Home on acreage - how to value land?

[Zoe]

H&B use of the land as if vacant and as improved is your key to H&B use of the land. Just look up the definition of H&B use and consider it as improved and as if vacant and it will solve your problems. Your on the right track on vacant land sales and similar properties that have sold. But it goes deeper than that on all the issues you mentioned.

 

[Zoe]

Sometimes qualitative analysis is all an appraiser can use because the market does not indicate otherwise on site size.

 

[Zoe]

Remember this. There is close correlation between H&B use analysis and the "definition of value". You are probably primarily used to looking at appraisals where the definition of value is "market value" as defined by FNMA.

I may be wrong but I think "market value" definition is only definition of value that requires H&B use analysis "as is" and "as improved".

 

[George Hatch]

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.

All real estate is local. I've seen improved sales in this region where the contributory of the surplus didn't match up with the 100% vacant land sales. Often "yes" but sometimes "no". That's one reason why I usually do both analyses (w/impr and wo/impr) and reconciled for a conclusion.

Acreage w/improvements is *sometimes* different than improvements w/acreage. The situation can also be different by price range; $5k/ac doing differently from $200k/ac.

 

[Zoe]

There is nothing wrong with making adjustments in sales comparison approach with vacant land sales per acre in rural area. Then that has to be weighed against improved properties with same H&B use as if vacant and as improved with similar site sizes.

 

[Zoe]

Cost approach plays a roll in some cases. Income approach also depending on what land is used for.

 

[Zoe]

I bet Terrel has to do cost approach on many assignments. He knows rural. He may not do cost approach, but he applies either in sales or income approaches

 

[Terrel L. Shields]

I've seen improved sales in this region where the contributory of the surplus didn't match up with the 100% vacant land sales.

Possibly in a suburban urban setting on a small acreage. In rural property, I don't think I could really document a disconnect between the value of land improved or not improved. OTOH, locally where I work, subdivision is not deeply scrutinized nor difficult to do. In many cases, you don't even have to get the county approval to subdivide. Only in a town will regulate lots splits locally.

 

[DerrickTeam]

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.

Little more details: Lot size is just under 10 acres and would be considered surplus. Mostly field but has some woods and a creek in back. Horses are allowed but for land owner only. Very popular area (school district) that's mostly residential neighborhoods with a scattering of AG fields. Large custom home less than 10 yrs old with similar homes around it in small sub plated area. Rural /well /septic but with town less than 5 miles away. Just down the street, 3 acre lot sold for $55k per acre. Around the corner (different school district), several 3 acre lots sold for close to $40K per acre. In that situation would you lean to $10K? I'm just a little surprised that what residential zoned land around the subject sells for would not factor into the acreage adjustments. Of the 3 appraisals, one came in at sale price (buyer failed to get the loan), the other 2 were a bit on the low side and the per acre price used in the adjustments shocked me. I was beginning to think it was some sort of lender requirement, in this case out of state lender. I'm trying to figure this out as we have another similar listing coming up in the near future.
Thanks!
Dennis

 

[Mark K]

Little more details: Lot size is just under 10 acres and would be considered surplus. Mostly field but has some woods and a creek in back. Horses are allowed but for land owner only. Very popular area (school district) that's mostly residential neighborhoods with a scattering of AG fields. Large custom home less than 10 yrs old with similar homes around it in small sub plated area. Rural /well /septic but with town less than 5 miles away. Just down the street, 3 acre lot sold for $55k per acre. Around the corner (different school district), several 3 acre lots sold for close to $40K per acre. In that situation would you lean to $10K? I'm just a little surprised that what residential zoned land around the subject sells for would not factor into the acreage adjustments. Of the 3 appraisals, one came in at sale price (buyer failed to get the loan), the other 2 were a bit on the low side and the per acre price used in the adjustments shocked me. I was beginning to think it was some sort of lender requirement, in this case out of state lender. I'm trying to figure this out as we have another similar listing coming up in the near future.
Thanks!
Dennis

One question that comes to mind is 'what does a one acre lot sell for?'. I'm in a donut county to Indy with demographics that closely reflect what you describe. One acre suburban lots sell for about $75K, 2-3 ac. lots sell for $40-$50K/acre, +/-. After that point, there is a fairly steep drop off down to about $10-$20K/acre for the remaining acreage. A 10 ac. lot will sell for about $200K, a 20 ac. lot, $275K.

The land values for large homesites is not a linear function; there is a fairly steep drop off in the per/acre value after 3 or so acres, eventually reaching a bottom value at ag land prices, again +/-. A 30 ac. site will sell for maybe $350K, maybe less if the ground is mostly pasture-type land and not good tillable land. Wooded land, even less.

If you're really curious I'd recommend finding about 20 land sales and plotting them on a graph with the $/acre on the vertical axis and the acreage on the horizontal axis. I think this visual will illustrate the concept of diminishing price/acre. I've included similar graphs in appraisal report for support in my analysis of land sales.