The value of a site is the value of a site...In your highest and best use of a site, there is no "surplus" land. The ideal improvement would be something else perhaps? Say you have a neighborhood with 3,000 SF homes on 2 acre sites. One home is 3,000 SF but is on 10 acres. The extra 8 acres if not divisible thus is an above average sized site. If it cannot be separated into smaller parcels (which would be excess land valued at the same land value as other 2 acre land likely) then what is the value of the surplus? Probably something more than a 2 acre site but less than 5 two acre tracts would bring.
Assessors typically value a site separately from the improvements. That means they don't really consider HBU correctly. They compare 10 acre sites with other 10 acre sites whether ideally occupied or not. And frequently, in my area at least, if they figure that land values are say, $10,000 per acre, then 1 acre or 14 they use $10,000/acre. This will lead to overvaluation because they do not counter by subtracting the externality of the land being inappropriately large for the use.
In a mixed area, houses may be 2 acre sites, but a 10 acre site might be more appropriate for say, a luxury home, a small commercial site, or a ranchette with horse barns.
In fact, the land value may be pretty much the same per acre as if vacant. But if the improvement does not utilize the larger site, then the loss in value could rightly be allocated to the overall property or the improvements themselves. You appear to have discovered that the larger surplus does not translate the same way as the assessor. That likely means you are more nearly correct.
If you have a site that is larger than ordinary in an assignment, then value the site from vacant land sales. Try to value the overall property from similar large tract sales. If you do have to use a smaller (more appropriate?) site comp, then the larger tract sales should give you a basis for making an adjustment. That differential is the basis for your cost approach adjustment as well. In an income approach, once again, the income isn't supportive of the larger site, thus the extraction you've made should reasonably be expected as an adjustment there. Value the excess separately via extraction (what you did) then add it back to the value by the income approach.
