Contributory land value?

[PropertyEconomics]

Land underlies all ... improvements suffer depreciation .... the land should be appraised to its highest and best use as though vacant .... contributory value of improvements can be determined after that if depreciation of functional or external nature is present.

 

[farmguy]

I think I misunderstood post.
I was assuming zoning was not ahead of demand. I agree if market only supports 20 then it doesn't matter if it is zoned 30, I would use comps with similar demand - 20.
If it is zoned 30 because market demands that then use land comps at 30. And in latter case the improvments take the depreciation hit.

 

[ETex2]

Land underlies all ... improvements suffer depreciation .... the land should be appraised to its highest and best use as though vacant .... contributory value of improvements can be determined after that if depreciation of functional or external nature is present.

I don't disagree at all. However I did have lunch with a couple of MAI's who swore that only the contributory value should be considered as improved, assuming that the current improvements represent the highest and best use as improved.

The land value being appraised always as if vacant is a change in thinking, since the old AIREA taught contributory value in the past. And I mean the distant past since I think I took this course in 1988. Not sure when things (appraisal theory) changed.

The first AIREA real estate terminology book I ever owned (published in 1978, i think), also defined market value as the "highest price..." rather than "most probable price...". Theory evolves. Just wish the powers that be wouldn't be so vague about these types of issues.

 

[PropertyEconomics]

Land and improvements "contribute" value to the whole, each in their own amount ... but appraisal theory has been consistent that land (except in very rare cases) does not depreciate. Depreciation is attributable to the improvements. Therefore land value underlies all and the value of the improvements fluctuate (appreciation or depreciation) dependant upon market variables and external influences.

I wonder if the MAIs you spoke to meant "allocation" rather than "contribution" ......

 

[skx172]

I agree with you 100% (land as if zoned for a 1-fam). If you are developing a cost approach you value the land "in use" (as some other guy said). I don't see how it makes sense the other way. Pricipal of substitution after all is what the cost approach is, right?.

But in your particular case with the 1-family home i would imagine that the sales comparison would be given most if not all of the weight.

So are people here agreeing that land is ALWAYS appraised as if vacant? Or are there members saying that the contributory value as a single family homesite is the proper way to value the underlying land subject to acquisition? In this case, no demand for commercial land at this location would seem to indicate properly valuing the land as a residential site. But let's say that there is some demand for a commercial use, and as if vacant, the land value would as a result be higher on a per SF basis. Same conclusions?

 

[Terrel L. Shields]

You can make the case that the obsolescence is economic due to the market conditions for 20 v 30 units....or that the obsolescence is grounded solely "on site" - i.e. - is functionally under improved (utilized)...which kinda brings up the issue of is there surplus land ...

But to me, so many properties are changed with respect to zoning after a proposal is made and the sale of the land may be contingent upon that zoning being changed. In the case above, "Industrial" property becomes Highway commercial...so we are shooting at a moving target.

 

[PropertyEconomics]

I agree with you 100% (land as if zoned for a 1-fam). If you are developing a cost approach you value the land "in use" (as some other guy said). I don't see how it makes sense the other way. Pricipal of substitution after all is what the cost approach is, right?.

But in your particular case with the 1-family home i would imagine that the sales comparison would be given most if not all of the weight.

The principal of substitution would ask what value (ie cost) of land would you have to expend in order to place the subject improvements on the site. It is all about highest and best use, comparable selection, and analysis of the sales ... no so much zoning (in my opinion) ...

 

[ETex2]

Isn't property always appraised under it's highest and best use? If the highest and best use as improved of the house on the commercially zoned land is as a single family home despite permitted commercial uses as if vacant, wouldn't valuing the land as a commercial site be in conflict with this premise?

 

[farmguy]

Isn't property always appraised under it's highest and best use? If the highest and best use as improved of the house on the commercially zoned land is as a single family home despite permitted commercial uses as if vacant, wouldn't valuing the land as a commercial site be in conflict with this premise?

No conflict.
Is your argument about different highest and best use's or is it improper zoning. It seems you keep coming back to zoning or what is permitted. In your example above, is there market demand for "permitted commercial uses" or are you argueing it really is residential land as if vacant and somebody just stamped commercial zoning on it? If there is demand for a higher valued use (commercial) for the land then that is how you would value land in the cost approach.

 

[Mark K]

This problem is common with homesites where the underlying land has been rezoned for commercial use, although there is no demand for this commercial use and the existing improvements represent the highest and best use as improved. Thoughts?

While zoning is a factor, it is not the only one that determines HBU. In your example, if there is no demand for commercial, the HBU probably remains residential and the land will be valued accordingly. There's a lot of land with comm/indust zoning in this area with corn growing on it these days. HBU= Agricultural. In the current market, zoning adds little or no value.

Most of my work is R/W and in your example, the land would be valued and compensated as residential, and if appropriate, the residential improvements would be damaged and compensated accordingly. (For example, $100k property, $75K imp/$25K land)

If the HBU of the same parcel is commercial and the residential improvements add no value, the acquired land will be compensated as commerical but there would be no compensation for setback damages to the improvements, even if the property remains residential in use. ($100K land, $0 improvments contrib.value.)

Or it could be transitional and since any damage compensation is based on the contributory value of the residential improvements, the damage amount will be based on a reduced improvements value. ($75K land, $25K imp.)

At least that's the way the State of Indiana accepts/requires.