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Can the market determine that excess land is actually just surplus land?

Trihard

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Jul 4, 2017
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State
Michigan
I'm doing a purchase of a SFR home where an adjoining parcel is being sold with the house under one purchase agreement. Client wants the appraisal to include both the house and the additional parcel. One parcel has the improvements, the other parcel is vacant and is used as green space, basically an extension of the side yard. The second parcel is buildable, has been split and has its own parcel number. Both parcels are similar in size, about 12000 sf each. The valuation of the two parcels as two separate vacant entities is about $4,000 each based on land sales. The issue is that I don't think its worth purchasing the second parcel separately and building a new house on it even though there are land sales. The SFR values in the neighborhood are between 50k to 100k and building a brand new house would mean you are losing equity. It would be much smarter to pay an additional 15k or so to buy land in a different neighborhood where the values are higher and to build a new house there. So even though the extra parcel is technically excess land, its use is more inline as surplus land in this situation. Would love to hear your thoughts as this situation is quite unique.
 

andrew81

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Dec 5, 2008
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Certified Residential Appraiser
State
Illinois
Sounds like it is excess land with an interim highest and best use as vacant until market conditions change.

Include it in the valuation.
 

andrew81

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Dec 5, 2008
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Certified Residential Appraiser
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Illinois
I might say something like this in my summary of highest and best use.

The current Highest and Best Use of the additional vacant parcel is an interim use to continue as vacant. The current use is vacant with residential on the surrounding properties. It is located in a residential area with Residential Single Family zoning regulations. Zoning does not allow for commercial, industrial, or agricultural making those uses not likely. There is little demand for vacant residential sites as this is not a speculative market with new construction activity. It is not financially feasible to build a new home and sell it for a profit. The Highest and Best Use as vacant is an interim use to hold for future development. When market conditions change, this site will likely be developed as a one-unit residence.
 
Last edited:

jay trotta

Elite Member
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Feb 8, 2004
Professional Status
Certified Residential Appraiser
State
Connecticut
I'm doing a purchase of a SFR home where an adjoining parcel is being sold with the house under one purchase agreement. Client wants the appraisal to include both the house and the additional parcel. One parcel has the improvements, the other parcel is vacant and is used as green space, basically an extension of the side yard. The second parcel is buildable, has been split and has its own parcel number. Both parcels are similar in size, about 12000 sf each. The valuation of the two parcels as two separate vacant entities is about $4,000 each based on land sales. The issue is that I don't think its worth purchasing the second parcel separately and building a new house on it even though there are land sales. The SFR values in the neighborhood are between 50k to 100k and building a brand new house would mean you are losing equity. It would be much smarter to pay an additional 15k or so to buy land in a different neighborhood where the values are higher and to build a new house there. So even though the extra parcel is technically excess land, its use is more inline as surplus land in this situation. Would love to hear your thoughts as this situation is quite unique.
1) Client wants and needs the HBU in regards to regulation; 2) technically is correct

Understand your view, but doesn't appear to hold water (facts prevail); There is a 5 ac rule that has been around forever, on a 10 ac parcel is there only value in just the 5 ac or is the surplus of any value ??
 

Ken B

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Joined
Feb 18, 2004
Professional Status
Certified General Appraiser
State
Florida
An aspect of excess land is that it is land that can be subdivided from a larger parcel. The land you describe has already been subdivided and is readily marketable. It is simply an additional parcel, not "excess land", by definition. It is possible that the highest and best use of the parcel is assemblage with an adjacent parcel, but for generic SFR land, that would be pretty rare in my experience. (This is most often observed in a gentrifying neighborhood where older, smaller improvements are being razed, lots assembled, and larger, newer residences constructed.) However, "as is" the parcels have not been assembled and the client is asking you to appraise what exists, which is two parcels, one of which has been improved with a SFR and one which is vacant.
 

Tom D

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May 22, 2015
Professional Status
Certified Residential Appraiser
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Pennsylvania
big city with low prices. i congratulate you for going so far on figuring it out. you put that value on the lot, but in effect who is going to buy it? it probable only has value to the owner next door. if your sales prices are that low, or lower, who living there will have $4,000 in the bank to buy it. if it vacant, just sitting there, it probable would have tall grass and maybe trash dumped on it in the middle of the night. the lot has value to the owner of both deeds because you can finance it. poorer neighborhoods will pay more for something they like, if it can be financed, verses it sitting there vacant cause nobody has $4,000 in cash. one of the funny things in this city is that we have 40,000 abandoned buildings & lots. and on a worthless vacant lot city want $10,000-$30,000. so that is why we have we have 40,000 vacant homes & lots sitting for 100 years.
 

NP_MAI

Senior Member
Joined
Apr 10, 2018
Professional Status
Certified General Appraiser
State
Florida
I'm doing a purchase of a SFR home where an adjoining parcel is being sold with the house under one purchase agreement. Client wants the appraisal to include both the house and the additional parcel. One parcel has the improvements, the other parcel is vacant and is used as green space, basically an extension of the side yard. The second parcel is buildable, has been split and has its own parcel number. Both parcels are similar in size, about 12000 sf each. The valuation of the two parcels as two separate vacant entities is about $4,000 each based on land sales. The issue is that I don't think its worth purchasing the second parcel separately and building a new house on it even though there are land sales. The SFR values in the neighborhood are between 50k to 100k and building a brand new house would mean you are losing equity. It would be much smarter to pay an additional 15k or so to buy land in a different neighborhood where the values are higher and to build a new house there. So even though the extra parcel is technically excess land, its use is more inline as surplus land in this situation. Would love to hear your thoughts as this situation is quite unique.
Yeah, be kind to yourself and call it excess land. The value is $4,000 on its own and the bulk market value (the improved lot and the vacant lot) may be less than the sum of the parts.
 

ZZGAMAZZ

Senior Member
Joined
Jul 23, 2007
Professional Status
Certified Residential Appraiser
State
California
Yeah, be kind to yourself and call it excess land. The value is $4,000 on its own and the bulk market value (the improved lot and the vacant lot) may be less than the sum of the parts.
Question: Would an HC regarding an assemblage of parcels be required before the HBU analysis is conducted?
 

glenn walker

Elite Member
Joined
Oct 11, 2006
Professional Status
Certified Residential Appraiser
State
California
I
I'm doing a purchase of a SFR home where an adjoining parcel is being sold with the house under one purchase agreement. Client wants the appraisal to include both the house and the additional parcel. One parcel has the improvements, the other parcel is vacant and is used as green space, basically an extension of the side yard. The second parcel is buildable, has been split and has its own parcel number. Both parcels are similar in size, about 12000 sf each. The valuation of the two parcels as two separate vacant entities is about $4,000 each based on land sales. The issue is that I don't think its worth purchasing the second parcel separately and building a new house on it even though there are land sales. The SFR values in the neighborhood are between 50k to 100k and building a brand new house would mean you are losing equity. It would be much smarter to pay an additional 15k or so to buy land in a different neighborhood where the values are higher and to build a new house there. So even though the extra parcel is technically excess land, its use is more inline as surplus land in this situation. Would love to hear your thoughts as this situation is quite unique.
I think you answered your own question : )
 

Ken B

Elite Member
Joined
Feb 18, 2004
Professional Status
Certified General Appraiser
State
Florida
Yeah, on second thought, go ahead and call it something it isn't and appraise it that way. That's easier. And not misleading at all. It's kind of like calling a closet a bedroom so you are appraising a 3-BR residence instead of 2-BR. Why deal with all that? Make it easy on yourself.

(And ZZ, it would require an HC if you appraise as if it were already assembled; so, yes, you are correct. But you knew that. )
 
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