Site Value in Cost Approach

[CANative]

LOL... I see it the exact opposite and for the same reason.

Since I doubt anyone could come up with a convincing argument either way, what does it matter as long as it is explained?

 

[Lee Lansford]

Barrry,

See my prior post.

The source (re: "excess" and "surplus" land) is "The Appraisal of Real Estate", 12th edition, published by the Appraisal Institute.

Lee

 

[Carnivore]

It's not just the complex aspect of it that may be a problem. Many states specifically state that a subdivision analysis falls under the scope of practice of a general certified appraiser.

David,

I like this comment because it raises a serious question to the appraisal problem at hand. Simply, what do you do when it crosses this line? When do you defer to a higher license?

I realize this is a side issue and I am not trying to hijack the thread. Besides I think they answered his question.

 

[Webbed Feet]

Mr. Myers, Mr. Boyd,

Could you guys lower that to five feet and six feet for examples? I"m not even in the range you are using. You're making me feel short!

Barry Dayton

 

[The Warrior Monk]

David,

I like this comment because it raises a serious question to the appraisal problem at hand. Simply, what do you do when it crosses this line? When do you defer to a higher license?

The way I look at the situation is that any time a property is subdivisible, that subdivision potential must be considered as part of the HBU analysis. In some cases it is obvious that is should be divided, in some cases it is obvious not to divide, and often the decision lies somewhere in the middle.

In all cases though, the appraiser must have the skills necessary to be able to tackle the problem, even if it makes no sense to divide the property. That requires a thorough knowledge of zoning, as well as things such as fees associated with subdividing and time involved. Often appraisers simply brush aside these issues and appraise the property as one nonsubdivisible lot. Many times they end up being right. But if they are wrong, their value conclusion may be something other than market value.

I would say that any time has subdivision potential, the appraisal should be performed or supervised by a general cert to be on the safe side.

BTW, I might not have drawn that same conclusion two years ago, before I started getting serious about working toward my general license. Now that I'm looking at these problems from a different perspective, basically along the lines of an investor, my opinion has changed.

 

[Ralph Baldwin]

As of the effective date of the appraisal can the land be legally divided????

 

[Steve Owen]

Andrew, I like that statement also... because it is true. However, it may not really be pertinent to this situation. As often happens, the original poster did not clarify the problem very well, and then later came up with additional information. From what I can make of the thread, the lot is not subdivisable with the improvement on it. Therefore, if highest and best use is as improved, the issue of appraisal of subdivision does not come into play.

Additionally, I am under the impression, in Missouri, that only a CG can appraise a subdivision, but that restriction applies only to those subdivisions with more than five lots. I'm pretty sure I'm right about this, but not positive; and, it should be similar in other states. Anyway, to my understanding, there is no restriction on a residential appraiser separately appraising two lots.

 

[Couch Potato]

Try this one.

LOL... I see it the exact opposite and for the same reason.

Since I doubt anyone could come up with a convincing argument either way, what does it matter as long as it is explained?

Your way is like saying the group of men at least six feet tall is part of the group of men that is seven feet tall except those men over six feet tall that are under seven feet
tall belong to a special group called between six and seven feet tall.

My way is like saying the group of men at least six feet tall has a subgroup of men that are at least seven feet tall.

 

[CANative]

Read the two definitions posted above. It seems to me the only difference between the two is the word "but."

So... Any land that is in excess of what is necessary to support the highest and best use is excess. "But," surplus land "because of physical limitations, building placement, or neighborhood norms, cannot be sold off separately."

This logic would place "surplus land" in a sub-category of excess land.

e.g., I can sell my excess but I'm stuck with my surplus.

 

[Robert Hronek]

Is this an appraisal you are doing or is this a review? You make some contradictory statements. First, you say

By the sales comparison approach, the larger site does not add value in this market area

Then you go on to say

Now, when doing the cost approach and locating lot sales, the site value for such a large lot is estimated to be more.

I think you may be jumping around because you really didn't do a Highest & Use Analysis. There is a reason H&B use is the first analysis of the subject on the form. You do this first so you can select the proper comparables.

Jim

I think by the sales comparison approach he is talking about the "as improved" value. Although I am not sure he has comps to support an improved sale that effectively has a leaglly dividable lot i.e. house/lot + extra lot.

Is the site a single lot that is large enough to be divided into 2 or more lots or is it actually 2 or more lots with improvements situated on 1 lot allowing the other lot(s) to be sold.

In a blighted part of town the "as improved" property may not sell for a higher price than a similar house on a normal size lot. In other parts of town the site may add some or consideredable extra value.

In the cost approach the site would be valued at its vacant highest and best use. The cost approach measures the combined value of the improvments and site. There may be functional obsolesence as the total cost may significantly exceed the market value.

Of course we have all been talking about theory. If the property was effectively marketed and sold in the same price range as similar homes on smaller lots than I would say that the market has spoken and does not pay more for the larger site.