Sensitivity Analysis For GLA

[Joe Flacco]

I'm just saying I don't think that $430k lot sale represents the site value of all similar size lots in that area. That makes no sense.

I saw the lot for the new house next door that fronts the busy street and across the street from some large building that traded for 330k. It looks like you go east a little bit there is a bigger lot that traded for something like $800k -$1 million with completed home going for $2+ million.

Being a urban area appraiser you know that things can shift almost block to block.

 

[Joe Flacco]

How can a handful of lot sales be the basis for site values when developers are not going to buy the lot unless it is at a price that is feasible to build? These handful of sales are more reliable than the story being told by hundreds of improved property sales in the neighborhood?

That makes no sense to me. You just convinced yourself that lot sales are always right. I mean at first thought it make sense that lot sales would be always right.

 

[DTB]

I often see in my area a lot with a depreciated house that is later torn down for build selling for more $, or selling faster than a similar vacant lot. The lot with a depreciated house can often be financed as a res property, whereas the vacant lot often is a cash sale or owner finance at disadvantage rate. That's why it strikes me funny when appraisers rote adjust down to demolish a house when lots with houses on it frequently sell for more $. The minor cost to demolish is more than compensated for the fact that they often can be financed ( and also has sewer/elect service already )

An interesting topic, but ....we develop land value for a subject in the CA, rarely do we develop it for a comp...if our comps are in the market area the assumption is a similar ratio of land to value of dwelling.. The $ per sf between comps and subject on the grid is done too make the comps more equivalent to the subject and is one of the simpler adjustments to develop.

Good point.

 

[Meandering]

How can a handful of lot sales be the basis for site values when developers are not going to buy the lot unless it is at a price that is feasible to build? These handful of sales are more reliable than the story being told by hundreds of improved property sales in the neighborhood?.

EI
EP
Competition
Supply
Demand

 

[Meandering]

I don't know why so many appraisers overlook those things when valuing the land, as if the land and new construction do not operate in their own market segments, which impact price and value.

Here's 3 sales in a mile, we're good to go.

.

 

[George Hatch]

How can a handful of lot sales be the basis for site values when developers are not going to buy the lot unless it is at a price that is feasible to build? These handful of sales are more reliable than the story being told by hundreds of improved property sales in the neighborhood?

That makes no sense to me. You just convinced yourself that lot sales are always right. I mean at first thought it make sense that lot sales would be always right.

I've appraised a lot of land over the years. Not just SFR lots, either. So yeah, I have developed a healthy respect for land sales data. I've also developed a healthy level of contempt for the way I've seen "land value by extraction" performed by appraisers over the years.

If your assignment is to value the lot, do you intend to ignore the site sales data? You have three site sales (and there ARE others in the area). Those are properties that were marketed through the MLS so they all had adequate exposure in the market. How would you go about valuing each of them at prices that greatly exceed their respective transaction prices?

 

[Joe Flacco]

If your assignment is to value the lot, do you intend to ignore the site sales data?

No I don't. But then market is a lot more complex than that right?

 

[J Grant]

I'm just saying I don't think that $430k lot sale represents the site value of all similar size lots in that area. That makes no sense.

I saw the new house next door that fronts the busy street and across the street from some large building that traded for 330k. It looks like you go east a little bit there is a bigger lot that traded for something like $800k -$1 million with completed home going for $2+ million.

Being a urban area appraiser you know that things can shift almost block to block.

Imo, the dilemma is attributable the concepts and realities of price and value being interchanged in appraisal, and the way we discuss it. The cost approach on a res property asks for the Opinion of site value. A fundamental is value can differ from price. If the price of vacant lots are 430-450k, but the contributory value per extraction of site contribution to improvement shows 600k for the site, then the appraiser has to decide which answer best satisfies the question on the site value question. ( and explain why)

Appraisals can ask different questions, resulting in no "right" answer, but whether the answer best addresses the question. For example, if one was doing a vacant land appraisal and the question was a MV opinion for vacant site, the 430-450k prices would be more reliable . But since the question in CA is opinion of site VALUE, and if vacant land sales are extremely scarce, then the extracted contributory value might better answer the question.

What adds to a 430-450k land sale to result in a higher value? EI and EP, since vacant lots are bought on spec and usually for cash, the risk and cost of acquiring the site and holding it expected to turn a profit when built on. The scarcity of vacant sites. If I see a large gap between vacant lot sale prices and contributory value I might look hard at what is going on and check my figures, and perhaps the answer is somewhere between the 2. Every appraisal is different and it is a lot easier and more credible to use the vacant site prices as the site value when there are more plentiful land/lot sales.

 

[Joe Flacco]

Anyways I am just sharing my observations from this Glendale case study. You might take away something from what I said or you might not. I am already aware that it is basically consensus that site sales are the best way to develop site values.

 

[J Grant]

Back to the question the OP asked , how to determine $ per sf on the SCA grid...

It is not complicated. With the exception of over improvements or tear downs where additional sf has no value, buyers typically pay more for larger houses / condos than for smaller ones. The question than is how much they are paying. Keep in mind the question being asked on the SCA gird is for contributory value of the differences between sf of comps and subject ( my post 118, different appraisal questions can have different answers ). The question is not what does it cost per Sf to build, or what the depreciated cost is per sf, nor what is the price per sf of total dwelling . The question is, what is the contributory value of differences of sf of the comps compared to the subject.

That can usually be answered right there on the grid using the comps after adjusting for all other key factors. One also of course can and should look at other data and sales and see a relationship between cost to build/depreciated cost etc , but the adjustment the market is returning for contributory value of larger or smaller SF will reveal itself on the grid when the adjustment is made...it might have to be refined but it should make sense and narrow the adjusted values between comps and subject.