Appraisal Multiple Lots

[hastalavista]

Most eloquent response, but your response (and I read your H&BU published article in research of my response) does not fully address the issue, because the OP has left voids to be filled with imagination... hopefully his reports fill these voids. My main point of contention is that there are 4 separate and distinct tests of H&BU and way too many appraisers stop at the first 2 and consider the second 2 with little literal analysis.

(my bold)
Cannot argue with that!!!


The fourth step in H&BU (maximally productive) doesn't come into play that often with most residential work we do... but certainly in more rural areas or areas with broad (or no) zoning, it can. So, it usually boils down to financial feasibility: can I build a home now and make a profit or not? If I can, then I will. If I cannot, then I won't (I'll hold).
One of the elements of financial feasibility, as you point out, is demand; if no one is buying, then it isn't feasible to build no matter what. An easy way to test demand is to see if anyone else is either (a) splitting lots and building on them (excess), or (b) building on existing vacant lots (what I think the OP's situation is), or (c) remodeling older homes to such a degree that if there were vacant sites available, they'd be buying those to build from scratch what they created after the remodel.
If no one is doing it, then chances are they are not doing it because there is no market for the after. That's a very easy way to reasonably test feasibility (and one I do in that situation where if, there is no activity, there is no "build now" action).

 

[J Grant]

(my bold)
Cannot argue with that!!!


The fourth step in H&BU (maximally productive) doesn't come into play that often with most residential work we do... but certainly in more rural areas or areas with broad (or no) zoning, it can. So, it usually boils down to financial feasibility: can I build a home now and make a profit or not? If I can, then I will. If I cannot, then I won't (I'll hold).
One of the elements of financial feasibility, as you point out, is demand; if no one is buying, then it isn't feasible to build no matter what. An easy way to test demand is to see if anyone else is either (a) splitting lots and building on them (excess), or (b) building on existing vacant lots (what I think the OP's situation is), or (c) remodeling older homes to such a degree that if there were vacant sites available, they'd be buying those to build from scratch what they created after the remodel.
If no one is doing it, then chances are they are not doing it because there is no market for the after. That's a very easy way to reasonably test feasibility (and one I do in that situation where if, there is no activity, there is no "build now" action).

Agree (with you and Mr Rex)...The OP needs to look at the history of the vacant lot being purchased as part of subject? How many DOM, was there price reductions.
( and supply/demand for vacant lots in area) ...how long are they listed, are people buying them to build or hold etc

 

[J Grant]

Except in this case, we don't have excess land. The unimproved lot is already separated from the improved lot.
We have a vacant lot with its own independent H&BU; independent of the improved lot (now, whether the H&BU of the vacant lot is to build now or hold for future development is another question which will determine how it is valued).

But if this second vacant parcel is being purchased as a bulk sale/assemblage with adjacent house....doesn't the assemblage as one property make it is excess and? aka it is excess land since it is not needed to support the improvement and can have its own separate HBU.

As a stand alone lot it is not excess land it is a vacant lot ), but when assembled with adjacent subject dwelling it is excess land now to the dwelling ( at least that is how I read it...for now)

 

[Mr Rex]

My family has +/- 175 acres of land that I could subdivide now into +/-150 lots in an area where 1 acre lots bring +/-$15k each when sold. Currently it would likely take 15-20+ years to sell most of the lots. Want to tell me what its worth today? I'll give you a clue, less than $3k per acre.

 

[hastalavista]

My family has +/- 175 acres of land that I could subdivide now into +/-150 lots in an area where 1 acre lots bring +/-$15k each when sold. Currently it would likely take 15-20+ years to sell most of the lots. Want to tell me what its worth today? I'll give you a clue, less than $3k per acre.

I'll go with your >$3k estimate!

 

[hastalavista]

But if this second vacant parcel is being purchased as a bulk sale/assemblage with adjacent house....doesn't the assemblage as one property make it is excess and? aka it is excess land since it is not needed to support the improvement and can have its own separate HBU.

As a stand alone lot it is not excess land it is a vacant lot ), but when assembled with adjacent subject dwelling it is excess land now to the dwelling ( at least that is how I read it...for now)

The OP hasn't said they are going to assemble. My point is, if it the value is the same as-if it were surplus land, then there would be no reason to assemble it because the result would be (in theory) a reduction in value due to the assemblage.
Assemblage is what it sounds like; assembling properties to create a larger property.
Plottage is the incremental value gained or lost by assemblage.
In the OP's case, if the vacant lot's value is the same as surplus land value to the subject, then the cost to assemble the two would result in a reduction of value by virtue of spending that cost to assemble them (negative plottage).

 

[Mr Rex]

FWIW, it would likely bring more than $3k per acre when sold with the existing improvements (probably closer to $5k per acre plus costs of improvements). How about that as a text book example that H&BU is not a simple analysis?

 

[hastalavista]

FWIW, it would likely bring more than $3k per acre when sold with the existing improvements (probably closer to $5k per acre plus costs of improvements). How about that as a text book example that H&BU is not a simple analysis?

And I should clarify something because I think I may be misunderstood and I think you are correct:

Let's say you had 150 acre parcel (one lot) with a homesite on it, and you only need 5-acres to support the home. The remaining acreage could legally be subdivided into five acre parcels, but there is absolutely no demand for anything at this point in time. Is that remaining 145 acres "excess land"?
No (which is what I believe you were saying). It is surplus for the reason you stated; no demand now and no demand in the reasonable future. It isn't excess- it is surplus. If I sold the 145 acres, no one would develop it and no one would pay a development price. I would not consider splitting it off for development purposes.

My quote below...

There is no cut-off, but the further out, the less reliable the forecast. And, the further out, the more likely the value will reflect the next best H&BU (which may be surplus residential land).
Certainly, one could conclude, "No reasonable development potential in the foreseeable future; the long-term holding period results in a value similar to surplus residential land".
The fact that it can be developed is an additional right that surplus land doesn't have. That additional right, in theory, has value. But, if the development is so far out, the value of that right can diminish to the point of non-significance.

There are three things I can do with vacant land:
1. I can take some action with it now
2. I can take some action with it later
3. I can buy it with the hope that I can take some action later which wouldn't be allowed now

Some may argue there is a fourth option: I can buy it and put it into a conservation so it never gets developed... but that falls under #1 in my book because that's an action I'm taking now.

#1 is more valuable than #2.
#3 is typically speculative, and would be less valuable than #1 and likely #2.

But what I'm not going to do is buy it with the intent that it doesn't fulfill some action to take or to be taken. Because, if that were the case, why would I buy it?

...is for a site that is already divided and independent. In that case, there is a H&BU and if the site is zoned residential and there is no other alternative use, then it would be evaluated within that context. But, same dynamic: No one would build now so it is hold for future development or perhaps as a speculation play.

The difference between the two is with excess land, the demand and feasibility would have to be there "now" or "soon" such that it is more valuable than surplus land (after the costs to split it, etc.). This is what I am reading you to say and I agree with you. No demand, no additional value to what it is worth as surplus; ergo; it is not excess land and doesn't have its own H&BU.
But a lot that is split and independent already has a H&BU; that H&BU may be hold.... for a long time! The longer I have to hold it, the less valuable it is going to be.

 

[J Grant]

Denis-"Let's say you had 150 acre parcel (one lot) with a homesite on it, and you only need 5-acres to support the home. The remaining acreage could legally be subdivided into five acre parcels, but there is absolutely no demand for anything at this point in time. Is that remaining 145 acres "excess land"?
No (which is what I believe you were saying). It is surplus for the reason you stated; no demand now and no demand in the reasonable future. It isn't excess- it is surplus. If I sold the 145 acres, no one would develop it and no one would pay a development price. I would not consider splitting it off for development purposes."

I disagree. The decision whether to hold as investment or sell now does not determine what is surplus and what is excess. The configuration and zoning with a possible different HBU for land other then that needed to support the dwelling is what defines excess vs surplus. The fulfillment of HBU may in future, but the fact that the land can be developed and sold with its own HBU as vacant makes it excess.

The definition of surplus vs excess does not switch back and forth because demand changes. What would differ is an owner's decision to sell now or hold to sell later. Interim use: hold for future development.

Example: A) House is on one acre , dwelling on lower half acre. Zoning is minimum of one acre . The back half acre can not be split off and sold. Demand is high for vacant lots but despite demand, it can not legally be split and sold, Therefore, despite demand, the back half acre does not have a different HBU than front half acre. Thus the back half acre is surplus land.

Example: B) House is on one acre , dwelling on lower half acre. Zoning is minimum of half acre . The back half acre lot per zoning can split off and sold. There is no demand for vacant sites to to build now, but despite lack of demand, the rear half acre still can have its own HBU ( sell as vacant ), but due to lack of demand today, owner does not sell. Even though there is lack of demand today, due to zoning and possible different HBU, the back half acre is excess land.

Example: C) House above lot is on one acre , dwelling on lower half acre. Zoning is minimum of half acre . The back half acre lot per zoning can be split off and sold. Amazon announced opening HQ in town , now there is demand for vacant sites .The decision is sell now rear half acre.. However, the demand today did not create the excess land, the zoning and possibility of HBU for the rear lot created it.

 

[J Grant]

The OP hasn't said they are going to assemble. My point is, if it the value is the same as-if it were surplus land, then there would be no reason to assemble it because the result would be (in theory) a reduction in value due to the assemblage.
Assemblage is what it sounds like; assembling properties to create a larger property.
Plottage is the incremental value gained or lost by assemblage.
In the OP's case, if the vacant lot's value is the same as surplus land value to the subject, then the cost to assemble the two would result in a reduction of value by virtue of spending that cost to assemble them (negative plottage).

I am appraising a property that is being sold with an additional lot- from OP post #1. Doesn't that mean they are assembling it? Imo, the market is going to do what the market does, buyers and sellers are not asking us what to do. It may not make economic sense for them to buy a vacant lot with an adjacent house as one package, but that is what they are doing. We are engaged to appraise what the market activity results in , and the result of this sale contract is dwelling and adjacent lot sold together under one mortgage lien. Fannie per their policy allows it, it allows excess land to be valued as part of a house sale package.