Land to building ratio adjustment

[Michael P Jacobs MAI]

An old appraiser I worked with in the early 90's had a land to building ratio adjustment method that made a lot of sense, and I've forgotten it. As I recall, it was fairly dead-on for industrial. It was a simple calculation and I believe it replaced the size and land adjustments. Does this ring a bell for anybody?

 

[Pittsburgh Pete]

Compare variances in unit values to variances in land-to-building ratios to extract an adjustment.

 

[Michael P Jacobs MAI]

Nice try.

Compare variances in unit values to variances in land-to-building ratios to extract an adjustment.

Huh... yes, that would be the textbook paired-sales analysis. Not what I'm looking for though.

 

[Ken B]

I create a table in Excel where I sort the subject and comps by LTB ratio in one column and report the corresponding adjusted sale price/sf of the comps in a second column.

I then create a scattergram plotting the LTB ratios on the X axis and the adjusted sale price/sf on the Y axis. I add a trendline and observe the correlation coefficient. If the SCA adjustments are reasonable and appropriate, the correlation coefficient should be high.

I develop a value range for the subject based upon the value indicated by the relationship of the trendline to the subject's LTB. By reporting that range in a third column in the table and plotting a second data series based upon the range of LTB ratios and the subject's value indication, the subject's value is also plotted on the scattergram and should bracket the trendline indicated for the first data series.

I reconcile within the indicated range.

That said, I also make a building size adjustment in the SCA grid, if indicated. The scattergram should indicate an adjustment is or is not appropriate.

 

[Michael P Jacobs MAI]

Linear relationship

I create a table in Excel where I sort the subject and comps by LTB ratio in one column and report the corresponding adjusted sale price/sf of the comps in a second column. <snip> I then create a scattergram plotting the LTB ratios on the X axis and the adjusted sale price/sf on the Y axis. I add a trendline and observe the correlation coefficient. If the SCA adjustments are reasonable and appropriate, the correlation coefficient should be high.

That is a great method - works on auto dealerships beautifully using $/SF of land area if buildings are more or less homogeneous, and reasonable adjustments can "nudge" the points toward the line (reducing r2). It's a beautiful thing when it works.

But, there was a very simple mathematical method he used that did not involve the graphing. I've searched everywhere... I wish I had some of those old appraisal reports. I remember thinking that it was not intuitive at the time. Much thanks for the reply.

 

[Ken B]

If you remember or find the method, sharing is always appreciated.

Good luck

 

[Pittsburgh Pete]

Actually the method I indicated a bit like Ken's but without the graphing. Find pairs that are most similar in other respects and compare unit value variances to land-to-building ratio variances. Each variance of 1:0 might indicate an adjustment of $5/SF for example.

 

[Ken B]

Pete,

someone from my office is relocating to your area in a couple weeks to head up our downtown office there. He's going to be up there for a couple months before his family follows. Maybe you could suggest a good place for him to grab a beer? He is probably going to need one or two after a couple weeks.

 

[Pittsburgh Pete]

Pete,

someone from my office is relocating to your area in a couple weeks to head up our downtown office there. He's going to be up there for a couple months before his family follows. Maybe you could suggest a good place for him to grab a beer? He is probably going to need one or two after a couple weeks.

This business will drive one to drink. I'm sure there are a couple of CBRE boys that tip a few!

If he isn't a warm weather namby-pampy he'll love it here.

I can think of one or two places that sell beer.

 

[Ken B]

He's from Ohio. Try not to hold that against him, he's a pretty decent guy despite it. I imagine you might bump into him at a chapter meeting. If you don't mind, I'll give him your contact info.

The brokers can drink us lightweight appraisers under the table...and they can afford the better booze.