Specific Site Adjustments Versus Adjustment Factors

[cds01]

I'm a bit stuck working on an appraisal of a rural property. It's on 16 acres+/-, and have comps ranging from 5-20 acres. I know each marginal acre is worth less in general, but I am also looking at a situation where because of the rural nature and wide defined neighborhood of the assignment, you have varying values per acre based upon proximity to major nearby market. I can run land sales next to each comp, but market data is thin and inconclusive. Typically, I would just apply an adjustment factor... something that narrows the adjusted value range with a simple per-acre application (as long as there isn't something clearly wrong with the terrain, etc.). Any outliers are almost always due to location after this is applied. I am wondering if this is frowned upon or acceptable form of analysis? It's one of those deals where it's often correct, but I can't put in my reconciliation "applied trial and error site adjustments until best-fit line determined". What say the appraiser forum crew?

 

[J Grant]

You can have one adjustment for size of lot ( per acre), and a separate adjustment on the grid for location (near town )

The location adjustment would not be per acre, it could either be across the board extracted amount , or a % applied to each sale price...such as sites closer to town sell for 8% more.

Where does your subject lie as far as location?

 

[Terrel L. Shields]

know each marginal acre is worth less in general, but I am also looking at a situation where because of the rural nature and wide defined neighborhood of the assignment, you have varying values per acre based upon proximity to major nearby market.

I will always believe the best way to value rural land, which is my specialty, is to determine the value of the individual parcel, and make a dollar for dollar adjustment.

Yes, that is more work. Don't get too hung up on the "marginal value" item. Few buyers look at it that way. The land is worth X and the site (actual used part) is worth Y.

Yes an adjustment for size is possible and can be graphed. Starting with a small site going up to say 300 acres, the graph will be a log normal curve generally. Depending upon what part of Texas you are in, be it a rural area that is in transition to smaller residential tracts or a sleepy rural area where growth is much slower, you have the very von Thünen land concept (look it up if you don't know who von Thünen was- but your marginal land concept comes from there). The further out, the less valuable, but trying to do a percentage adjustment is pretty hair shirt. That is not really a location adjustment. I would make a location adjustment only if the market conditions were different between the subject and comps...5 acres in the city limits v. 10 acres in a rural area 40 miles away.

The market area may be quite wide and land values do vary, but I would look for land comps for the subject first and foremost. Then I would try to determine the comps land values separately. You may be able to extract it and support the extraction with other land sales...even a single land sale.

 

[J Grant]

I'm a bit stuck working on an appraisal of a rural property. It's on 16 acres+/-, and have comps ranging from 5-20 acres. I know each marginal acre is worth less in general, but I am also looking at a situation where because of the rural nature and wide defined neighborhood of the assignment, you have varying values per acre based upon proximity to major nearby market. I can run land sales next to each comp, but market data is thin and inconclusive. Typically, I would just apply an adjustment factor... something that narrows the adjusted value range with a simple per-acre application (as long as there isn't something clearly wrong with the terrain, etc.). Any outliers are almost always due to location after this is applied. I am wondering if this is frowned upon or acceptable form of analysis? It's one of those deals where it's often correct, but I can't put in my reconciliation "applied trial and error site adjustments until best-fit line determined". What say the appraiser forum crew?

Imo a reasonable way to find out the residual adjustment for closer to town location vs $ per acre for lot size, is to arrive at a $ per acre for surplus acreage contributory value, apply that adjustment, which should narrow the adjusted values for lot size down . Then see if acreage closer to town shows $X as an extracted adjustment....it might or might not.

Sometimes location is more about market exposure (days on market ) than price, though they can run together...are lots closer to town selling faster?

You did not specify if this is is vacant land, or a house on site?

 

[hastalavista]

I am wondering if this is frowned upon or acceptable form of analysis? It's one of those deals where it's often correct, but I can't put in my reconciliation "applied trial and error site adjustments until best-fit line determined". What say the appraiser forum crew?

My crew says this: What you believe to be the case (closer to the urban centers are worth more) makes some intuitive sense. I'd call a few agents who sell these types of properties (like, the ones who sold the comps you are looking at) and ask them if they see that same dynamic. If they do, then you have a basis for making an adjustment based on proximity to the urban centers (for a lot of reasons... convenience to shopping/support facilities, etc.).
Once you've identified the reason for the adjustment, then where you place your point is easier to analyze and support.

I see this dynamic in my area. I've had a run on rural-like properties surrounding the City of Livermore. For a fact, the farther you go from town, the lower the value of the land once all other things have been accounted for.

On the other hand, if the agents say, "You know, there isn't much of a rhyme or reason. Some people like more country, some people less. It really depends on the specifics of the market participants for that specific transaction." then that information would imply a non-adjustable variance. Sometimes it matters, sometimes it doesn't. If this were the case, I'd make no adjustment in the grid and deal with those differences in my point-value reconciliation (as I thought best).


Good luck!

 

[Restrain]

Watch for impact of deed restrictions vs unrestricted in Texas. As a study, go back a couple of years and build your historical database of sales. You can chart the trends using the database and see the impact of location, deed restrictions, size and come to an informed estimate of value. As to whether you have multiple cumulative adjustments or a single adjustment will depend on the trend. An example would be the land in Denton County. Acreage in restricted developments can run $75K per acre, whereas unrestricted lots in NW Denton County might run $20K an acre. Further location would impact the value with the unrestricted tracts increasing as you get closer to I35 or move east into the Frisco corridor. Thus you would have both size and locational adjustments.

Nice thing is that once you do the exercise, you have a permanent database you can expand on in the future, and have documentation in your files to support your estimate of value

 

[cds01]

Thanks for all the input. Very helpful. Ended up running land sales around each sale and comparing aggregate site value to aggregate site value as prescribed. It's still an estimate no matter how much you dig, and that's what drives me nuts about this work. I want to be "right".

 

[Doug Wegener]

My crew says this: What you believe to be the case (closer to the urban centers are worth more) makes some intuitive sense. I'd call a few agents who sell these types of properties (like, the ones who sold the comps you are looking at) and ask them if they see that same dynamic. If they do, then you have a basis for making an adjustment based on proximity to the urban centers (for a lot of reasons... convenience to shopping/support facilities, etc.).
Once you've identified the reason for the adjustment, then where you place your point is easier to analyze and support.

I see this dynamic in my area. I've had a run on rural-like properties surrounding the City of Livermore. For a fact, the farther you go from town, the lower the value of the land once all other things have been accounted for.

On the other hand, if the agents say, "You know, there isn't much of a rhyme or reason. Some people like more country, some people less. It really depends on the specifics of the market participants for that specific transaction." then that information would imply a non-adjustable variance. Sometimes it matters, sometimes it doesn't. If this were the case, I'd make no adjustment in the grid and deal with those differences in my point-value reconciliation (as I thought best).


Good luck!

Distant to services impacts value in all my markets too. Whenever possible, I avoid coming in closer to town and making that location adjustment although I do it. I would use a more dissimilar comparable with same location or even an older sale in the same location. Different location and large location adjustment would make it comp#6 for me.

 

[jay trotta]

Thanks for all the input. Very helpful. Ended up running land sales around each sale and comparing aggregate site value to aggregate site value as prescribed. It's still an estimate no matter how much you dig, and that's what drives me nuts about this work. I want to be "right".[/QUOTE]

It appears you have done the work, drilled down to establish the "estimate" and driven yourself nuts; IMHO you are right, you just need to accept the fact your done. At least you work in an area in which you have ample data. Good Luck

 

[Michigander]

I will always believe the best way to value rural land, which is my specialty, is to determine the value of the individual parcel, and make a dollar for dollar adjustment.

Yes, that is more work. Don't get too hung up on the "marginal value" item. Few buyers look at it that way. The land is worth X and the site (actual used part) is worth Y.

Yes an adjustment for size is possible and can be graphed. Starting with a small site going up to say 300 acres, the graph will be a log normal curve generally. Depending upon what part of Texas you are in, be it a rural area that is in transition to smaller residential tracts or a sleepy rural area where growth is much slower, you have the very von Thünen land concept (look it up if you don't know who von Thünen was- but your marginal land concept comes from there). The further out, the less valuable, but trying to do a percentage adjustment is pretty hair shirt. That is not really a location adjustment. I would make a location adjustment only if the market conditions were different between the subject and comps...5 acres in the city limits v. 10 acres in a rural area 40 miles away.

The market area may be quite wide and land values do vary, but I would look for land comps for the subject first and foremost. Then I would try to determine the comps land values separately. You may be able to extract it and support the extraction with other land sales...even a single land sale.

I agree with this. For me, even in urban areas, site for site