Appraisers and Land Value Adjustment Help

[CaliforniaSD]

I noticed that a lot of appraisals that I have reviewed in my area (San Diego), the appraisers typically apply a $1-$3 adjustment per a square foot of land. The value of land is not $1 a square foot anywhere in San Diego. I am working on an appraisal over an acre and a reconciliation of the allocation and extraction method indicate the land is $14 per square foot. The land residual method indicates $16 per a square foot. I asked my mentor why appraiser put such low adjustments for land, since it does not depreciate in value. I did a regression analysis and it indicates $4+ per a square foot. I read a article by an appraiser that said land adjustments are typically between $1-$7. I would like to get some input from you guys, because I really don't understand why some appraisers in San Diego apply such a small adjustment for lot size within the sale comparison approach grid. Thank you all!

 

[Zephyr999]

I noticed that a lot of appraisals that I have reviewed in my area (San Diego), the appraisers typically apply a $1-$3 adjustment per a square foot of land. The value of land is not $1 a square foot anywhere in San Diego. I am working on an appraisal over an acre and a reconciliation of the allocation and extraction method indicate the land is $14 per square foot. The land residual method indicates $16 per a square foot. I asked my mentor why appraiser put such low adjustments for land, since it does not depreciate in value. I did a regression analysis and it indicates $4+ per a square foot. I read a article by an appraiser that said land adjustments are typically between $1-$7. I would like to get some input from you guys, because I really don't understand why some appraisers in San Diego apply such a small adjustment for lot size within the sale comparison approach grid. Thank you all!

It's possible it is viewed as Contributory Value and not on price.

 

[TerryRohrer]

The markets for vacant residential sites and improved residential sites are distinct from one another. I nearly always find that the contributory value of additional site size in improved properties is between 0 and 50% of the per unit value as if vacant. Your $4/$14=29%. Very seldom do I find the contributory value as improved approaching that as if vacant, per unit. I find similar results in typical improved residential sites and small acreage tracts. The cost approach and the sales comparison approach are distinct methods. The pieces are not intended to be interchangeable.

Nor would I reach any significant conclusions based on site values from extraction or allocation. If you have vacant site sales, you can measure depreciation. Without vacant site sales, you have to assume depreciation, which leaves and unsupported indication of site value by those methods.

 

[Zoe]

Land "as if vacant" takes tons of time. When I was doing tons of commercial, the front feet to overall feet was really good on regression analysis many times. However, zoning and everything else comes into play like location and everything else. In your H&B use analysis, you could comment on it. But your $1-$7 is wrong unless you have a ton of vacant site sales and listings that are very similar to subject.

You would be better off doing extraction using cost approach method or allocation method with new site sales and finished sale after house was built.

I have found with allocation method that if the subject and comparables are truly comparable and you take into account differences, that the allocation method is really good. Extraction is too.

But, you may need land capitalization method. I doubt it on single family residential.

 

[Salty]

I have not made an adjustment for residential site size in at least 10 years for surplus land. Around here, its simply a larger yard. Of course I have seen many reports where appraisers have placed adjustments on the site line in my area, but I seriously doubt there was any real research behind it and, in my view, its not necessary. Especially not where buyers are still so desperate they do not care about the size of the lot they just want a house and will pay anything. The best way to deal with it here is qualitatively. I have also seen where adjustments were given for larger yards, but it appears the report did not take into account that the additional site was aggressively sloped, wooded, etc (no utility). Especially not where buyers are still so desperate they do not care about the size of the lot they just want a house and will pay anything. The best way to deal with it here is qualitatively. Sometimes I also think its easy to over-think residential valuations.

 

[George Hatch]

I can tell you that what the contributory of additional lot area is not the value of the land/sf. With exceedingly few exceptions it will be a fraction thereof. And in some cases will be zero, depending on lot utility or other factors.

Rather than fret about how the adjustment factor was developed, the question I would ask first is whether or not an adjustment is (a) necessary, and (b) effective in refining the range of adjusted value indicators. If the answer to (b) is "no" then what adj factor that you can develop would be more effective in prompting for convergence?

 

[Elliott]

The difference between $1 per square foot and $4 per square foot or $14 per square foot is credibility. I testified over zoom at a estate trial last year and I was up against a realtor. This was an improved property and the realtor went to SP/SF and had values a few hundred thousand over my estimate. I was asked point blank about SP/SF and I said, "Not a big fan of SP/SF in general. It ignores location and size (GLA) differences. It isn't the process of adjustments that appraisers typically make or trained to make, but I understand that real estate agents gravitate toward it, but its overly simple and doesn't take into consideration the concept of marginal contribution to value." So I wasn't going to go down that path or rabbit hole, especially since the subject house was in a neighborhood which was very sensitive to location....proximity to ocean beaches. So I essentially said, here is Comparable #1 which is $zzz,zzz and most similar to the subject in size (GLA), age, condition and location. Rather than playing around with SP/SF, here is an orange similar to the subject orange, and it limits the upper range of value, while the other comparables logically support my estimate of value.

 

[sputnam]

It's unlikely that land prices are directly related to the size of the site. For example, if a 0.5 acre site is worth $50,000, a 0.75 acre site may not be worth $75,000. It isn't linear. The site value reflects the market reaction to it's utility.

 

[Zoe]

I used to do many subdivision development appraisals and the developer just didn't get much more for small differences in site size with that being only difference. Say a subdivision was average 15,000 sqft lots selling for $35,000 and a lot had 18,000 sq ft. They might get $2,000 more for the 18,000 sq ft lot.

 

[The Warrior Monk]

Back when I used to do reviews, I used to see the $1/sq.ft. land adjustment all the time. It didn't matter whether it was a 0.25 acre lot worth $50,000, or a 0.25 acre lot worth $1,000,000.

It was pure laziness. Most of the time, land sales were readily available, and a ballpark adjustment for the contributory value could be determined with a casual review of data. But many simply referenced "The List" when making adjustments.