Appraising Lots/Land

[Ben Vukicevich SRA]

Charlotte,

The previous posters have all given you good ideas.

As George stated, HABU is the first step. Once I have decided that the subject site and the comparable sites can not be further subdivided, I then attempt comparison. If the subject site can be further subdivided, then you need a subdivision plan to work from. If the comps can be further subdivided, then they are not comps.

As the posters from the mountainous sections of the country have suggested, terrain plays an important factor in the useability/utility/ effective size of the site. Since you're in flat DE, you would be concerned with wetlands and conservation easements. So depending on the effective size of the site, a 3 acre site could be more valuable than a 5 acre site, depending on its effective/useable size. If the comp had a well and septic system in place when purchased, I would have adjusted for this in a different section of the appraisal so as not to be misleading by lumping it in one adjustment under site size.

I prefer to value on the effective/useable size of the site, which George H. calls "core." This method is not misleading. If the appraisal that you reviewed did this, you would not have the questions that you are asking. So place the effective size of the site in the Site box on the form and then give a nominal or maybe no value to the surplus land, depending on your market handles/values surplus land over and above the typical site size in the neighborhood.

Nothing worse than giving full value via price per acre to land that is not useable due to terrain or encumbered by wetlands/conservation easements.

Ben

 

[Atlanta CG]

The approaches for lot adjustments are different if the result is a price per unit as opposed to the adjusted price overall.

 

[Austin]

Just for fun, try this procedure in your market: Pick about ten lot and tract sales, or as many as you have, ranging from the smallest to the largest. Go to an Excel spread sheet and in the first column identify the lot; in the second column put lot or tract acreage; in the 3rd column put sale price; and in the forth column put price per acre.
Then do a graph with acreage on the X-axis and price and or price per acre on the Y-axis. Use as wide a range of lot/tract sizes as you can find. I wish we could post graphs because I could show you guys some amazing things about land sales in this area. It is almost a perfect exponential pattern. Go up to chart and calculate the trend line and regression formula. If any sale deviates from the trend line, then you start looking to find out why. You don't make adjustment, you extract adjustments. The process leads you to the answer. I appraised a large farm that was well located and subdivided into about 40 lots and tracts. It had houses, ponds, etc. You could look at the graph and see the value contribution of any value-influencing factor. When I do a land appraisal, I just print off this sale data and graph with 40 comps and say there it is. Your 20-acre tract is worth $1,700 per acre with one standard deviation of $200 per acre. If they say why didn't you make an adjustment for road frontage or shape, I just say look at those 40 sales of various sizes. Do you see any indication where those factors influence price? If they say my 20 acres has an old barn on it, why didn't you adjust for that? I just say the same thing again. Five of those 40 sales on that graph have similar buildings. Do you see any price influence on that chart. The graphs tells it all.

 

[George Hatch]

Charlotte,

In regards to your first question:

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

The answer, of course, depends on which aspect you are referring to. As far as the positive and negative adjustments go, there should be no difference. As far as using different units of comparisons go, it depends. There is essentially no difference between Price/SqFt and Price/Acre; both are based off of size. However, if you're looking at a single residential lot, it may be more approriate to actually take the sales price as the predominant unit of comparison and make dollar adjustments to that. That's the way we do it for SFRs and Condos, and is also appropriate for single residential lots because buyers and sellers will usually do it the same way. Using Price/SqFt or Price/Acre are usually reserved for non-SFR property uses.

That said, I recently saw a local Residential Licensee value a 3+ acre site using the Price/SqFt. Turns out the site is dividable for up to 32 residential units. What a mess that turned out to be. Needless to say, the completely incorrect value conclusion was the least of the mistakes made in that appraisal.

Adjustments for lot utility (vs. size), as some of the other posters in this thread have indicated, is very improtant, as are adjustments for utility availability and other factors.

I would would venture to guess that if one or both of the appraisals you are holding is valuing that single residential lot based on sheer size rather than as a single lot, there might be a problem with the value. If using size alone as the primary determinant, its too easy to make a 5 acre site look like its worth 40% more than a 3 acre site, which it will not be if both sites have the same maximal development potential/use. If in doubt, you can always ask a couple of the local brokers how they value the sites, based on size alone or as a whole. Use whatever method is customary for your market.

As for the duelling appraisal reports you have in hand, it is possible that they are both wrong. At best, it looks like at least one of them is wrong.

George Hatch

 

[Ben Vukicevich SRA]

Hey George,

You said-

"That said, I recently saw a local Residential Licensee value a 3+ acre site using the Price/SqFt. Turns out the site is dividable for up to 32 residential units. What a mess that turned out to be. Needless to say, the completely incorrect value conclusion was the least of the mistakes made in that appraisal."

George, in addition to all the other USPAP violations present, wouldn't you need a certified general appraisal license to handle that appraisal in your state?

Oh well, sometimes apples aren't equal to apples in this business (3 acres does not equal 3 acres). Looks like another "incompetent" RL bites the dust. If they would just learn to look at the zoning and subdivision potential first, they'd be OK and know when to back out of the assignment. As I stated in my post above, if it's subdividable it's time to stop and get a preliminary subdivision plan to use as a basis for your market value opinion.

Everyone always questions FHA theory on Excess Land and why it is not to be valued in the appraisal report. It's exactly for the reason/example you cited above-the RL or RC is generally not competent to complete a major subdivision appraisal report.

Ben

 

[Austin]

When you have lots of various size and make an adjustment using dollars per square foot or per acre, are you sure you are not making two adjustments at the same time? Every time you make an adjustment for a value factor using $/unit of size you are making a size adjustment. You are double counting. Price per unit of size is a vicarious variable and reflects all value influencing factors. That means when you express the size per $/unit, that unit reflects all value influencing factors.

 

[jtrotta]

Variations are typical for the area in which your doing the appraisal-I think; when doing 2+ acres we use per ac adjustments; lake area's may be done 2 ways-depends on location; direct waterfront, I've seen done on a per acre basis and also on a front foot basis. One interesting class taken years ago, was in regards to the "front foot" basis and explained quite well by an old MAI friend. Of course didn't get to use all that education for about 5-6 years, but it did come in handy.


Good Luck in your adventure 8)

 

[George Hatch]

Ben,

The licensing level of this appraiser did represent a problem in this case because that appraisal did end up at a federally regulated bank. If the federal regulators had caught them with that appraisal in connection with that loan, there would have been some disclipline for the bank. The appraiser, regardless of his level of licensure, should have recognized that he was in over his head and handled the assignment accordingly.

However, I was not trying to imply that the appraiser messed up because of his licensure level. I was merely pointing out a competency problem. Everyone knows ResLics who are at the top of their game with respect to their work, as well as GenCerts who are idiots. In this case, I would have been really mad if a GenCert had turned in the same appraisal because they should actually know better from a technical standpoint. On the other hand, we see appraisers of all stripes working outside of their areas of competence, be it technical or geograhic. It almost always seems to turn out poorly.

It's like Clint Eastwood said "A man has got to know his limitations".


George Hatch