40-30-20-10 rule, aka 25% rule, aka ?

[toomanyhats]

I am acquiring a strip of land for a local municipality for a road improvement project. The strip of land is adjacent to the road. We valued the land using bare land comparable sales to come up with a unit value to be applied to the strip of land.

The owner's appraiser believes we should have determined the value of the strip by using a so-called 25% rule. I think it may also be called the 40-30-20-10 rule. He says that the front 25% of the property that abuts the street holds 40% of the value of the lot. The next 25% of the property holds 30% of the value of the lot and so on.

I have searched the internet for this rule but can't find anything on it. I am wondering if anyone has heard of this "rule" and if there is any validity to it.

Any opinions on this would be appreciated. Thanks.

Here is some additional information that some of you requested. Additionally, the circumstances have changed in that the acquiring agency has changed the fee acquisition to a highway easement.

The property is improved with mini storage units. The set back from the right of way is 40' with the closest unit being approx. 50 feet from the r/w line. After the fee acquisition, the unit would have been about 16' from the r/w, but since the agency is now acquiring a highway easement, the unit will remain at approx. 50 feet from the r/w line.

The parcel is about 2.5 acres. It measures 600 feet deep (N-S) and is 220 feet on the north end and 80 feet on the south end. The west side is an arc that runs from the nw/c on the 220 ft end to the sw/c on the 80 foot end. The 80 foot end is where the highway easement is being acquired in order to flatten out the arc. It is a triangular piece off the sw/c of the parcel.

Thanks much to all of you who have offered your opinions!

 

[Michigan CG]

There was a thread about this a while back....maybe a year or so.

Look at the sales that are less deep and compare them to the properties that are are very deep and look for the difference price per unit.

I am moving this to the commercial section of the forum where I think you will get more responses from people who do this type of work.

 

[CANative]

Read Land Valuation by James Boykin (AI text).

This is also discussed in JD Eaton's Real Estate Valuation in Litigation (also an AI text).

Who's helping you with this one?

 

[Pittsburgh Pete]

The issue with that premise is that the taking is of the front of the lot--after the taking, there is a new front to the lot.

The only way the "rule" would apply is if you are doing a before and after vs. a strip appraisal. Then there might be an issue with the reduced depth resulting in severance damages to the remainder with the "before" unit value being more than the "after" unit value. Nonetheless, the percentages bandied about are not supportable in the market--generally speaking!! Does the taking impact the overall utility of the site--key question which will determine whether a "strip" or "before & After" analysis is required.

 

[ETex2]

My mentor was a guy who got his MAI designation in 1960. He mentioned this theory to me once, but even by the 1980's he also told me that it was outdated.

 

[The Warrior Monk]

The owner's appraiser believes we should have determined the value of the strip by using a so-called 25% rule. I think it may also be called the 40-30-20-10 rule. He says that the front 25% of the property that abuts the street holds 40% of the value of the lot. The next 25% of the property holds 30% of the value of the lot and so on.

Maybe...maybe not. These type of "rules" would have to be supported by market data before using them.

In my own market area, I haven't seen support for such "rules." A large part of that may be due to the lack of public sewage disposal systems, as well as other issues such as required parking spaces. With regard to percolation, more land mean more drainage and higher development potential, even if the land in the rear remains unused.

 

[Ken B]

Explain to the property owner that you would be more than happy to apply that rule. Of course, under that rule, the value of the take is the value of the backland of the property, not the front. After the take, the property will still have its front. It will just have less back.

I bet he decides that maybe that's not such a good rule after all.

 

[Kali the Boston Terrier]

If you want to extract the concept, try plotting the Price/(Sqft or acre) via the size for at least 15 vacant land sales. What you will likely see is a downward sloping trend line, that will likely change its slope via its exponential/polynomial line. That change in slope, which can be easured via its tangent lines is the point of the 40% or 30% or.... or whatever % it really represents.

The theory behind this lies within the Law of diminishing marginal returns, the change in the slope is the point in which the value of that piece of land starts to change. However if you see that the data is better modeled via a linear trend line than the 40-30-20-10 does not exist.

 

[JT1974]

Explain to the property owner that you would be more than happy to apply that rule. Of course, under that rule, the value of the take is the value of the backland of the property, not the front. After the take, the property will still have its front. It will just have less back.

I bet he decides that maybe that's not such a good rule after all.

Ken is correct.............again

 

[hglenbetts]

I have no idea what's going on here, but I love reading the training moments from you guys.

But, here's my thought... If the strip of land being acquired is road frontage, for the purpose of widening the road, improving the drains etc, when the work is done, doesn't the land owner still own road frontage??

So, if we're considering the greater value being at the road, the land owner has actually lost his depth, not his frontage, thus the value loss would be from the back, not the front..

I'll stick with my residential work for now.....

(oops, just read Ken's comment.)