Is this a legit way to calculate the value of land?

[AbbyStone]

So we are trying to buy a house on 1.5 acres of land and the appraisal came back really low. There weren't very many good choices for comps, so two of the comps she chose were on small lots, ~3000 and ~7000 sq ft. She adjusted for this by adding $2000 and $1000 adjustments, respectively. This was based on land sales, she included this info of two sales in a nearby town: Property A ~7000 sf ft site sold for $3200/Property B ~3400 sq ft site sold for $3200. So based on that, I am lost as to how she decided that adding on an additional 60,000 sq ft or so in land could only be worth a thousand or two. I looked up the actual sale, it was actually three lots that sold for $9600, if that makes a difference. The house we want to buy includes 8 additional lots, not counting the lot it is on. I did call her and ask her how she arrived at just valuing 1.41 acres at $2,000 and she threw around a lot of appraiser terms like "extraction" "highest and best use" "qualitative analysis". I wanted her to walk me through it, like say I used this formula, plugged in these variables and that's how I arrived at those numbers but she said she couldn't do that. Her main argument was that nobody would want 1.5 acres in a town, that would only be appealing if it were rural, so you could own a lot of livestock (you can own some livestock but obviously there are more limitations than if you were in the middle of nowhere). But the property she compared it to that sold for $3200 a lot is also in the middle of a town, so you'd have the same livestock restrictions and it still sold for that much. So is there any justification for valuing 8 lots at just a fraction of the price that 1 lot would cost nearby?

 

[NachoPerito]

An appraisal is only as good as the data available. Find better data and maybe you will get your questions answered.

 

[AbbyStone]

Let's assume for the sake of the question that that is the best data that there is. My question is, is that a correct way to use the data?

 

[The Warrior Monk]

So we are trying to buy a house on 1.5 acres of land and the appraisal came back really low. There weren't very many good choices for comps, so two of the comps she chose were on small lots, ~3000 and ~7000 sq ft.

The difference in lot size here concerns me. Those two lots are very small, and they almost certainly have proportionately less utility than the larger lot. Furthermore, with lots that small, I would be concerned as to whether they are even buildable, especially if they have unusual configuration, are located in an area lacking public water and/or sewage disposal, etc.

There are various methods of determining land value, some better than others. Comparison with other vacant parcels is simply one method.

 

[AbbyStone]

NachoPerito, are you the appraiser who appraised the house?

 

[Michigan CG]

If you lived in my area then I would call total BS, but you don't and the only think I know about Washington is that it rains a lot there and your football coach should have run the ball in the fourth quarter.

That being said, there are some questions.

1. Was the appraisal performed for a bank?
2. I am assuming she had more than two comps, how big were they and what did they sell for?
3. If she used the term extraction then it should be explained in the report how she extracted the value from improved properties. Extraction is the process of taking an improved property (house on the property) and "extracting" the land value by subtracting the depreciated value of the improvements to result in a land value. FWIW there are many appraisers who throw that term around and have no idea what it means or how to do it.
4. Qualitative analysis is something that is used all the time but if she developed a value using this then she would/should have explained it.
5. Livestock? On 1.5 acres? Um, not very much.
6. You say it is 8 lots. Are the lots 8 BUILDABLE lots? If so then she would have to have a detailed Highest and Best Use explanation in the report. It would most likely be at least a page if done correctly.
7. Was the appraisal ordered through an Appraisal Management Company?
8. What is the license level of the appraiser. I ask because of the 8 lots.

Like I said, if this were done where I live I would call BS, but I know nothing about where you live.

 

[NachoPerito]

NachoPerito, are you the appraiser who appraised the house?

I didn't appraise it, but I am in Washington State. Your comments leave so many questions. First, where do you live where you can buy a buildable lot for $3200?

The best method for valuing land is the Sales Comparison Approach. Finding land sales is the best method. Compare them on a price/SF, price/Acre, or price per lot. When that isn't possible extracting the land value out of an improved property is possible.

What were the exact comps used? How much did they sell for and what was the correlated value for your property.

Using a 3200 SF land comp for a 60,000 SF subject is not ideal at all, but I have certainly compared 6000 SF lots to 43560 SF lots, you just have to be confident in your size adjustment. I recently did it and adjusted a property from $80,000 to $96000 for that difference in size.

If the comps were really bad you could call another appraiser and pay them $100 to feed you local land sale comps. It may give you an idea if this appraiser really missed sales. If there are no recent sales go back further in time, go out geographically, or do extraction.

 

[AbbyStone]

If you lived in my area then I would call total BS, but you don't and the only think I know about Washington is that it rains a lot there and your football coach should have run the ball in the fourth quarter.

That being said, there are some questions.

1. Was the appraisal performed for a bank?
2. I am assuming she had more than two comps, how big were they and what did they sell for?
3. If she used the term extraction then it should be explained in the report how she extracted the value from improved properties. Extraction is the process of taking an improved property (house on the property) and "extracting" the land value by subtracting the depreciated value of the improvements to result in a land value. FWIW there are many appraisers who throw that term around and have no idea what it means or how to do it.
4. Qualitative analysis is something that is used all the time but if she developed a value using this then she would/should have explained it.
5. Livestock? On 1.5 acres? Um, not very much.
6. You say it is 8 lots. Are the lots 8 BUILDABLE lots? If so then she would have to have a detailed Highest and Best Use explanation in the report. It would most likely be at least a page if done correctly.
7. Was the appraisal ordered through an Appraisal Management Company?
8. What is the license level of the appraiser. I ask because of the 8 lots.

Like I said, if this were done where I live I would call BS, but I know nothing about where you live.

1. Yes, for a bank.
2. There were three comps all together. The other one has 1.3 acres and sold for 60k. (It was an REO).The two comps with smaller lots sold for 65k and 82k. The 65k one was also an REO.
5. Yes, not much livestock. The sellers owned about 20 chickens and a cow. The appraiser argued that you would be at the mercy of what the town council decided, so that would negate the value of the land for people wanting to have livestock.
6. I don't know think the lots would be buildable. It is all set up as one property, with a greenhouse, shed, barn, chicken coop, a small pasture and a fenced backyard.
7. I believe so.
8. Her license just says Real Estate Appraiser.

The only thing it says in the appraisal about how site value was calculated was "Comparable sales #1 and #3 required adjustments for variations in site size. Site values and corresponding adjustments were estimated through land sales data when available, and allocation. It should be noted that site size and site values do not vary on a direct basis. As site size increases, value increases at a decreasing rate (diminishing returns)." And then she had the information about two lots that sold in a nearby town that I posted up thread. If it matters, those sites were purchased by someone who already owned a house on an adjacent piece of land, so it is most likely he purchased in order to extend the property around his house, rather than a purchase to build homes on.

 

[AbbyStone]

Forgot to say, there is no mention of "highest and best use" anywhere in the appraisal, that was just something she mentioned on the phone when I asked how the property could be valued at less than what a much smaller lot is valued at.

 

[NachoPerito]

You can post the grid if you want, but make sure to redact the appraisers name and firm and your own property identification.

Is your property not subdividable? What is the minimum lot size in the zoning?