Logistics of Excess Land in a Report

[AnonApprsr]

If you read what I said, it's the opposite of what you're implying. Please read it again.

 

[Howard Klahr]

If you are valuing excess land it is most commonly valued independently as two separate parcels and combined for a total value in the summation of each approach. You would not adjust for the excess land in the sales comparison approach since the excess land (vacant land) is separate from the improved parcel. The improved parcel does not receive any benefit from the adjoining excess land parcel.

As has already been noted within this thread, part of what distinguishes excess land from surplus land is an independent highest and best use. Maybe a way to best illustrate this concept is think of a subdivision. Adjoining lots often do not benefit each other and derive their own independent value. A Commercial property comprising excess land is just a small subdivision analysis (i.e. two parcels).

Hope this helps

 

[BigBlueGA]

This is the most used procedure. Be sure to use it in both income and sales. Since land value is given in cost it is intrinsic to the approach.

I do not want to confuse the OP but I have always wondered that if you adjust for land size should you adjust for the final size of the excess land?.

Do you mean for diminishing marginal returns? Yes, I use a regression analysis for my size adjustments and based the adjustments on the size of the excess parcel, no the whole parcel.

 

[Pittsburgh Pete]

If you read what I said, it's the opposite of what you're implying. Please read it again.

Sorry--read it again and it's still wrong!

 

[H.B. Userman]

Excess land seems to be a part of my weekly practice in some way or another. Handling it is easy once the HBU tests are made. Whether it is surplus or excess, it can be called additional or extra land in the site improvement section. Deal with the surplus/excess issue in the HBU section. If it is surplus, it can usually be easily accounted for in the Cost and Sales Comparison approaches. The Income approach hardly ever reflects the value of additional land in my market, unless the land is being rented at it's HBU. If it is excess, all 3 approaches should be developed as if the extra land wasn't there - so that it can be individually addressed, because of the independent HBU. For excess land, I always include it as a line item on my Conclusions page, and include the analysis summary as an addendum right after that.

In order for extra land to meet the definitions of "excess" or "surplus" land, it gets tested the same way as any other HBU process does. IE- If you have 4 extra acres, and the legal requirement to build is 5, it is "surplus". There are also a number of other physical and financial factors that determine the HBU of the extra land. Access, visibility, shape, cover, not to mention demand and supply of the neighborhood.

Surplus land usually accompanies most improved sales. I usually account for surplus land in my Land/Building ratio adjustment. Sometimes the additional land can fall somewhere in between "excess" and "surplus". In cases like that, maybe when a simple zoning change, easement or other action would be needed for the independent use - you would need to discount the value of the excess land if it's being compared to sales that do not need similar action.

 

[Joe Masin]

Gentlemen
I happen to be working on a similar situation (excess land) and found the discussion informative (I always enjoy reading the problem solving methods used by the responders). Thanks to all for the insightful comments.

 

[Eminent Domain]

I can only assume the "subject" is the entire property. That being the case I would identify the excess land, provide land sales and an analysis of its value and then add it to the indicated value of the improved portion of the property:

Estimated Market Value of Improved Portion of Subject ..... $X,zzz,zzz
Estimated Market value of Excess Land ........................... $ XX,zzz
Total Market Value of Subject Property ........................... $X,zzz,zzz

This is the way I saw this handled in the example I detailed previously in this thread. My only concern by reporting it this way is running into a reviewer down stream who does not like that way. In that very situation the reviewer did not approve of the term "Total Market Value of Subject Property." It became a semantics issue. I understood that the appraiser was reporting the total value of the subject property as if the two parcels were marketed and offered separately; thus it was the total value of the subject.

However, the reviewer was arguing that "Total Market Value of Subject Property" indicated that that was the opinion of value as if the 'two hypothetically separate tracts' were being marketed as one parcel. His argument was that since there was no discount applied (assuming a buyer would require that to purchase both) that the total value reported was misleading. Maybe, maybe not? I guess it would depend on the situation.

Taking this definition of "Total Market Value of Subject Property" to the extreme, lets say you have more than two potential types of property in a mixed use area. Would you do 3, 4, 5..... separate values based on the identification of those different highest and best uses and add all those together for "Total Market Value of Subject Property" or would it be more appropriate to denote that as a "Portfolio Value" or some other name?

I can see that 'portfolio' could be misleading as well as it would imply a group of totally separate properties being sold lumped together. I guess one hopes he never runs into this reviewer.

 

[Stephen J. Vertin MAI]

The method I was taught and the one I most commonly saw when reviewing for the FDIC is summarized as follows:

The total parcel would be valued as vacant in the cost approach. The improved parcel independent from the excess land would have an allocated value and so would the excess land. Generally both improved and excess land would have the same per square foot value. No one adjusted for size difference, even though it may be warranted.

As been pointed out, the improved portion would be valued in the sales and income approach (without regard to the excess land) and the excess land added independently to the improved section.

This is really interesting since I have never questioned this method. A little research shows the term excess land first appears in the 5th Edition. In the 6th and 7th the more modern method used above is outlined.

At first there appears to be flaws with the method but at closer examination, maybe not. The first possible flaw is no size adjustment, where warranted. The second is Eminent's pointing to lack of discounting caused by selling parcels separately.

So were these old farts crazy or smarter than given credit? I think one possible explanation is the original authors assumed one buyer. In theory buyers are purchasing the package. This means all of the land. So one per square foot price applied to both parcels regardless of size is correct. Further since it is sold to one buyer no discount for selling separately is warranted.

 

[Michael S]

If it's a just a single piece of excess land I don't think a discount would generally be warranted. If you have excess land that could be subdivided into several different parcels you start getting into a subdivision analysis.

A common scenario we see is appraising a shopping center that has a pad site/outparcel. These are typically ground leased or sold off. In those case we do a separate analysis of the value of that excess land, generally with different comparables. The rest of the property is valued as if the excess land is not included, and in each approach the contributory value of the excess land is added back in during the reconciliation.

 

[BigBlueGA]

If it's a just a single piece of excess land I don't think a discount would generally be warranted. If you have excess land that could be subdivided into several different parcels you start getting into a subdivision analysis.

But if we are valuing that portion of the property as excess land instead of surplus, aren't we assuming that a hypothetical purchaser would intend to split it off and resell? And wouldn't they expect a return on their money? I think I am going to discount mine back over the estimated marketing period separately from the improved portion to account for this.

Thanks for all of the answers, these threads where the rubber actually meets the road are incredibly helpful for those of us who don't have a sounding board in-house or locally.