How to calculate Land to Building Ratio

[Karly Klein]

What is the formula for calculating land to building ratio?
Do you use Gross Building Area?
Thanks.

 

[Thomas N. Morgan]

Karly,

I'm not a commercial appraiser, but I think the term refers to the ratio of the value of the two, not the size. The idea, in residential property, is that if the relationships are out of whack, the marketability and value suffer.

 

[Brian Weaver]

A 40,000 Sq.Ft. site divided by a 10,000 Sq.Ft. building (above grade) would give you a L/B ratio of 4:1.

Sometimes you'll have a pair of numbers like:

56,786 Sq.Ft. (site) divided by 12,766 Sq.Ft. (building) = 4.45:1

You need need to decide what the L/B ratio means in your market, if anything.

Strip centers in your market may indicate a 3.5:1 to 5.5:1 ratio range. If your subject is 1.85:1, this may indicate that there is no room to expand or that there may be insufficient parking available.

If your subject has a ratio of 11.3:1, you may have EXCESS or SURPLUS land that needs to be considered.

I won't necessarily report the L/B ratio unless I find it to be out of step with the market.

Sometimes Lot Coverage (the footprint of the improvement regardless of square footage) tells a better story than the L/B ratio.

If you decide to include the entire structure in a L/B ratio, basement and all, just make certain you do the same for comps and you define it somewhere in the report. Local custom may suggest that the L/B ratio is only an above-grade calculation.

 

[Paul Ness MAI]

Karly, Brian's method of calculation is correct. I report it in every subject property description, then analyze it in the highest and best use to determine if there is any excess or surplus land, then use it as an item of comparison in the sales approach. Whether you include basements or upper floors, just make sure you are consistent in your method of calculation for the subject and the comps.

 

[Hugh Griffith]

What is the formula for calculating land to building ratio?
Do you use Gross Building Area?
Thanks.

If you are calculating the "Floor Area Ratio", it's the total gross building area divided by the total site area. If you are calculating the "Ground Floor Coverage Ratio", it's the total gross ground floor building area divided by the total site area. Both calculations are made after excluding any excess land from the computations.