Land vs Improvements

[miamicuse]

When you appraise a property, do you do your valuation of the land portion and the structure separately or together?

Seems that when someone buys a property they are paying the entire amount land + improvements, you really wouldn't have the information to value them independently? Unless you take into account land only sales in the neighborhood, which in well developed areas it's not such a common thing anymore.

I am curious because I was browsing the county's property appraiser website and noticed that for their "just market value" appraisal they have broken down a property into "Land" and "Improvements" and assigned a value to each. The total is the just market value of the property.

What I noticed that is odd is the land and improvement values do not seem to be very logical. For example, we all know a lake front property cost more than a dry lot property. So a lake front property that is appraised at 800K, whereas the dry lot property to the back of it, same structure, same lot size, same everything appraised at 500K. One would think the difference between the two would be the land valuation. Perhaps the 800k property the land is 500K structure is 300K, where as the dry lot property the land would be 200K and structure (same structure) would be 300K. But it does not seem to work this way, it seems they divide the land and structures differently and they appraised these two structures such that the water front structure is higher in value then the dry lot structure even though they are identical structures.

I thought may be there is a logical explanation.

Thanks,

Sum

 

[Thomas Fiehler]

One needs to value the land in order to complete: 1) The Cost Approach since one component is the land value and, 2) The Market Approach since you also need to know the value of each site and then adjust for differences in value. Also, the land is always valued as if vacant.

 

[Greggnvegas]

In a Single family residential (SFR), you DO NOT need to know the land value to complete the appraisal for the sales comparison approach. That is why one would use "comparables" and adjust for the differences. The Fanie Mae 1004 form that is most frequently used for SFR's ONLY allows for the sales comparison approach to be used for an opinion of market value. We may consider the cost approach and income approach, if developed.

 

[Terrel L. Shields]

Land is valued as if "vacant and available for its highest and best use". The rub comes in the impact of the site upon the improvement. An inappropriately small house on a highly valuable lot means the dwelling might reflect something less than the cost of the house less physical wear and tear.

Lots (if vacant) on lakeside generally bring more than interior lots. The appropriately maintained and sized dwelling that is ideal for the lot will bring the highest dollar. Those that are less than ideal suffer from an economic loss.

That is no easy task and the assessor often gets it wrong. Most assessors are required to value property by adding the contributory value of the lot and the improvements.

 

[miamicuse]

I guess the part that confused me, is that if I have two adjacent properties, same lot size, same structure, same age, same footage...the only difference is one is a dry lot and one is a lake front lot, will this difference of "lake front" vs "non lake front" be all accounted for in the appraisal of the land, and the structure would be appraised the same?

I am just confused why the county seem to think the structure is also proportionally more valuable for the lake front property, and split the land & improvements accordingly.

or fundamentally, the structure IS more valuable because it's on a lake front lot?

 

[Restrain]

Tax assessment is tax equalization, not appraising. If you read the regs you will find that these are not appraisals. They separate out the land and improvements for internal purposes more than for appraisal purposes. Now, yes, you value the land and improvements separately, both for the cost approach and for certain reversion approaches in the income approach. The site value is considered and estimated, as if vacant and available for it's highest and best use. You will see site value differential adjustments in the Sales Comparison Grid. But do not confuse what fee appraisers do with tax appraising.

Tax appraising is not "the normal approach". They use bulk appraisal techniques and try (we hope) to keep the value of the property in line with the market, give or take 10% on each side. However, you must remember that the tax assessor/appraiser is often either an elective position, or is under pressure from the taxing jurisdictions to generate as much value as possible, regardless of the market.

The key is, did the total value set by the taxing jurisdiction come in near what the total value of the property should be, in line with the market. In the instance that you cited, there could be 'view' issues from the dry land home vs. the waterfront, or it could be that the dry land homeowner hasn't appealed the valuation of the property and he/she should. But it all comes back to the total value based on the market. If you go in to appeal the value, that's what it is going to come back to. Did this 2000 SF home in a lake area with water/no water get valued similar to home sales of 2000 SF homes of similar age, design, site and location? They're not going to argue site value and improvement value, UNLESS there are significant issues with the site or improvements alone. For example, structural issues, flooding across the lot, etc.

Hope this helps.