Value of surplus land

[josephdifranco]

Hello,

I'd like to hear some opinions on an appraisal issue.

Short version: Bascially, if you conclude that a section of the subject property is surplus land, can you conclude a separate land value for it using typical, saleable land comparables, then add that value on top of the values you conclude in the sales and income approaches?


Long version:
In appraising a property I was provided an appraisal from one year prior. Basically, its a large parcel with a restaurant building on the south end and what might appear to be excess land in the northern portion. There is also a northwestern section about 75% covered by wetland areas. He concludes that it does not appear to be probable that the needed approvals to develop the northern section are attainable, while continuing the restaurant use (due to needed parking as well as other development issues) thus it is surplus land.

He completed three approaches to value and in the cost approach, concluded three different values for the three sections of the land. The land which was developed with a restaurant in the south end got a value of about $9.00 per square foot, as it is currently developed and we could expect to be able to develop it in the future. The surplus land in the north section got a value below half, or about $4.00 per square foot. The wetland area in the northwest section got $0.50 per square foot, with the idea that it had value for wetland banking.

He had 6 or 7 land sales on which he based the land values, but in reality was just sort of stating the north section land value of $3.50 and the northwest section at $0.50.

After concluding values by sales and income, he then added in the additional land values of $3.50 and $0.50 for the north and northwest sections to each approach.

The methodology seemed funky because its not like he had surplus land sales, nor could he sell the surplus land separately.

I'm wondering if its just me or if giving a separate land value to a piece of surplus land is faulty reasoning.

Thanks.

 

[Meandering]

Short version: Bascially, if you conclude that a section of the subject property is surplus land, can you conclude a separate land value for it using typical, saleable land comparables, then add that value on top of the values you conclude in the sales and income approaches?

The methodology seemed funky because its not like he had surplus land sales,

nor could he sell the surplus land separately.

I'm wondering if its just me or if giving a separate land value to a piece of surplus land is faulty reasoning.

Sometimes.

Let me explain.

Ever been to a nursery or outdoor garden center where they have trees and hedges in the soil for sale?

Well, that land is the sales floor, and is maintained and irrigated and is a contributor to the income, differently than that land that is the parking lot, or the land that separates the parking lot from the road.

So it is possible to to have a use value on the different land areas and come to an overall value opinion that might be fair market value. But might not be market value, so you need to tell us what value you are seeking.

You can't mitigate a wetland to an existing wetland. Mitigation sites need hydric soils, but they can't be already classified as "wet". So you would need uplands around the wetland that could be used for banking but would have to get approvals from the Army Corps of Engineers.

In PA we can destroy up to 1/2 an acre of wetland without mitigating the wetland, as the relaxed the laws. I'm not sure if that's just PA or Federally.


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[hastalavista]

I'm agreeing with Marion.

Identifying the different parts of the subject's parcel and then allocating different values based on their uses makes sense on one level.
But the problem (as I see it) is: If one is using sales that sold separately (which implies a H&BU onto itself) to extract allocated $/SF values for land that will not be sold separately (surplus land), how fair is that comparison?
It may be, if the market participants value it that way.
Or, it may not be. :new_smile-l:

(Joseph: I see you survived DeWesse's prep course. I wanted to jump out of my window half-way through income approach session! :laugh.

 

[Mike Kennedy]

[FONT=&quot]Excess Land

In regard to an improved site, the land not needed to serve or support the existing improvement. In regard to a vacant site or a site considered as though vacant, the land not needed to accommodate the site’s primary highest and best use. Such land may be separated from the larger site and have its own highest and best use, or it may allow for future expansion of the existing or anticipated improvement.

Surplus Land
Land not necessary to support the highest and best use of the existing improvement but, because of physical limitations, building placement, or neighborhood norms, cannot be sold off separately. Such land may or may not contribute positively to value and may or may not accommodate future expansion of an existing or anticipated improvement.

**Per The Appraisal of Real Estate – Twelfth Edition[/FONT]

 

[Meandering]

Yes, Mike, and???

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[Mike Kennedy]

Yes, Mike, and???

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Dennis is correct "But the problem (as I see it) is: If one is using sales that sold separately (which implies a H&BU onto itself) to extract allocated $/SF values for land that will not be sold separately (surplus land), how fair is that comparison?

It's not.

 

[Meandering]

Hello,

Long version:
In appraising a property I was provided an appraisal from one year prior. Basically, its a large parcel with a restaurant building on the south end and what might appear to be excess land in the northern portion.

There is also a northwestern section about 75% covered by wetland areas.

He concludes that it does not appear to be probable that the needed approvals to develop the northern section are attainable, while continuing the restaurant use (due to needed parking as well as other development issues) thus it is surplus land.

He completed three approaches to value

and in the cost approach, concluded three different values for the three sections of the land.


The land which was developed with a restaurant in the south end got a value of about $9.00 per square foot, as it is currently developed and we could expect to be able to develop it in the future.

The surplus land in the north section got a value below half, or about $4.00 per square foot.

The wetland area in the northwest section got $0.50 per square foot, with the idea that it had value for wetland banking.

He had 6 or 7 land sales on which he based the land values, but in reality was just sort of stating the north section land value of $3.50 and the northwest section at $0.50.

After concluding values by sales and income, he then added in the additional land values of $3.50 and $0.50 for the north and northwest sections to each approach.


The methodology seemed funky because its not like he had surplus land sales, nor could he sell the surplus land separately.

I'm wondering if its just me or if giving a separate land value to a piece of surplus land is faulty reasoning.

Thanks.

Dennis is correct "But the problem (as I see it) is: If one is using sales that sold separately (which implies a H&BU onto itself) to extract allocated $/SF values for land that will not be sold separately (surplus land), how fair is that comparison?

Okay, I think I see what you're saying.

However, we have no details concerning these land sales and how they were used,

because we don't know if the land sales incorporated wetlands, surplus lands and buildable lands and were used to extract ratios of the sale price to the particular type of land. Yes, stand alone properties can have different highest and best uses then portions of a larger property. But we don't have enough information to understand the details of why this was done or how this was done.

This is a complicated process.

But think for a minute about the guy that build the first indoor swimming pool.

How many appraisers slid under their desks, saying "No comps, No value"?

When you have 1sts or odd ball stuff, you have to blend your analysis with the available data.

If this guy's lot was 75% swamp, how do you expect him to estimate the value of the swamp different than the value of the uplands? Yup you need swamp sales and upland sales and hopefully lots of sales with different swamp to upland ratios to test against what you extract from the sales.

These kinds of analysis are not straight, grid three, make adjustments and here is the number.

But again, what value was sought was not explained, and that makes a big difference.


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[CANative]

It's more land than needed for the HBU of the improvements and you can't sell it off. What does the future hold for larger lots with the subject's zoning and demographics?

Does the surplus even contribute additional MV?

 

[Meandering]

That's a question that can only be answered by, it depends.

The OP's subject is a restaurant with sufficient parking for the number of tables and some of the surplus is wetlands.

Okay, how wet is it?

Is it wet enough to have an nice water feature and perhaps outdoor dining over looking a landscaped shallow pond? Yes, these kind of amenities are surplus land that adds to the value of restaurants.

If it's not wet enough and is cattails stuck in mud that is a breeding haven for misquotes and swamp flys and other annoyances, then it my have a negative contribution to the value.

We don't have enough information to know.

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[Terrel L. Shields]

what might appear to be excess land

Therefore, it can be sold off from the primary parcel, hence should be valued separately. HOW you deal with that is limited by HOW MUCH data is available.

I did an estate where a portion of the estate was wetlands, perhaps 4 acres. No one formally declared it same but it was obvious and it was a problem finding ANY sales of "wetlands". I ended up using a nearby NATIVE PRAIRIE sale to the state Heritage Commission as the basis for valuing the land as nature reserve slash wetlands. The balance of the site was rapidly developing and is now the new high school and hospital grounds...and the wetlands? It got parceled off by the buyers of the developable land and sold off a year later almost to the dollar what I predicted it would to the city for a park walkway and nature preserve.... Lucky - perhaps but clearly it was not going to be worth what the other ground would bring. Sometimes you have nothing more than your "judgment" to bring to bear in such situations.

Summation of land parcels isn't forbidden, but USPAP does ask that you test to make sure the totals make sense too... "Summation" as a means of adding together various interests however, it generally frowned up. But the value of segments that can stand alone can be "summed" without violating the Unit Rule.