Home on acreage - how to value land?

[DerrickTeam]

As a realtor I've found it's hard to find exact matches for the home and acreage. I usually comp the home with others on large lots (say 1 acre), then adjust by finding the average price per acre in the area and multiply that by the extra acreage on the subject home. This has always worked for me. Now I have 2 appraisals on a property with 2 appraisers using different price per acre and both are really low compared to what land sells for here. What is the usual approach for pricing the per acre to make the adjustments? In both these cases if the proper price per acre (avg is $35K) had been used the homes value would have exceeded the sale price. Just trying to make sure I'm not missing something.
Thanks!
Dennis

 

[Zephyr999]

Residential sites are listed and sold on a lot price, not a unit value.
Larger lots bigger price, smaller lots lower price.

 

[Mark K]

It depends on whether the land is excess or surplus. Excess land can be split and sold for an alternate use, more than just lawn, etc.

Surplus land is the extra land that is nothing more than a large lot. A 3 acre platted lot is usually not worth 3X as much as a 1 ac platted lot.

In this area, a few acres of surplus land can be worth $10K/acre while the 1 ac. with the house, the homesite, is worth $50K, assuming the extra acres can't be split and used for a higher use. 1 ac. lot, $50K, 3 ac. lot, $70K.

If the extra 2 acres can be split from the original parcel and sold as two 1-ac., that's another issue, one that would result in much higher land value.

 

[George Hatch]

The core value of an existing single family residence on a parcel will consist of the minimally acceptable sized lot and minimally acceptable sized home. That's usually where most of the value is. Everything above and beyond the minimums is contributory in nature, and it's contributory value on a price/sf or price/ac basis can be different than the price/sf or price/ac that applies to that core value.

There is also the economy of scale to consider; everything else being equal it will be unusual for a 2ac residential parcel to sell for exactly double of a 1ac lot. Or for a 2000sf home to sell for double what the 1000sf home next door just sold for.

The best way to identify what the market is actually paying for additional building area or lot size is to find comparable sales which are similar except for the variable we're looking for. For example, 2 homes of 2000sf each, both in generally similar age, quality and condition; but with different lot sizes. Whatever the difference in price is can be attributed to the additional lot area. Another variation of that type of comparison is to compare several "comps" to each other to see which factor most effectively equalizes their pricing (sensitivity analysis). There are also statistical analyses which use larger datasets and which draw a line through those sales.

A separate land sale analysis can sometimes be helpful, but in real life the contributory value of additional lot area to an existing residence can sometimes be different than the value of that lot area when its part of a vacant/unimproved parcel. Sometimes that contributory value is more than the price/ac of a vacant parcel and sometimes it can be less; it just depends on the market.

In the example you describe, if the appraisers haven't explained how they developed that adjustment then the possibility exists that one or both of them may simply have guessed at it. If they used a land sale analysis and presented it in the report you can look to see how well that analysis and comparison was performed. How similar in location and utility and access and improvements and zoning and such. Whether the land sales being analyzed are comparable in size (economy of scale) to the subject. A land sale analysis consisting of 10,000sf lots is basically worthless if your subject to 3ac.

 

[shrubberyvaluation]

As a realtor I've found it's hard to find exact matches for the home and acreage. I usually comp the home with others on large lots (say 1 acre), then adjust by finding the average price per acre in the area and multiply that by the extra acreage on the subject home. This has always worked for me. Now I have 2 appraisals on a property with 2 appraisers using different price per acre and both are really low compared to what land sells for here. What is the usual approach for pricing the per acre to make the adjustments? In both these cases if the proper price per acre (avg is $35K) had been used the homes value would have exceeded the sale price. Just trying to make sure I'm not missing something.
Thanks!
Dennis

Depends on the utility of that land and there is probably diminishing returns. I know its repetitive but you have to look at sales in the market. Look at vacant land too. The other person that replied from Indiana talks of acreage could be 10k in some area they work in. Land might be a lot more valuable in your neck of the woods. Really no way to know on my end.

 

[TerryRohrer]

As George notes above, the market for vacant sites can be different than for improved sites, particularly when a dwelling is contributing significant value to the whole. I appraise in an area with a large variety of everything, and typically look at vacant land values but almost never find that the contributory value of land with a dwelling approaches the same per unit value as its value vacant. While it varies, if I had to pick a one size fits all, I would choose 50% (that is, differences in site sizes between residential properties would be about half the value those acres would sell for vacant). I might find the adjustment closely approaching the vacant site values about 1% of the time. This assumes both are clearly residential uses, not commercial ag or subdividing/development tracts.

 

[NJAPRAZE]

also, zoning has a factor/impact; make sure you're comparing parcels with similar potential uses and zoning. For instance, a .25 ac site zoned for multifamily, mixed-use or commercial is likely more valuable than a similar sized site (all other things equal) that is only zoned for 1-unit SFR

 

[George Hatch]

For that matter the values for parcels with residential zoning can be different by density. If the minimum lot size for a single family lot is 7000sf it's price/sf will often be a lot higher than if the minimum lot size is 1ac or 5ac or 40ac.

 

[Vermonter]

I usually comp the home with others on large lots (say 1 acre), then adjust by finding the average price per acre in the area and multiply that by the extra acreage on the subject home.

Price per acre from raw land? Excess and even surplus land value on a residential property rarely equals raw land prices.

I do a lot of rural properties with varying acreage and there is no one rule to extracting value for excess/surplus acreage. Zoning, population density, subdivision/commercial potential, all have their influence. Not to mention construction prices, development regulations, potential zoning changes, etc.

Comparing apples to apples is the best approach. Find the best matches, with similar zoning influences, similar highest and best use, similar location, similar improvements and go from there.

 

[Terrel L. Shields]

As a realtor I've found it's hard to find exact matches for the home and acreage. I usually comp the home with others on large lots (say 1 acre), then adjust by finding the average price per acre in the area and multiply that by the extra acreage on the subject home. This has always worked for me. Now I have 2 appraisals on a property with 2 appraisers using different price per acre and both are really low compared to what land sells for here. What is the usual approach for pricing the per acre to make the adjustments? In both these cases if the proper price per acre (avg is $35K) had been used the homes value would have exceeded the sale price. Just trying to make sure I'm not missing something.

Cutting to the chase. Land traditionally is "valued as if vacant and available for its highest and best use" - that axiom comes directly from "the book" and was even in place in USPAP once upon a time, and the improvements are valued as their "contributory" value. Assessor locally value a house with "one acre" as Home Lot and the rest as if vacant.

Personally I prefer to value the entire acreage as if vacant. Land prices do not vary with the improvements. Land prices are affected by its features and surrounding externalities. So with the land value anchored, I can use the most similar houses as comparisons and do a dollar for dollar adjustment on the land. It's worked for me for 30 years and following up on sales, I find I wasn't usually far off.