Recognizing surplus land in the Cost Approach as obsolescence?

[PropertyEconomics]

You're correct on 2 of 3. You would add surplus land value to the Market and Income Approaches. In the Cost Approach the accepted definition is RCN, +profit, -deprecition, +land value. Land value is what you calculated the site as vacant. If you simply added surplus land value to the Cost Approach, you have not handled the surplus land correctly. So we're now at the heart of the appraisal problem. You have to deduct the surplus land value as either incurable functional or external obsolescence.

HBU .. if there is a form of obsolescence which affects the property, as constructed, then it would be deducted from the cost approach indication. Assuming of course you had not accounted for it within your land analysis.

The depreciated value indication of the cost approach, considers ALL forms of depreciation and obsolescence.

 

[Nick Chop MAI]

I wonder what Dr. Boykin would think about this.

I have his text (Land Valuation). He states "Surplus land relates only to existing improvements, not proposed or hypothetical structures." This is on the bottom of page 43, 2001 edition.

But, I don't have anything of his other than this text, so he does not address the Cost Approach.

I'm going through my final review/revisions early this week. This shouldn't be such a mystery, but seems it has only specifically been addressed in one AI text. See below:

Appraisal Institute, Appraising Residential Properties 4th edition p 234,


‘Consider a large residential site that could be divided into two full lots for development. Under the cost approach, land value is estimated as if the land were vacant and unimproved. Accordingly the appraiser arrives at a $10,000 value indication for each lot with a site value of $20,000. However at present a house straddles the lot lines. Under the sales comparison approach the site value is estimated as improved and is value is included in the overall property value. In applying the sales comparison approach the appraiser realizes the cause of its impaired functional utility- as a result of the misplacement of the improvements- an adjustment to the property value is appropriate. The appraiser reconsiders the indication of property value from the cost approach. Here too impaired functional utility penalized the property value and warrants the same adjustment. This adjustment usually takes the form on incurable functional obsolescence caused by the building location on the lot.’

As a result, I'll likely continue to address it as incurable functional obsolescence. Thank you to all that gave their advice.