Land value / adjustment

[Deleted member 142783]

I will word this like a test. In tests they do not always give you many details which may change the answer, although assuming below is all we have...

Dealing with an improved SFR on 25 acres. Lets assume we are dealing with surplus land. Land is mostly useable.

The average sales price per acre represents the average price for lots within each group.

Grouped sales

5-10 acre $80k per acre

10-15 at $70k per acre

no data for 15-20 acres

20-25 at $40k per acre

no data for 25-35 acre

30-80 at $25k per acre



Assuming comps range from 5-50 acres, how much do you adjust each comparable per acre?

Clearly we have diminishing returns, I was wondering how you take this into account?

 

[George Hatch]

If I have enough sales to work with I generally try to limit the size ranges I'm using to 50% to 200% of my subject's sizes. A narrower range is better than a wider range.

If you've got sales at 20-25 acres then you can identify how that subset relates to the other subsets. What's the adjustment between the 10-15ac sales to the 20-25ac sales, and between the 35-80ac sales to the 20-25 ac?

your numbers don't make a lot of sense to me:
15ac x $70k = $1,050,000
25ac x $40k = $1,000,000.
40ac x $25k = $1,050,000

 

[Joe Flacco]

Probably because the location of the properties and / or the zoning are not the same.

 

[Deleted member 142783]

That is the range. The average size within each range is about the average between the high and low

 

[Airstream]

I’m always very careful about comparing vacant land sales to come up with adjustments. Once improvements are put on that property a vacant parcel may not be worth as much as far as contributory value vs what it would sell vacant. I once did an analysis of homes that sold on 20 vs 40 acre non-agricultural use parcels. There was very little difference in value between the comparable sales. I just did a large vacant land construction loan. I was surprised that when making adjustments only $1,000 per acre was really justified. Yet that 40 acres would have sold for 4500 per acre vacant. This doesn’t always hold true, but I would say it does a great deal of the time; especially in very rural areas.

 

[George Hatch]

That is the range. The average size within each range is about the average between the high and low

Leave the subject out of it. Compare the sales of the different sized lots to each other.

The majority of the value for these parcels will occur in the "core" of the property; the minimum lot area it takes to build a home. The pricing on that core size is at a much different rate than the pricing on the surplus.

Here's an SFR example you might relate to:

A - 1,000sf SFR on a 5,000sf lot; sold for $400k. ($400/sf for the GLA, or $80/sf for the improved lot area)
vs
B - 2,000sf SFR on a 10,000sf lot

Unless the location is extra special, like waterfront or whatnot, how likely will it be for B to sell for 2x ($800k) as much as A ($400k)? Zero, right? That's because if A more/less amounts to the minimum acceptable size in the neighborhood then the majority of the value occurs there; and the additional 5000sf of lot and the additional 1000sf of structure are *contributory* in nature.
The more likely outcome will be for B to sell at something like $600k or meaning the additional 1000sf of GLA and 5,000sf of lot only added (lets say) $200k, not $400k.

 

[J Grant]

I will word this like a test. In tests they do not always give you many details which may change the answer, although assuming below is all we have...

Dealing with an improved SFR on 25 acres. Lets assume we are dealing with surplus land. Land is mostly useable.

The average sales price per acre represents the average price for lots within each group.

Grouped sales

5-10 acre $80k per acre

10-15 at $70k per acre

no data for 15-20 acres

20-25 at $40k per acre

no data for 25-35 acre

30-80 at $25k per acre



Assuming comps range from 5-50 acres, how much do you adjust each comparable per acre?

Clearly we have diminishing returns, I was wondering how you take this into account?

If at all possible, I would not use a 5 acre sale or a 50 acre sale as a comp. If you have no choice and must use them, then use them as comps 4-6, try for the first 3 comps to have 10-30 acres , sites more competitive to the subject.

The last example 30-80 acre price per acre is not applicable, those tracts are so large and likely farmland or the like, it would throw things off. clearly, the most value is in sites 5-15 acres - larger surplus lots can be super adequacy in certain markets. I t is hard to imagine it is surplus land in the larger sites but it is your example so I answered the way it was asked.

I'd put the comps you are using on the grid, make all your other adjustments, then the residual is the contributory value of the surplus land is adjustment and it would be based on contributory value rather than a mechanical price per acre, and explain why, that acre averaging a price per acre skews results due to the large variances of the vacant site per acre prices noted between larger lots and smaller lots. and that the contributory value of each acre goes down -due to greater premiums seen for 5-15 acre lots per data.

I

 

[sputnam]

Sorry. I'm certified. I get paid to solve appraisal problems.

 

[alebrewer]

Agreed w/most here - I like my comparables to generally reflect the subject's characteristics. That said, the acreage bookends will obviously 'grow' as the subject site gets larger. If I have a 2 acre site, I might go 1-5 for comps (5 being over 100% difference from the subject). If I have a 20 acre site, however, I'd probably only go 10-30 (which is only 50% of the subject's size each way). Regardless, I solve for all other variables (isolating the site size adjustment), and perform sensitivity analysis to determine the appropriate adjustment factor. Of course, if there are other influences on site value (external influences), I'd try to adjust for those before isolating the site adjustment itself.

 

[Joe Flacco]

There are a lot of factors impacting price of land than the land area.