Site Value

[Overimprovement]

Had a revision request recently to include an adjacent parcel of land in a report, as lender had neglected to mention in the original order that this parcel went with the sale. Well this parcel is independently assessed, and is capable of its own home or other structure. So my response was sorry, can't do that but would be happy to perform a 1065 on that lot for you.

But it got me to thinking. When we do the cost approach on the regular 1004 form, we are to develop site value, using as one potential method the sales comp approach of similar site sales and making adjustments.

That is basically a land appraisal, right? Reported on a 1065. So my question--when you include the cost approach on a 1004, are you doing the same amount of work as you do for a 1065? Obviously the reporting is different, but is your workfile any different for cost approach site value vs a full 1065 report? Should it be any different?

Any thoughts appreciated!

 

[hastalavista]

When I do the cost approach, yes, I research and provide land sales (if available... and some usually are... even in parts of San Francisco) to support the site value.
The analysis is the same; however, the discussion does not have to be the same as found in a stand-alone land appraisal. I have no problem describing the sales (site size, date of sale, price, zoning) and narrating the differences (superior in location, view, inferior in whatever) and concluding my opinion of site value to be used in the cost approach.

That's what I do for a residential report for mortgage-lending purposes.

 

[TRESinc]

yep, same as denis, i research and provide land sales to support my opinion of the site value.

why can you not determine the contributory value of a second parcel?

 

[Terrel L. Shields]

Goes in every report I do - the bottom half not shown makes adjustments

 

[Overimprovement]

why can you not determine the contributory value of a second parcel?

Oh I CAN, but I don't see why I should basically do 2 separate land appraisals for free. Site sizes are all different. Was not part of original assignment either. Would you approach it differently?

 

[Overimprovement]

So from the early responses, it seems that at least many (small sample size so far) appraisers do about the same amount of research (not reporting) to determine site value in cost approach as a separate 1065.

If this is so, then why is the price difference so negligible between a 1004 and 1065 report in most markets? When a 1004 requires the cost approach, aren't we really doing two appraisals? Or am I looking at this wrong? I know the reporting is much less, but shouldn't there be at least a $150 up charge (or fill in your own number) if cost approach is required?

Or should the fee for 1065 reports just be a lot less than what it is?

 

[Overimprovement]

My OP was mis-stated, sorry. It is two adjacent parcels of land, both independently assessed, and both capable of a SFR on their own. Different sizes from each other, and from subject.

 

[TRESinc]

Would you approach it differently?

that would probably be client and price dependent. good client, decent fee, yes i would do it. part-time client (meaning not sending me a consistent amount of orders) or a fee on my low end, maybe not. yes it entails a little more work but like most appraisers (i believe) i have a cache of land sales in all the areas i cover so i am searching my own database, not MLS or realist hoping to find land sales - i have them already.

in your case they came to you after the report was completed with the request to add the second parcel so i would probably hit them up for a small additional fee, say maybe $100, to cover my time. if they balk then let them know you would be happy to provide a new report with new effective and signature dates including both parcels but the fee will be [normal fee + whatever you want to add on]. since they will be paying this out of their pocket most likely they will opt for the $100 additional fee.

When a 1004 requires the cost approach, aren't we really doing two appraisals? Or am I looking at this wrong? I know the reporting is much less, but shouldn't there be at least a $150 up charge (or fill in your own number) if cost approach is required?

you are not completing two appraisals per-say, you are completing two different approaches to value (and for our purposes there are three total) for one appraisal. do you charge extra if you complete the income approach on an appraisal?

 

[Artemis Fowl]

Now I'm kinda confused. There are 3 parcels including the subject?

Regardless of how assessed (and I'm an assessor) H&BU needs to be addressed. This is no revision. The assignment has changed significantly. Restating the obvious.

Haven't done a 1004 in a while but yes what the others have stated. Land sale comps at minimum. I didn't grid them but did present and discuss in addenda. Part of doing the cost approach never saw it as additional appraisal.

 

[hastalavista]

So from the early responses, it seems that at least many (small sample size so far) appraisers do about the same amount of research (not reporting) to determine site value in cost approach as a separate 1065.

If this is so, then why is the price difference so negligible between a 1004 and 1065 report in most markets? When a 1004 requires the cost approach, aren't we really doing two appraisals? Or am I looking at this wrong?

(my bold)

I'm not going to say you are looking at it wrong.. but if I did, I'd be making a very technical argument that could be debated. I think you are asking a practical question, so I'll respond in practice rather than on technical issues. For sure, you are valuing a component of the subject. But we value all elements of comparison in the sales comparison approach in order to make adjustments, so the concept of valuing a component is not a separate appraisal.

In theory, whenever we complete a H&BU analysis, we are forming an opinion of value of the site. The practical outcome of that opinion is: Do the improvements contribute value to the site? If they do, then our value opinion of the site is benchmarked; i.e., the value of the site is less than the value of the site + improvements. Otherwise, our H&BU conclusion, as-improved, is the site value less whatever impact on value the improvements (with no remaining economic life) have on that value.
So, site value is always considered and a conclusion about it is made when the opinion of value is "market value" and that requires a H&BU analysis.

As far as, "Why don't we charge more when the cost approach is required....?" I do. If I don't think the CA is necessary for credible results but the client requires it, then I'll charge more than I would otherwise. If I think the cost approach is necessary, then I include that additional work in my bid. That's why I'll charge more for a proposed construction vs. an existing, older home, all other things being equal.