Appraising Lots/Land

[Charlotte Dixon]

I've seen a few different ways of appraising a lots/land. For instance I just picked up two different appraisals of two different lots. On one the appraiser used penney adjustments and on the other that appraiser used dollar adjustments. I've done both, but I've seen other differences, such as:

1st appraisal: Subject had 5 acres comp one had 2 acres and there was a plus adjustment to comp one, which is how I was taught, i.e. diminishing marginal utility

2nd appraisal: Subject had 5 acres .. comp one had 3 acres and there was a minus adjustment made to comp 1 ???

1st appraisal: Subject had 5 acres unimproved .. comp one had a well/septic and there was a minus adjustment indicating superiority because of that improvement

I know lot/land appraisals can be confusing with the plus and minuses.
Have you seen a variance in how land appraisals are completed?

 

[Neil (Texas)]

What is the HBU?

All adjustments should be market extracted (wouldn't it be nice to have enough data to do so every time). Handle adjustments just like any other appraisal; if comparable factor is superior to subject apply a negative adjustment, if factor is inferior to subject apply positive adjustment.

In my area smaller residential tracts typically bring higher unit prices (less capital outlay typically attracts a greater number of potential buyers, therefore, greater competition). Again, what is the HBU?

 

[Charlotte Dixon]

Neil...what I'm getting at is on the first two cases I've cited, there is a difference in how the adjustment was made. In both cases, comp 1 was smaller than subject, yet in one case there was a positive adjustment and in the second case a negative adjustment. I know the adjustment comes from the market...but how would you explain the plus/minus adjustment?

 

[Charlotte Dixon]

Forgot to mention diminishing marginal utility..I learned that the adjustments for site size are based on market abstraction and contributory value. Above a certain point each additional increment of land area contributes less on a per acre, or psf basis than the initial minimum site size for the area. So I am asking, why are adjustments made differently in the cases I cited (case 1 & 2)? I see this handled differently often. Sorry to keep drumming this, but as you see, it's worrying me. :roll:

 

[George Hatch]

As far as the mechanics of making adjustments to the comparables to render them similar to the subject, the process is the same. If the comparable has a superior element to the subject, the adjustment will be a negative. If the element is inferior to the subject, the adjustment will be a positive. The subject stays level, the comparables are adjusted to the same level.

As far as lot sizes go for a single parcel, let's talk about core value. The concept here is that the majority of value for a property lies within the minimum acceptable size, as defined by the market; this is the core value of the property. Everything else above that is contributory value. Regardless of the unit of comparison, (Price/SqFt, Price/Acre, Price/Front Ft, etc.), the core value will always be higher on a price/unit basis than the contributory value of the extra area. Economy of Scale.

This explains why a 2,000 SqFt house on a 2 acre site is almost never worth double what a 1,000 SqFt house on a 1 acre site is in the same neighborhood (all other things being equal).

The thing to watch for in land appraisals in reference to size is that the comparison is being made between similar property types (HABU). That is, that the lots have similar maximum uses. If a lot is large enough and is otherwise viable as a subdivision, that would be a different category than a lot without similar potential, even though the zoning and other elements are similar.

As a property type, vacant land is the most speculative type of real property there is. Fortunes are made and lost in land development. Ergo, appraising vacant land is one of the most risky assignments an appraiser can get involved with. There's a lot to know about, and digging all the information up can get pretty tricky. G'Luck to 'ya.

George Hatch

 

[Mountain Man]

Are the adjustments being made on a $ per acre or on the sales price? I guess I am not clear. I have seen it both ways. If they are adjusted on the price per acre, it may be easier to see the diminishing returns for excess land between the sales.

Mell.

 

[Charlotte Dixon]

$ Per Acre, Mell. I guess that's what I'm getting at. I don't believe I've seen adjustments any other way except by the acre, and I believe it is easiest for the reader to understand. That could be what's going on with one of these appraisals I've read..... adjusted on the sale price. Thank you. :?

George, yes. I understand that part. Thank you.

 

[Dee Dee]

I would think that you might find the answers to your question by taking a good look at the comps and how they compare to the subject property. The addendum to the appraisal should explain how the appraiser determined the adjustments.

This is a dilemma that I'm faced with on almost every appraisal that I do in my area. It is not uncommon for a 3 acre parcel to be considerably more value than a 5 acre parcel that is right next to it. The five acre parcel might be steeply sloping wheras the 3 acres is level and ideal for horses. Views are also a big factor, as is southern exposure, accessibility and proximity to utilities and amenities.

 

[Anonymous]

Charlotte:

I too deal with the view/terrain issues. I am in the mountains of NC. Perhaps the appraiser did this, which I have seen done.

Was one of the appraisals adjusted using the total price/site? The other's basis for adjustments made on a per acre basis. In other words, in one appraisal, the appraiser made adjustments to the total sales price. In the other, the appraiser made adjustments to the sales price per acre. The negative adjustments would then reflect the economies of scale that may indicate a larger tract would sell for less per acre. This would result in a larger tract having a negative per acre adjustment.

I hope that was not more confusing than we all ready were. It made sense to me when I typed it. I use the pre acre method when doing large tracts of land, but use the total price method when doing subdivision lot type land. I try to look at it as a typical buyer. In the lot setting, they are usually very similar in shape, utility, etc with minor variations such as corner lot, backs up to the woods, etc. Where as large tracts, the typical buyer usually looks at several large tracts and ask what? What is the per acre price? I rarely have heard of a subdivision lot buyer asking, how much per acre?

 

[Robert Dunkle]

I may have missed it, but did not see anyone pick up on the obvious. Maybe one of the adjustments is WRONG! I have looked at many appraisals where a comp with greater square footage, or a better view, or a larger lot than the subject would have a POSITIVE adjustment. Duh!! However, I try not to judge too harshly as I have found some errors in my own reports.....usually before I send them out, thankfully.

I did an appraisal years ago on the house owned by the president of our S&L. He lived a few houses down from the CEO of Phillips Petroleum. In the report, I called the CEO's house superior to our presidents' house and made a negative adjustment. Our president picked up on the negative adjustment and snidely remarked that the CEO of Phillips would be happy to know that his house was worth less than our presidents' house. I'm not sure I ever got the concept completely across to him.