Land locked appraisal

[Alan Magill]

Thank you. It seems at least that I appear to be on the same page as everyone else. The great thing about it is that I have not only lot sales of differing sizes, but also improved properties of differing lot sizes that support the same opinion. I have an idea of the market value definition that I am going to put together, however I will go through a few drafts prior to settling on it.

Thank you all for your input.

 

[Pittsburgh Pete]

Thank you. It seems at least that I appear to be on the same page as everyone else. The great thing about it is that I have not only lot sales of differing sizes, but also improved properties of differing lot sizes that support the same opinion. I have an idea of the market value definition that I am going to put together, however I will go through a few drafts prior to settling on it.

Thank you all for your input.

Perhaps I'm missing something, but what's wrong with the standard definition of market value? Admittedly a small market (2+ adjoiners), but a market nonetheless. The definition applies.

 

[Greenra]

It sounds like the reverse of a partial taking where the before & after valuation is an appropriate method of determining the contribution of the potential acquisition. That is, value the property with and without the proposed acquisition. The difference in value would likely represent the contributing value of the proposed acquisition.

Market data may not be sufficient to provide a good measure of the before/after valuation. Therefore, you may consider valuing the site inclusive of the proposed land and then consider the contributing value as part of the whole. That is, what is the overall site value per square foot or acre. This assumes the highest and best use would not change with the addition of the land.

Consider all methods including the surplus land analysis as all may provide evidence to solve the problem.

When considering market value, the term market implies the presence of potentially competing buyers for a specific property type along with competitive sellers interested in attracting at least one of those buyers. In short, market value requires that a competitive market exist. The alternative would be a bilateral monopoly in the extreme where the buyer and seller are forced to negotiate a price. The resulting price could end up anywhere between the higher monopoly’s price and the lower monopsony’s price. Where the price ends up depends on the relative negotiating power of each side. If a valuation is based on a bilateral monopoly condition, market value cannot be determined since the market is eliminated from the transaction. Although close, it may not be a bilateral monopoly as both adjacent property owners are interested in purchasing the parcel. Although a small market, it may be a market nevertheless.

 

[CANative]

, it may not be a bilateral monopoly as both adjacent property owners are interested in purchasing the parcel.

Only one is interested (an can be interested) in buying and only one might be (and can be) interested in selling.

Game theory. Bi-lateral monopoly (any competition has been eliminated).

 

[mark hurlock]

In my opinion, if your market is limited to only those owners of adjacent parcels, then that is your market.

In theory, you can develop a value that would be fair to both buyer and seller, “a good deal” for both.

But I do believe it lacks the components of market value as defined in a typical lender form.

I would be careful how I defined vale.

 

[Michigan CG]

Perhaps I'm missing something, but what's wrong with the standard definition of market value? Admittedly a small market (2+ adjoiners), but a market nonetheless. The definition applies.

Once again I agree with Pete.

 

[mark hurlock]

Assuming your standard definition of market value contains exposure time, what reasonable exposure time is allowed in an open market when there is only one potential buyer?

What would be your basis for developing an opinion of that exposure time?

Theoretically, if you had adequate sales and data to establish landlocked sales, I might agree. However, using surplus land values will not address exposure time.

In this particular circumstance, using the data provided by the OP, I would define market value accordingly.

 

[Michigan CG]

Assuming your standard definition of market value contains exposure time, what reasonable exposure time is allowed in an open market when there is only one potential buyer?.....

The way I am understanding the OP is that there is a parcel that is not buildable because of zoning and it is in between two other parcels, and possibly having a parcel behind it.

I am also assuming that he is misusing the term "land locked" incorrectly. From the way I interpret it he has:

HOUSE............vacant parcel..............HOUSE.

So what he has is at least two potential buyers and maybe a third buyer behind the vacant parcel with the vacant parcel having road access but being unbuildable.

If I were appraising this property (and have done numerous ones similar) I would not be using existing home sales and try to extract land value differences for my analysis but rather sales of unbuildable lots. They are out there, they exist. I would also, if they are available, find vacant land sales.

But let us say there are no vacant land sales. I still would be willing to bet that there are many sales of unbuildable lots in most markets. These sales will not be in the MLS and one has to go to the assessor or auditor to find these sales which are often referred to as property line transfers in parts of the country.

If comparable properties are not found, ie the unbuildable lot sales are in superior or inferior locations one can extract a percentage impact on the unbuildable land.

Like I said, I have done multiple appraisals on these types of properties and do not do them cheap. The last one was a 40' x 100' parcel where the zoning had changed to 50' minimum buildable. I quoted a fee and the guy said I was too expensive. A week later or so he called back and said I was too expensive but no one else would do it.

A good relationship with the assessors is the key to the assignment, the MLS is no help for this type of assignment in my area (other areas might be different).

 

[PropertyEconomics]

A land locked parcel has a market value ... the typical buyer is an adjoining land owner .. and if it were me Id look a whole lot harder for land locked sales. By the OPs admission they sell from owner to buyer so my assumption is they exist.

Those are the sales I would be measuring against other similar parcels within similar areas with which to measure the diminution attributable to being land locked.

Having done these in the past the sales can be found but it does take some time and some effort in my experience.

 

[mark hurlock]

The way I am understanding the OP is that there is a parcel that is not buildable because of zoning and it is in between two other parcels, and possibly having a parcel behind it.

I am also assuming that he is misusing the term "land locked" incorrectly. From the way I interpret it he has:

HOUSE............vacant parcel..............HOUSE.

So what he has is at least two potential buyers and maybe a third buyer behind the vacant parcel with the vacant parcel having road access but being unbuildable.

If I were appraising this property (and have done numerous ones similar) I would not be using existing home sales and try to extract land value differences for my analysis but rather sales of unbuildable lots. They are out there, they exist. I would also, if they are available, find vacant land sales.

But let us say there are no vacant land sales. I still would be willing to bet that there are many sales of unbuildable lots in most markets. These sales will not be in the MLS and one has to go to the assessor or auditor to find these sales which are often referred to as property line transfers in parts of the country.

If comparable properties are not found, ie the unbuildable lot sales are in superior or inferior locations one can extract a percentage impact on the unbuildable land.

Like I said, I have done multiple appraisals on these types of properties and do not do them cheap. The last one was a 40' x 100' parcel where the zoning had changed to 50' minimum buildable. I quoted a fee and the guy said I was too expensive. A week later or so he called back and said I was too expensive but no one else would do it.

A good relationship with the assessors is the key to the assignment, the MLS is no help for this type of assignment in my area (other areas might be different).

I agree with you completely. I am not certain you addressed exposure time when it is a component of market value definition.