Site Adjustments

[Hoosier Country]

I have gone around and around this with appraisers in my office for years.

New construction on 40 acres in the country. I have comps on acreage but am also including new builds in rural subdivisions. The site adjustment:

I was taught to do about half what the per acre value of land is, as the first 5 acres is the most valuable. So a $3000 adjustment when land is selling for ~$6000/acre. For my current appraisal that leaves my subdivision comps showing way low. Common sense tells me the site adjustment should roughly be the difference between the site value for each property. So if the subdivision site is worth $30k and my subject site is valued at $287k, shouldn't the site adjustment equal roughly $257,000? If i make a $6000/acre site adjustment then the subdivision comps' adjusted value is in line with my other sales.

Make it make sense.

 

[alebrewer]

Its always been my opinion that the site adjustment should be the delta in site values, not a rote formula. so that, the part about the adjustment being 'half what it sells for' I would dismiss. The part about the difference between the two site values being the adjustment - I agree with.

As an aside, keep in mind, too, that 'view' and 'location' can also be treated in the 'site' adjustment field. IOW - if you're accounting for view and location in the overall site value, and adjusting as such, you wouldn't need to make other adjustments for view and location.

 

[Joe Flacco]

Yeah, the adjustment should be in the range of the difference in the site value.

 

[J Grant]

I have gone around and around this with appraisers in my office for years.

New construction on 40 acres in the country. I have comps on acreage but am also including new builds in rural subdivisions. The site adjustment:

I was taught to do about half what the per acre value of land is, as the first 5 acres is the most valuable. So a $3000 adjustment when land is selling for ~$6000/acre. For my current appraisal that leaves my subdivision comps showing way low. Common sense tells me the site adjustment should roughly be the difference between the site value for each property. So if the subdivision site is worth $30k and my subject site is valued at $287k, shouldn't the site adjustment equal roughly $257,000? If i make a $6000/acre site adjustment then the subdivision comps' adjusted value is in line with my other sales.

Make it make sense.

It sounds like you are applying a formula you learned rather than extracting an adjustment from the market.

An applied market-derived adjustment normally narrows the range of the adjusted comparable sales. I usually adjust for the contributory value of a site, which can be a different $ per square foot than the $ per square foot of a site or acreage as vacant. Depends on zoning etc.

A large site for your subject, 40 acres for a res house? - is the HBU to subdivide it? What is the acreage range of your comp sales?

 

[Gobears81]

I just appraised a 120-acre property where the house basically came free (or the land was significantly discounted, depending on which way that you look at it). It comes down to market analysis, and if you are using a couple sales with large acreage tracts that suggest a significantly higher value than the sales in subdivisions, that may in itself be a sign that the rule of thumb doesn't apply in this case. But, unless you are recognizing a portion of the land as excess, why use subdivision sales?

The use of the land may have an impact on the appropriate adjustment, as well.

 

[Joe Flacco]

It's the house came free. House has no contributory value.

 

[Terrel L. Shields]

I was taught to do about half what the per acre value of land is, as the first 5 acres is the most valuable.

Wrong.

The value of the property is the value of the land "as if vacant and available for its highest and best use" PLUS the contributory value of the building. If a well-placed HBU, then there likely isn't any functional obsolescence. If over-built, under-built, etc. there probably is significant
obsolescence. It applies to the buildings, not the land. Land does not change value according to what is built on it. That drop in value is only applied to the dwelling and buildings. (I'll ignore off-site impacts such as the hog farm next door or some such)

There was an old axiom that 40% of the value was the front quarter, 30% the second quarter, 20% the third and 10% the rear. That's just a meaningless rule of thumb first applied by some judge in the 19th century.

40 acres should be valued as if vacant using 40 acre comps. Then worry about the contributory value of the building. If large acreages are selling with homes (they certainly are here) then go further afield and avoid the subdivision sales.

I just appraised a 120-acre property where the house basically came free

Not uncommon here. My uncle's old farm just sold for $1.2 million. Trust me, the builder will doze the house and currently is dismantling some old hay barns. The house is livable but old and not worth fixing up when the developer - buyer intends to build executive estates on it.

 

[Gobears81]

It's the house came free. House has no contributory value.

Not uncommon here. My uncle's old farm just sold for $1.2 million. Trust me, the builder will doze the house and currently is dismantling some old hay barns. The house is livable but old and not worth fixing up when the developer - buyer intends to build executive estates on it.

I've seen that pretty frequently with farm tracts. The farmers don't want to deal with renting and maintaining what is usually an older home. What was unique in the case of my 120-acre appraisal was that it was a newer, decent-quality home. I concluded that it was a below-market price - the realtors love those private listings now, but not sure that is always the right direction to take, especially with a unique property like that.

 

[BRCJR]

Sounds like the "teacher" was injecting the "economies of scale" without proper support.

 

[Joe Flacco]

I've seen that pretty frequently with farm tracts. The farmers don't want to deal with renting and maintaining what is usually an older home. What was unique in the case of my 120-acre appraisal was that it was a newer, decent-quality home. I concluded that it was a below-market price - the realtors love those private listings now, but not sure that is always the right direction to take, especially with a unique property like that.

It's also possible that the valuation of the 120 acres is just not that accurate. The data is just not that good for something like that.