Acreage Adjustments

[abad14]

I recently had an appraisal done in trying to refinance our home. Of course we think it came in low (who doesn't). The problem we have is in the value of the land. All of the comp's have less land than ours. The adjustments were made at $10,000/acre (explanation below). The going rate for acre's in our area is between $40000 and $50,000. What are my options/do I have any?

Thank you in advance!


Adjustments were made for difference in site size is based on $10,000 per acre for what is considered to be surplus land and no adjustment is made for sites of more similar size.

 

[George Hatch]

You're saying the difference between a 5-acre site and a 4-acre site is $40,000?

 

[abad14]

Yes. The going rate is $40-50k for one acre. So for 5 acres of land without any developments is going for $250,000

 

[Robert Dunkle]

Your options would be to
1) accept the appraisal as is.
2) ask the lender for a re-consideration by the appraiser.

The problem here is one of size of the acreage, which you did not post. In a small acreage 5-10 acres or so, the primary acreage (typical homesite size in your area) is the most valuable. Every acreage needs the homesite (maybe 2 or 3 acres), but not everyone is interested in the additional land which your appraiser, apparently, dubbed "excess land". If your acreage is above the typical acreage of the area, it is truly excess land. IF you could sub-divide it and make a new homesite of typical acreage and with similar road frontage, it may be worth somewhere near to the sales price of other tracts in your area. If, however, it cannot be split off for a new homesite, the value per acre drops precipitously as "excess land" with no real valuable use. .

 

[SpartanAG]

How much land do you have? How much land do the comparable sales have?

The price per acre of land tends to decline the larger the size of that land, holding all other things constant.

The most expensive lots per acre will tend to be the smallest lots that will allow a single residence to be built. For example, a 1/4 acre lot being offered for $25,000 would have a price per acre of $100,000. While there may be many people willing to pay $25,000 for the initial ability to build a home, there are not many who would be willing to pay $100,000 for the luxury to build on a 1 acre lot at that same price per acre. This is because the initial utility, or benefit, of being able to build a home is the most valuable asset a parcel of land has to offer. Beyond that initial ability, each additional square foot of property has a diminishing utility, or benefit, and therefore has less value to a buyer.

The other reason why smaller lots tend to sell for a higher price per acre is the fact that there are more buyers capable of buying lower priced lots. While there may be a large number of people capable of buying a 1/4 acre lot for $25,000, there are nowhere near as many people capable of buying a 100 acre lot for $1,000,000, even though the smaller lot is $100,000 an acre and the larger lot is $10,000 an acre. So there is a higher demand for smaller more affordable lots and a lower demand for larger less affordable lots.

Surplus Land is defined as: Land that is not currently needed to support the existing improvement but cannot be separated from the property and sold off. Surplus land does not have an independent highest and best use and may or may not contribute value to the improved parcel.

 

[Michigan CG]

Yes. The going rate is $40-50k for one acre. So for 5 acres of land without any developments is going for $250,000

Hold on....the rate for 1 acre may be $50,000 but I seriously doubt that the going rate for 5 acres is $250,000. Go find sales of 5 acre tracts and I bet you will see a significant decline in $/AC.

 

[abad14]

Thank you everyone for the responses so far. To answer some questions.

Our property is 3.98 acres. The comps ranged from 2 to 3.75 acres.

All of the tracts around this area are listed for $40,000 to $50,000 per acre.

The last time the house was appraised (3 years ago) the adjustments per acre were made at $45,000.

 

[George Hatch]

Yes. The going rate is $40-50k for one acre. So for 5 acres of land without any developments is going for $250,000

I'm not sure if I'm reading this correctly so bear with me.

If a 1-acre site is going for $40k - $50k it not would be common for a 5-acre site with the same zoning to go for 5x as much. The economy of scale is different.

In most areas, the majority of the value in a homesite occurs in that portion of the site that is considered the minimally acceptable lot area for the neighborhood. That could be called the core value of the site. Additional lot area above and beyond that is contributory in value and normally adds value at a reduced rate relative to the core value.

Core vale vs contributory value. It's the same reason that - everything else being equal - the 4,000 sf house almost never sells for double the price of the 2,000 sf house next door.

But that's just a general rule of thumb. Every market is different. Maybe yours' is one of them.

My advice is that if you can identify 5 or 6 closed sales of acreage sites in your area and actually demonstrate that the $10,000/acre adjustment was too low then that would form the basis for an appeal of the appraisal. Listings are usually not given much weight because would-be sellers are often dumb about what they're doing.

 

[Meandering]

Mr. Dunkle provides the best answer.

Just because there are more acres, does not mean they are sub-dividable and are as valuable as stand alone acres that are separate parcels. It's the contribution of the excess based on the utility of the excess. If it can not be sub-divided off, then it is of limited utility.


.

 

[abad14]

In our area the amount of land is just as important if not more important than the amount of home. It is an agricultural area so people farm the land. The price of land goes even higher depending if there are water rights/type of water rights.

I will contact a real estate agent because unfortunately New Mexico is a non-disclosure state. Thank you