Land vs. building appraisal question

[Tom D]

Pay an appraiser to do a land appraisal for your tax purposes. If your cheap, use the assessors value.

 

[Artemis Fowl]

Not from Colorado so YMMV with this response.

Mass appraisal methodology relies on the cost approach. Land is added to improvement value to arrive at overall value. There is no "cost to build land" so land values should be determined using available techniques. Vacant sales and the sales comparison method is generally the most credible method. However, if the available vacant sales are not representative of a typical building site, meaning leftover strips or generally influenced by some sort of funkiness, then the credibility of that method will suffer. Sale terms and participant influence can also reduce the applicability of a vacant sale for use as a market value indicator. Are the seller or buyer motivated by something other than typical...like a pending foreclosure for example. When the sales comparison method stumbles, other techniques are available. Land residual and allocation are the most common backups. They rely on extraction of improvement cost from sale price...leaving a land value indication. They can suffer due to inaccurate cost determination.

Most assessors are required to support and publish their land value studies. In my market, a 50% land to value ratio is usually related to some feature influence like waterfrontage but some economic-type influence might produce that high of a ratio. Land values might spike proximate to a new sports stadium or a regional retail outlet, for example. Maybe the location simply demands that much value. See if they are willing to explain it to you.

 

[Zoe]

We are not from the Denver metro area. When we performed a google search, we did find the land value to total value tax assessment being around 1/2 can be typical for the Denver area and hence we reached out to our agent about the question. I also wanted to find more information and that's how I found this forum, which has been quite helpful.

In regards to why the question, the lower the land to total value ratio, the higher the depreciation we might be able to deduct against our taxes. (land is not depreciable while almost everything else, like the house structure itself is)

from what i can gather from the other responses, seeing vacant lots sale price and total home sale price would be a reasonable way to find what a similar ratio could be. Am i understanding that correctly?

I have an uncle that lived there. Denver is very expensive area in general. Land value is not cheap in Denver. He retired and moved to Mississippi where land value is way cheaper.

 

[Terrel L. Shields]

All this to say, how do professional appraisers appraise the value of the home compared to the county assessment

We don't. Many methodologies by assessors differ, but some value the land separate from the buildings and combine the two numbers. They may then apply a "neighborhood factor" or other adjustment to 'equalize' values.

There is only one good way to value land. That is with direct sales. Other methods are less reliable. There is the issue of "site improvements" so a fully developed lot with utilities, curbing, etc. adds some value that is often added "as is." It's neither part of the land nor part of the building costs, although it might be listed in a building contract.

And a dwelling is basically the Replacement Cost New less depreciation from all sources, physical deterioration, functional obsolescence or external obsolescence. Normal wear and tear happens. A functional issue might be a remodeling that is not real good, an inadequacy like a 4-bed home with only 1 bathroom, or a superadequacy like gold plated fixtures or commercial appliances in the kitchen (six burner stove, walk in freezer, etc... and yes, I have seen that.)

So, the problem then is to balance the two, but again, the assessors estimates are nothing related to what a fee appraiser could determine. And Denver is a fickle market. I remember one sale where the seller sold his 20-year-old house on a large lot down Cherry Creek way for 3 million only to see the buyer tear down the house and build a new, even bigger home.