitional H&BU, and "appealing" zoning (when zoning is in place).

    Have a good weekend.
     
  5. Richard Carlsen

    Richard Carlsen Elite Member

    0
    Jan 15, 2002
    Professional Status:
    Licensed Appraiser
    State:
    Michigan
    Site values have nothing to do with functional or external depreciation.

    Site values are driven purely by market forces.

    Case in point: New construction in my sub. $165,000 estimated value on $6000 lot. Reason: 400+ lots for sale. Over supply of lots is the reason the site is worth only $6000.

    Case in point: Sale on a high quality lake for $860,000. Site value is estimated at $800,000 with house contributing $60,000. Reason: 26 miles of shore line and 2 vacant land sales in the past 18 months. Shortage of available building sites drive value up to about $10,000/FF on the lake for typical 100 foot frontage lot.

    Case in point: Market accepted sub that is nearly full after 20 years. Land to value rations in 1993 were in the 15 to 18% range. Normal amount of listings and sales in the sub. Steadily rising prices. Land to value rations in 2005 are in the same 15 to 18% range. Reason: The market is essentially in balance and there are sufficient similar building site in the greater market to satisfy demand so that this 15 to 18% relationship is maintained.

    Since land is not a wasting asset, none of the depreciations (obsolescence) applies to the land. Physical, functional and external depreciation (obsolescence) apply only to the improvements, not the land. For site values you look exclusively to the market.

    But your thinking on a consistent percentage of land to value ratio has merit. During the time right after 9/11, in one of my major markets, we saw values hold steady. At the same time that values were holding steady, vacant land values were going up. Therefore, it could be assumed that the vacant land market was not hit by the slow down as was the improved market and it was the increasing land values that were holding values level.

    I suspect that over the period of the life of a given sub, land to value ratio will stay relatively even. However, different subs will have different ratios based on location, location, and location. We typically see the range for lots and even small to medium acreage parcels in the non-rural areas of my service area be in the 14-20% range.
     
  6. Tina

    Tina Senior Member

    0
    May 31, 2004
    Professional Status:
    Certified Residential Appraiser
    State:
    Florida
    Tax value does NOT = the market....

    Wasn't that in 101 :huh:

    :angry: TB
     
  7. Tim Hicks (Texas)

    Tim Hicks (Texas) Elite Member
    Gold Supporting Member

    62
    Jan 15, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    Texas
    Land to value ratio is completely determined by each individual market. There is no set percentage or norm anywhere in my area except in cookie cutter land. I would never discuss land to value ratio on any property that I did not know details about that individual market or individual property. I hope this solves everything for you William.


    For instance, a 1,000 SF single section manufactured home on acreage is going to have a high land to value ratio in market and it would be considered typical for single wides and normal in this market. Now, you take the same acreage and a 2,500 SF custom home and the land to value ratio takes a 180. Where Mr. Custom Home gets TO'ed (Napoleon term) is when Mr. Single Wide buys the acreage next to him. There is no convincing them it does not de-value their property. It doesn't because rural is as rural does. You can not control your neighbors and if you choose to live rural, then you must suffer the consequences or buy all the land around you to avoid it.
     
  8. Nancy Wyatt

    Nancy Wyatt Senior Member

    0
    Nov 21, 2003
    Professional Status:
    Certified Residential Appraiser
    State:
    Colorado
    In many of the areas I work the site value is around 30%. Except in Boulder-can be 50% and it is typical. Rarely do I find anthing below 25% here.
     
  9. KD247

    KD247 Senior Member

    0
    Jan 24, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    California
    In my neck of the woods, people tend to buy houses the way they buy cars. Any discussion of either land/improvement, cost/square foot, or cost/frontage ratios is apparently as meaningless as discussing cars in terms of cost per cubic foot of trunk space.

    In fact, I'll make the assertion that the only time a fixed price factor makes sense is when it is so widely accepted that buyers and sellers are actually using them to make their decisions. In any other case, these numbers show up more as coincidences than trends.

    That said, I'm the first to admit that for years I used a $25/sf GLA adjustment for "typical" properties. It always just seemed to work out. But, I always looked at it as more of an explanation for price differences than as a predictor of market actions. Sure enough, today I'm doing some GLA adjustments at around $300/sf.
     
  10. Willie

    Willie Senior Member

    0
    May 30, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Tennessee
    No, she was not my client. It was a $30,000 a year client who told her, call the appraiser. I called them to get their OK to talk.

    Screaming at the bank? Probably. And the appraiser. :D
     
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