Contributory Value of Excess Land and Scope of Work

[Charles Knutson]

I'm working on a report for a property in the Colorado Mountains. The improvements are an older raised ranch home and a small horse barn. It is on a 6.33 acre parcel, with water, sewer, and natural gas from the town.

The property is within the city limits, and has residential zoning with a minimum lot size of 16,000 sf. If it were outside the city limits, the 6 acres would be an oversized building site, with only nominally higher value than a 1 acre site.

The land is on hillside, with the improvements and utilities at the end nearest town. A single building site immediately north of the existing home could easily be developed, since the utilities are adjacent to it. For the rest of the site, extending the roads, water, sewer, and gas lines would be an expensive proposition, and probably require blasting the rock. In order to develop the back 5 acres, the town requires that access and utilities be extended to all of the improved lots before any of them can be sold.

Since a development analysis for subdivision is beyond the scope of work for this report, so I am trying to determine the contributory value of the excess land. I am also not convinced that changing the HBU for the rear parcel would yield a higher value than the contributory value of the vacant parcel -- because of the sloping topograhy and rock, a developer would be hard pressed to subdivided into more than 4 to 6 parcels, even though the zoning permits higher density. The development costs would be considerable, and would have to be invested before any return could be realized. Cost of entrepenural risk goes up; the present contributory value of the potential development site goes down.

For the purpose this report, the value of the property will be the existing improvements on a hypothetical small parcel, plus the contributory value of the remainder of the site.

The lender requires the report to be completed "as is", and the complete report on "all" acreage.

In searching for answers, this comment on the 2006 revised USPAP Scope of Work is very helpful:

http://ourappraisal.blogspot.com/2006/05/USPAP-2006-scope-of-work-rule-new.html

I'm feeling comfortable with this approach, although the report may have 20-40% site adjustments.

I would appreciate any opinions or comments on this approach to value.

Thanks

 

[Mike Kennedy]

"For the purpose this report, the value of the property will be the existing improvements on a hypothetical small parcel, plus the contributory value of the remainder of the site.

The lender requires the report to be completed "as is", and the complete report on "all" acreage.

THOUGHTS/OPINION

?? a. which is it .........the first or the second

b. if the second, suggest determining if the market includes the suburban section of town adjacent to city line OR the two are "different" markets.

c. then identifying the most proximate similar sales on larger parcels immediately adacent to city line, extract the excess land value "over 1 acre", sales within city line on larger than minimum lots v minimum extract the variance if any on the two sets of comps - arrive at determination if the market pays any residual value for excess.

d. would also retro search dated sales, contracted, actives on larger parcels on either side of the city line .......if any to support conclusion.

e. given the terrain, may very well be the market does not recognize any subdivison possibility as being viable. (odds are would have been done already).

 

[Terrel L. Shields]

I have always 'had a problem' with the notion (and it is actually recommended in some texts and Journal articles) that in analyzing the HBU, you can project a hypothetical lot subdivision analysis as an alternative use. Well...that subdivision is not there nor has it been proposed. There is no lots. How can YOU the appraiser speculate on what is going to be there? Do you have plans? Nope. Do you have any idea if the guy WOULD subdivide? Nope.
I cannot see how a lot subdivision is an alternative HBU where you have a single entity (6 ac.) It is a hypothetical and therefore cannot be "AS IS".
So, are you appraising it "as is"? If not, then you need THEM to tell you how the lots will lay and provide a written plat.

Find other large (oversized) lots and compare to the subject. Even if you have to value the lot as if vacant using vacant land sales, separate from valuing other improved (but smaller) properties, I'd think that will lead to a better valuation.
So? Is it legally permissible to occupy as multiple lots "as is"? NO and you cannot see the future even if you THINK that it will be approved.
Is it feasible? Do you have a feasibliity study? NO
Is it Physically possible? Well those LOTS ARE NOT THERE! NO NO a thousand times NO...
The 'maximally productive' issue is moot until someone offers to DO the subdivision, propose a plan, and get it approved.
You are valuing a LOT.
Don't confuse the valuation of the SITE as if "vacant and available for its Highest and Best Use" vs valuing the WHOLE as the Highest and Best Use "as is"

 

[Charles Knutson]

The lender requires the report to be completed "as is", and the complete report on "all" acreage.

That is part of the lender's scope of work, and the report will be written on a single lot of 6.33 acres. If the site is more than 5 acres, the lender also want a comment as to whether it is typical or not; in this case, it is not -- and the site comments will address the entire parcel.

Residential building sites in town and the surrounding areas generally sell in the $50k to $150k range; size, location, and amenities all play a factor in the valuation. So far, I haven't identified a small acreage parcel in town that has been sold and subdivided in the past few years -- but I'm still looking.

Even though the parcel is a single 6+ acre site, the market value of it should be higher than a similar home on an acreage site that doesn't have this zoning. How much the difference is will be determined in the final reconciliation of the report.

There is a new subdivision going in north of town, with 30 or so homesites. Just south of that is a neighborhood of 30 or so homes and the same zoning as the subject, that went in several decades ago. There is demand for new homes in this area, and the absorption rate is fairly steady.

At any rate, I'm still evaluating sales data, to determine the fair market value of this property.

 

[Don Clark]

Charles,

I had a similar situation a couple of months ago. Here is how I described the excess land:

"PROPERTY OWNER STATES THAT APPROXIMATELY 4 ACRES OF THE TOTAL ACERAGE ARE UTILIZED FOR SUBJECT SITE ENJOYMENT. THE REMAINING ACERAGE(23-24 ACRES+-) ARE PART OF A RESERVE. THIS AFFORDS THE SUBJECT LOCATION, SITE AND IMPROVEMNTS WITH ADDITIONAL ENJOYMENT, PRIVACY AND SECLUSION AND PRESERVES ACERAGE FOR A NATURAL HABITAT FOR WILDLIFE. THE PORTION USED BY OWNER IS RESIDENTIAL USE ONLY. ALTHOUGH SUBJECT SITE IS ZONED AGRICULTURAL, THERE IS NO KNOWN AGRICULTURAL USE OF THE EXCESS ACERAGE OF 23-24 ACRES+-."

I used sales of similar acerage to opine a value for the site. But, in a case like yours and the case i worked on, there is no higher and better use than current use. I also add the following statement in the report:

Highest and best use:

"THERE IS NO INDICATED HIGHER AND BEST USE, BASED ON ZONING, CURRENT USE & LOCAL PLANNING. ACCORDING TO OWNER, EXCESS ACERAGE IS PART OF A CONSERVATION PRESERVE."