Home on acreage - how to value land?

[George Hatch]

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

$165k
<$120k
<$120k

For parcels that are 1/3 the size of your subject. Just out of curiosity, what are 1ac lots on septic selling for in that area?

I do a lot of land appraisals and for a 10ac single family parcel I would normally be seeking comparables ranging from 5-15 or perhaps 20 ac at the outside. I would only use a 3ac parcel for direct comparison if I couldn't find others of more similar size. Usable lot area vs gross lot area is often a consideration, too. The portion of your subject parcel with the creek and woods isn't as usable as the field areas.

 

[Terrel L. Shields]

The portion of your subject parcel with the creek and woods isn't as usable as the field areas.

Here a residential site with a creek and woods would bring a premium over open land.

An old axiom I use for rural properties is to search anything half the size of the subject to double the size.

A size adjustment over a short interval of acres is pretty much a straight line, large to small comparisons more a power law decline as size gets larger.

 

[DerrickTeam]

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.

That makes sense. And I'm in your same area, just west of Indy. Just did a quick look at 10 acre lots sold around the subject. Lowest I found was $18K per acre. Client is taxed at $17K per acre so now that makes sense. So now my question is would that figure into how you do adjustments? What I'm dealing with at the moment they used $5k per acre for the adjustments with the comps which just didn't seem right (there were other mistakes in the appraisal, done by a trainee, but that is what jumped out to me). The previous one was $10K, more in line with what you said earlier but it still seems low to me. The real issue is of course explaining this all to my clients.
Thanks for your input, this is helping me a lot.
Dennis

 

[DerrickTeam]

$165k
<$120k
<$120k

For parcels that are 1/3 the size of your subject. Just out of curiosity, what are 1ac lots on septic selling for in that area?

I do a lot of land appraisals and for a 10ac single family parcel I would normally be seeking comparables ranging from 5-15 or perhaps 20 ac at the outside. I would only use a 3ac parcel for direct comparison if I couldn't find others of more similar size. Usable lot area vs gross lot area is often a consideration, too. The portion of your subject parcel with the creek and woods isn't as usable as the field areas.

Hard to find but 2 I found sold for around $70K.

 

[DerrickTeam]

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.

Here, anything under 20 acres has to be approved by the town or county and there are rules of course.

 

[Terrel L. Shields]

Here, anything under 20 acres has to be approved by the town or county and there are rules of course.

As an aside to your problem, I believe such rules do impact values and literally defines "sucky surplus" from "excellent excess" parcels.

 

[DerrickTeam]

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

I've dealt with tillable land and recently a horse stable business. This is just a nice large yard.

 

[DerrickTeam]

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.

Turns out we're in the same market.

 

[George Hatch]

Hard to find but 2 I found sold for around $70K.

Okay, so the gap between 1ac @ $70k vs 3ac @ $120k is about $50k. That means the contributory value of the additional 2ac in the 3ac size range is about $25k/ac, not $40k/ac. See what I mean about the contributory value of the additional lot area not necessarily being the same as overall price/ac?

That makes sense. And I'm in your same area, just west of Indy. Just did a quick look at 10 acre lots sold around the subject. Lowest I found was $18K per acre.

I read that to mean that the one 10ac site sold for $180k. The difference between 10ac @ $180k vs 3ac @ $120k is $60k. $60k/7ac = $8572/ac.

The land sold for $18k/ac, but the lot size adjustment for that 10ac vs the 3ac sales amounted to ~$8,500/ac.

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All of the above being a secondary mode of analysis when compared to the preferred method of directly comparing residences with 10+ ac to the residences with smaller parcels to isolate the effect on value to the residences of having more vs less lot area. If I'm doing both types of analyses and there's ample data for both then I'm always going to give more weight to the comparisons of SFRs to other SFRs.

 

[alebrewer]

As an aside to your problem, I believe such rules do impact values and literally defines "sucky surplus" from "excellent excess" parcels.

Nice memory reminder. I always used the term "Surplus can't be Subdivided" - IOW - the s's don't go together...