Best Method To Determine Location Adjustment?

[Joe Flacco]

I don't know why you are avoiding the question. Just answer the question so we can put a end to this debate.

If you take a property sale price and subtract out the depreciated improvement costs, do you get estimated site value?

 

[NachoPerito]

In my community you can buy a 1/4 acre lot for $30,000 any day of the week.

In a community 20 miles SW of me you can do the same.

But:

A $200,000 house up here is worth $240,000 down in the other community.

Then move that same $200,000 house in my community about an hour away to Michigander's area and the house is $300,000 or more.

This doesn't pass the 'supply and demand test' if all things are equal, but maybe there is something unusual going on in your area that could explain this. Those could be:

Development cost differences in different areas: Some jurisdictions are more costly to build and have different fees for school, parks, and traffic mitigaiton fees and differing GFC charges for water and sewer. some jurisdictions are pro-development and some make if more difficult to get permits.

Other than that I can't see how a builder could get $60k more profit per house in one location compared to another. It would maybe happen once then demand would skyrocket in that area and would push lot prices up until it was in balance. Builders will have knowledge of areas with the best margins.

 

[Michigan CG]

I'm not talking about 20 miles away or a hour away.

I live in a rural area.

 

[Michigan CG]

I'm not talking about 20 miles away or a hour away.

I live in a rural area.

If you take a property sale price and subtract out the depreciated improvement costs, do you get estimated site value?

Yes you do. In my real life example the depreciation would be different in the two locations for the exact same two houses. But I can assure you that the site values in these two communities is basically the same.

Carving out external influence is challenging from overall depreciation.

 

[George Hatch]

I don't know why you are avoiding the question. Just answer the question so we can put a end to this debate.

If you take a property sale price and subtract out the depreciated improvement costs, do you get estimated site value?

Sure - you get a value. If you do it well that value might even be reasonable. But i wouldn't say that the way many appraisers do their cost approach is a good way of doing that.

I sometimes do land value by extraction as a last resort and because there's nothing else. But not without first looking for land sales both past and present to see if there's some way to avoid that.

The whole point of this discussion - which YOU keep avoiding - is whether land sales value trends can vary from those for improved sales. They either can or they can't. If they can then that makes nonsensical the blanket assertion that land is ever a better measure - let alone always a better measure - for the location adjustment for an SFR than other SFRs.

 

[Michigan CG]

This doesn't pass the 'supply and demand test' if all things are equal, but maybe there is something unusual going on in your area that could explain this.

The higher priced location is close to Toledo, OH and the folks working in Toledo don't want their kids going to Toledo schools so they move over the border.

The median income is higher in the community than the remainder of the county.

We still have a significant amount of subdivisions that were developed prior to 2008 in all areas of the county that are mostly vacant.

 

[Joe Flacco]

Sure - you get a value. If you do it well that value might even be reasonable. But i wouldn't say that the way many appraisers do their cost approach is a good way of doing that.

I sometimes do land value by extraction as a last resort and because there's nothing else. But not without first looking for land sales both past and present to see if there's some way to avoid that.

The whole point of this discussion - which YOU keep avoiding - is whether land sales value trends can vary from those for improved sales. They either can or they can't. If they can then that makes nonsensical the blanket assertion that land is ever a better measure - let alone always a better measure - for the location adjustment for an SFR than other SFRs.

I didn't avoid anything. I even gave a example of a instance I ran in to in one I just completed where the difference would be greater than the difference in site value. I also explained how I would handle the situation.

 

[Michigan CG]

Joe, here is why your method is not always reliable.

There are recent sales of parcels here at about $30,000. If I have a house on that parcel it is worth about $200,000. Five miles away the land values are just about zero in part of town. The house will be worth $75,000 at MOST because of the location. The difference in land value is $30,000 while the overall difference in value is at least $125,000.

If we go down to the community 20 miles away the land value is $30,000 but the house is worth $240,000.

 

[Joe Flacco]

Joe, here is why your method is not always reliable.

There are recent sales of parcels here at about $30,000. If I have a house on that parcel it is worth about $200,000. Five miles away the land values are just about zero in part of town. The house will be worth $75,000 at MOST because of the location. The difference in land value is $30,000 while the overall difference in value is at least $125,000.

If we go down to the community 20 miles away the land value is $30,000 but the house is worth $240,000.

There is no such thing as always reliable. This debate is happening because some people were making it sound like comparing grouped sales is always reliable and comparing site values is not and should be last resort. I said grouped sales is a credible method of developing the adjustment.

My argument is that when you are not dealing with different market conditions in the two different locations then difference in site value is probably one of the more reliable methods. Anyways, some people may disagree but I made my case so I will just leave it at that. I am on the top posters list which means I posted too much.

 

[NachoPerito]

Joe, here is why your method is not always reliable.

There are recent sales of parcels here at about $30,000. If I have a house on that parcel it is worth about $200,000. Five miles away the land values are just about zero in part of town. The house will be worth $75,000 at MOST because of the location. The difference in land value is $30,000 while the overall difference in value is at least $125,000.

If we go down to the community 20 miles away the land value is $30,000 but the house is worth $240,000.

This is a highest and best use issue then. The $30k parcels have a highest and best use of Single-family residential. Five miles away the lot sales have a highest and best use of something else if it doesn't pencil out (hold for investment, farming, public park, etc).