Recognizing surplus land in the Cost Approach as obsolescence?

[PropertyEconomics]

Why would you need to account for any obsolescence at all, the opinion of value for the vacant land would already include the value for surplus and normal utility of the site. Techincally it would be surplus because of restriction, i.e. legal, physical...etc. That would already be evident in your vacant land comps. An improvement will not create surplus land...the land had it before the improvement ever got there...or at least it did in your HBU as vacant.

Kali ... I have been thinking this exact same thing. If the land is valued "as though vacant" there is no surplus land. Surplus land only occurs after the improvements are constructed. Measurement within the market and income approach may be necessary, however, my guess is that in most instances it is relatively minimal to the overall value, assuming of course, the determination is that the land is developed to among its highest and best uses.

 

[Ken B]

No, but if it was, it likely woulD likely be excess land.

Not necessarily, as excess land could be subdivided and developed separately from either the subject or adjacent parcel.

If the adjacent parcel could utilize the subject's surplus land, that land may have higher value to the adjacent property owner than to the market. The subject's surplus land market value would not change, however.

 

[Nick Chop MAI]

Thank you for all of your responses. I don't agree with many, although this is why our field is so interesting. It's a constant reminder that often there is no one right answer and that it is subjective! I'll come back and post the final outcome after review and some more thinking.

 

[Kali the Boston Terrier]

Kali ... I have been thinking this exact same thing. If the land is valued "as though vacant" there is no surplus land. Surplus land only occurs after the improvements are constructed. Measurement within the market and income approach may be necessary, however, my guess is that in most instances it is relatively minimal to the overall value, assuming of course, the determination is that the land is developed to among its highest and best uses.

Surplus land is created through physical and legal restraints...not through improvements. For instance on a vacat parcel say you have a 10 acre parcel, that is pie shaped. The back 8 acres is too narrow to place a building (legal restaint from setbacks), and because of the uses surrounding the property...nobody wants that the extra land. Before a building is ever constructed you have surpluws land. Now if a building was placed ont he lot poorly resulting in a siginificant portion of the land being poorly utilized...yeah it became surplus and is likely an incurable functional obsolescence. However in that case it was not the land that contained surplus, it was the incorrect construction of the imrpvements.

 

[Nick Chop MAI]

Surplus land is created through physical and legal restraints...not through improvements. For instance on a vacat parcel say you have a 10 acre parcel, that is pie shaped. The back 8 acres is too narrow to place a building (legal restaint from setbacks), and because of the uses surrounding the property...nobody wants that the extra land. Before a building is ever constructed you have surpluws land. Now if a building was placed ont he lot poorly resulting in a siginificant portion of the land being poorly utilized...yeah it became surplus and is likely an incurable functional obsolescence. However in that case it was not the land that contained surplus, it was the incorrect construction of the imrpvements.

There is no such thing as surplus land as vacant. This is based on the definition and description in the 13th Edition and the Appraisal Dictionary. Definition reads something like, "land not necessary to support the HBU of the improvement". What you're describing is simply a property with a horrible shape and limited utility.

 

[Kali the Boston Terrier]

That is exactly what surplus land is...land subject to conservation easements, vacant, has surplus land, horrible shape and configuration is also surplus land. I can go on with all the examples.

The land can easily have surplus land as vacant...no such thing, I thought your name was HBU?

 

[Nick Chop MAI]

I respectfully disagree. I base my opinion on the Institute's Appraisal of Real Estate text 13th edition. The text says otherwise.

 

[Kali the Boston Terrier]

A) 13th Edition is not the Bible
B) It is fallible, and is loaded with inaccuracies and incorrect information, not just my opinion but also the authors...it's good, but not perfect
C) The conservation easement book/seminar written by the AI and ASFMRA both disagree with you.
D) Surplus land and it's treatment, the definitive source on it is the ASFMRA not AI
E) if you were the expert on surplus land and the correct methodology in valuation...why did you ask the question

 

[Rob Baum]

I am not sure I completely understand what you are asking, but could this be handled similarly to a land-locked parcel?

 

[Terrel L. Shields]

Terrel .. I fear Smith is incorrect. Economic obsolescence was changed to External Obsolescence for this exact reason.

I will source my opinion upon written, tested statements. That's how I would defend them. The term remains in use, therefore, I concluded that the news of its demise is premature. 38,000 hits on google can't be all "wrong"...

13th Edition is not the Bible

nope, but it is a close as you are going to get.

loaded with inaccuracies and incorrect information

sez how specifically? And are the alternatives offered the only true white light?

Surplus land and it's treatment, the definitive source on it is the ASFMRA not AI

ASFRMA are ag and rural appraisers...we're talking commercial land. I will stick with AI.

What ever source you choose to base your opinion, you best be able to find written text to 'prove' that is a proper way to do it. If you are dependent upon finding only a way to disprove everyone else...you will lose.

could this be handled similarly to a land-locked parcel

why? and HBU is right

There is no such thing as surplus land as vacant.