Value Added For Small Addition To Site Area

[NachoPerito]

I have gotten a couple of these assignments and wondering your opinion on added value or methods.

Let's say I am asked to determine the difference in value between a 10,000 square foot single-family home site and an 11,000 square foot site. Let's say as a 10,000 square foot site the value is $100,000. We are talking land value difference only.

Let's assume there is no value to the landscaping and it doesn't functionally change the site in any way (doesn't enable the owner to building a larger home, subdivide, or improve access or view). The additional area gives the subject property more recreational space, but nothing else.

How have you supported a land value difference?

Thanks in advance. And I just threw a random poll in there for curiosity.
-Nacho

 

[Meandering]

1,000 sf of land is not significant enough to make any difference in value here.
And especially in the current market here.

.

 

[NachoPerito]

1,000 sf of land is not significant enough to make any difference in value here.
And especially in the current market here.

.

Thanks Marion. Have you been hired to analyze added land value in a report and had a conclusion of zero dollars? How do you support that?

 

[Meandering]

Thanks Marion. Have you been hired to analyze added land value in a report and had a conclusion of zero dollars? How do you support that?

Not for residential lending. but for state work, condemnation and road widening.

For residential, paired land sales in multiple newer subdivisions. Generally, you will find no difference in price differences for such small increments of land which might be due to accommodation of cul-de-sac parcels, wetlands, slope, or other limited utility areas that get incorporated into another lot during the initial subdivision process. As build out occurs, there generally isn't any difference in price when lots are sold separate of any new construction.

In existing subdivisions, under current market conditions, and multiple private sellers, here, we are seeing very little price difference for size variants.

These lots, 0.29-0.37 acres.

Your mileage may vary.

 

[Gobears81]

How have you supported a land value difference?

If you are analyzing a residential lot, in the past I have analyzed the individual lots on a price per square foot basis, but often incorporating an inverse relationship between size and price. What type (or degree) of relationship between size and price the lot suggests is obviously different for every market, and I've heard some appraisers say that the size doesn't make a significant difference in the total price paid for residential lots. In the town I work in, a "standard-sized" residential lot in town seems to have an accepted value of $600. That clearly changes if you have a 20,000 SF lot, but a 4,500 SF vs 6,000 SF lot has a most likely purchaser of an adjoining owner and there is a wide range (as a percentage) of unit prices per square foot. For these in-town lots, there is virtually no feasibility for development, but the configuration is nonetheless one of the issues that has an effect on the most likely purchaser.
For commercial lots (ie retail, office), I often find an optimal relationship for sizes-if it goes over that range, it starts incorporating an inverse relationship, but the difference in unit prices between say a 35,000 SF and 45,000 SF isn't going to be significant, all else equal, provided that market recognizes those sites as being within an optimal range. If it is under the range, there might be some variance in unit price that could be partially be attributed to configuration in many cases, so you could possibly see some plottage value. That all varies for the market and property type also.
In the example you mentioned, a 1,000 SF section is most likely described as surplus land after assemblage. But taking that a ratio further, would a 10,000 SF section be surplus to a 100,000 SF site? It is accepted that surplus land may or may not offer additional value. For a residential lot, if that 1,000 SF expands the home-site's view to a lake or park frontage, one would venture that as being an attribute that positively affects the price paid. If there is a trend of constructing additions to houses in which the current lot sizes are limiting development, perhaps it could be a positive factor. But if you examine home sales, like Marion said, adding 1,000 SF to the lot size would not result in a notable increase in the total value in many cases. Perhaps vacant lot sales may not reflect a difference in the total price for a 10,000 SF vs 11,000 SF site, as well. If a commercial lot, if that 1,000 SF adds road frontage, that would seemingly be a positive factor, but what if it is 1,000 SF in back that adds solely to the lot depth? Does adding the 1,000 SF maintain a rectangular (or functional) configuration? What if it results in an additional access point? Many factors to consider. The highest and best use, market analysis, and most likely purchaser identification is paramount in any appraisal, but it tends to be amplified in these types of cases.

 

[NachoPerito]

If you are analyzing a residential lot, in the past I have analyzed the individual lots on a price per square foot basis, but often incorporating an inverse relationship between size and price. What type (or degree) of relationship between size and price the lot suggests is obviously different for every market, and I've heard some appraisers say that the size doesn't make a significant difference in the total price paid for residential lots. In the town I work in, a "standard-sized" residential lot in town seems to have an accepted value of $600. That clearly changes if you have a 20,000 SF lot, but a 4,500 SF vs 6,000 SF lot has a most likely purchaser of an adjoining owner and there is a wide range (as a percentage) of unit prices per square foot. For these in-town lots, there is virtually no feasibility for development, but the configuration is nonetheless one of the issues that has an effect on the most likely purchaser.
For commercial lots (ie retail, office), I often find an optimal relationship for sizes-if it goes over that range, it starts incorporating an inverse relationship, but the difference in unit prices between say a 35,000 SF and 45,000 SF isn't going to be significant, all else equal.

by inverse relationship I assume you are saying that if the first 10,000 square feet is worth $10/SF then the value of another 1,000 SF has a value of much less than $10/SF if you can't do anything with it. I have done some research that suggests a substantial discount of over 50% ($5/SF) and maybe far more. I would have to think that it would add some value, but my job is to prove it. I would think this is a common analysis for condemnation appraisals for a road widening, but I am not sure what the standard is.

 

[Gobears81]

by inverse relationship I assume you are saying that if the first 10,000 square feet is worth $10/SF then the value of another 1,000 SF has a value of much less than $10/SF if you can't do anything with it. I have done some research that suggests a substantial discount of over 50% ($5/SF) and maybe far more. I would have to think that it would add some value, but my job is to prove it. I would think this is a common analysis for condemnation appraisals for a road widening, but I am not sure what the standard is.

By inverse relationship, I mean that a 10,000 SF lot might sell for $10/ SF but a 15,000 SF lot might sell for $8/ SF. It isn't a hard and fast rule to every market or property type, and there are certainly limits on what sizes it applies to. There is no rule that surplus land contributes additional value to the whole. I did an appraisal on a proposed office building and the purchaser essentially bought it for a 1-acre lot, although the actual parcel had 6-acres. The remaining 5-acres were highly irregular and lacking road frontage. Due to topographical issues, etc., these 5-acres had limited development potential, and the sale price reflected no premium for the additional land (neither did the prior sale price of the tract).

 

[JTip]

I would think this is a common analysis for condemnation appraisals for a road widening, but I am not sure what the standard is.

A simple unit value (price per sf) IF highest and best use remains unchanged. Indirect damages may apply to improvement proximity but if the overall utility of the land is not affected, a unit value based on confirmed vacant land sales is applied.

 

[Howard Klahr]

Let's say I am asked to determine the difference in value between a 10,000 square foot single-family home site

Value Added For Small Addition To Site Area

I have a certification that allows me to appraise business value (ASA, CBA, ABV, etc)

How does the example posted for the question relate to the premise of the poll and if this is based on a residential lot, why is this in the commercial thread?

 

[NachoPerito]

By inverse relationship, I mean that a 10,000 SF lot might sell for $10/ SF but a 15,000 SF lot might sell for $8/ SF. It isn't a hard and fast rule to every market or property type, and there are certainly limits on what sizes it applies to. There is no rule that surplus land contributes additional value to the whole. I did an appraisal on a proposed office building and the purchaser essentially bought it for a 1-acre lot, although the actual parcel had 6-acres. The remaining 5-acres were highly irregular and lacking road frontage. Due to topographical issues, etc., these 5-acres had limited development potential, and the sale price reflected no premium for the additional land (neither did the prior sale price of the tract).

I agree when the site is commercial. Having a larger site, but no more functionality doesn't add value. For residential I have seen an increase in value for larger sites. One analysis I did was looking at 5-acre and 10-acre sites over time without potential for subdivision. My evidence showed that 10-acre sites were selling for higher prices than 5-acre sites. This would show me that there are incremental increases in value for a larger lot. The increase may not be substantial and certainly would be hard to test for a difference when looking at paired sales.