Valuation of Improvements Only

[J Grant]

The op's intended user and use are simple, how much is it worth so they can sell it.

Find three sales (sales comparison) for this typical 100 acre house/barn/workshop. You wouldn't do a cost approach on an old farm house, old barn and workshop.

There is no partial interest or taking or unique improvements involved.

EZ MONEY.

he is not valuing a house with other improvements on 100 acres.

 

[Terrel L. Shields]

he is not valuing a house with other improvements on 100 acres.

You can appraise a partial estate as per USPAP. But you still have to evaluate the impact the remainder of the whole property has on value. An old house on one acre may suffer no obsolescence outside physical wear and tear but on 100 acres? The contributory value may be less. On a 10,000 acre ranch, improvements may be entirely invisible even when substantial in nature. The contributory value is different and you must address those. Older barns often have no value except in use whereas newer functional shops and barns do have market value. But an example is 120 acres split off 5 acres with a fairly nice MH. But on the 5 acres was a 6,000 SF hay barn, useful to the larger farm, but over-built for 5 acres. It's contributory value is deminished and would be different if asked to only value the improvements on 120 acres vs 5 acres. It boils down to HBU. HBU of 5 acres differs from 100 acres.

 

[sputnam]

I'm not sure I've wrapped my head around what @sputnam is arguing for, as this still sounds like it is an undivided interest of the property, but only to include the improvement segment of it. Thoughts?

I'm not arguing for anything. I'm simply stating that under USPAP you can appraise any portion of a property.... and that means any physical segment or any of the bundle of rights associated with fee simple ownership of the property. In that case, you are not appraising the fee simple interest in the property. You are appraising a specified interest... like, mineral rights or riparian rights or leasehold. The actual interest that is owned by the borrower is, in this case, irrelevant to the assignment from the Client. Which is to appraise the value of the improvements only.

As already stated, a good depreciated cost analysis would work. Or, as someone else stated, sales comparison analysis minus the land value.

It is a weird request. I would ask the Client about why they wanted the improvements only value.

 

[J Grant]

You can appraise a partial estate as per USPAP. But you still have to evaluate the impact the remainder of the whole property has on value. An old house on one acre may suffer no obsolescence outside physical wear and tear but on 100 acres? The contributory value may be less. On a 10,000 acre ranch, improvements may be entirely invisible even when substantial in nature. The contributory value is different and you must address those. Older barns often have no value except in use whereas newer functional shops and barns do have market value. But an example is 120 acres split off 5 acres with a fairly nice MH. But on the 5 acres was a 6,000 SF hay barn, useful to the larger farm, but over-built for 5 acres. It's contributory value is deminished and would be different if asked to only value the improvements on 120 acres vs 5 acres. It boils down to HBU. HBU of 5 acres differs from 100 acres.

That is all true, but it is a different appraisal problem then the OP proposed.

 

[sputnam]

That is all true, but it is a different appraisal problem then the OP proposed.

It's exactly what the OP asked. "How would you go about valuing the improvements alone on a real property?"

 

[J Grant]

It's exactly what the OP asked. "How would you go about valuing the improvements alone on a real property?"

Terrel's post that prompted my comment was talking about the low contributory value of improvements to 100 acres /or other sites.

The OP seems not to understand his own question, or some here do not - the OP said no EA or HC, the OP said value improvements ONLY, not the contributory value of improvements to the whole or contributory value to the parcel..

If the improvements are valued only as is, no HC . then either they are scrap material or would be moved off-site.. Thus my sarcastic question, are they floating in the air? Because if the valuation is supposed to be a segment, then what physical ground do the improvements occupy? A segment as if the improvements are on a 1-acre site portion, for example? Then an HC has to be made as if the improvements are on 1 acre.

 

[Tom D]

soo many smart people on this thread. my little, urban row home, brain is starting to understand yous.

 

[Terrel L. Shields]

so then what are they buying in this segmented model sale???

It's a model....so is the scenario laid out. He wants to know how to arrive at a contributory value to the LAND value...or is there any.

can still be sold.

Your home is taxed without selling isn't it?

You wouldn't do a cost approach on an old farm house, old barn and workshop.

Actually I do a cost approach on every large tract rural property. ALWAYS. First I want to determine the value of the land as if vacant and available for its highest and best use. Then extracting the value of improvements from other sales - starting with subtracting the land value to get the building residual then applying similar accrued depreciation. Deconstructing every sale is necessary to determine if and how much obsolescence is present.

So first I want to know what the LAND is worth. And the larger the tract, typically I find that the more depreciation accrues to the buildings and house. And my assumptions start with the idea that the oldest improvements (non-house) are the least valuable.

So say my sale is $476,000. The land is worth $400,000. Therefore the net to improvements is $76,000. So say there is a house and a barn. The house we can estimate the $/SF from similar sales or even straight or modified depreciation. Let's say that it is $66,000 you allocate to the barn and site improvements. From other similar sales you have determined a typical site improvements (well,septic, gravel drive) value is $6,000. That leaves $4,000 for the barn. If the barn is only 2 years old and cost $20,000 to build, then it has lost most of its value, and has depreciated by 80%...far in excess to its physical wear and tear. It suffers functional obsolescence in the market.

That is why you always do the land "as if vacant" first. Since no 2 appraisers are likely to extract in exactly the same way (except all should be extracting the land value as if available for HBU) the appraiser must perform the same analysis for subject and comps consistently.

And to answer the original question, both sales and cost approaches should yield similar results assuming you have sales data to develop a good depreciation for the improvements. And I find too many appraisers apply depreciation rather mechanically and cannot understand why the cost approach comes in "high" to the sales approach.

 

[J Grant]

t's a model....so is the scenario laid out. He wants to know how to arrive at a contributory value to the LAND value...or is there any.

That was not the appraisal problem he laid out. He wanted to know the value of the improvements ONLY, all by themselves, not their contributory value to the land, which is extremely common and one many of us do as part of a SOW.

I will say that the way he posted the question was confusing and sections of it contradicted itself.

 

[Dublin ohio]

Common also in FEMA work

I have done couple in a flood zone for purposes of determining the value of improvements only. They were going to add on to the existing structure and regulations only allow 50% of the value of existing improvements. Sales comparison less site value. I was lucky to have good riverfront land sales as well as good typical sales comps.