Zoning Change Deduction

[F1tne$$]

I am appraising industrial land that is currently zoned agricultural although the towns comprehensive plan calls for the land to be industrial. The land is being purchased and the buyer paid industrial land prices and is in the process of changing the zoning to industrial. Would you typically deduct for the cost to rezone the property? In this case, the zoning change cost represents approximately 0.05% of the market value/purchase price. The cost to change the zoning really has no bearing on the market value or the purchase price being paid by the developer. Just asking from a technical perspective. Thanks everyone!

 

[glenn walker]

I am appraising industrial land that is currently zoned agricultural although the towns comprehensive plan calls for the land to be industrial. The land is being purchased and the buyer paid industrial land prices and is in the process of changing the zoning to industrial. Would you typically deduct for the cost to rezone the property? In this case, the zoning change cost represents approximately 0.05% of the market value/purchase price. The cost to change the zoning really has no bearing on the market value or the purchase price being paid by the developer. Just asking from a technical perspective. Thanks everyone!

No sounds like new City-County General Plan has already incorporated the change and buyers know this and and development fees and zoning fees is not part of your assignment and scope of work. Essentially you would be deducting a cost but your appraising it as Industrial not Agricultural and lowering a value for a City-County fee is not how its done. We often spent Hundreds of thousands on fees to get all of our zoning and entitlement issues completed but appraiser did not incorporate or adjust fore those costinto his valueand that only done on construction loans and not on raw undeveloped land sales or purchases.

 

[Dublin ohio]

the zoning change cost represents approximately 0.05% of the market value/purchase price.

Not knowing what the purchase prices is. That is only $500 per $1,000,000 of value. Background noise?

 

[George Hatch]

You're appraising agricultural-zoned land (with a given location) wherein a change of zoning is being proposed. Start there. If you think the buyers and sellers are operating off an expectation that such a zoning change will likely be granted then that's an easy explanation. If you can find other examples where that's occurred that would support your opinion of the likelihood in this situation.

From your description I would guess that the availability of utilities and paved access might end up being different for this parcel than for parcels that are already zoned for industrial, but I'm sure you're already considering that.

 

[Terrel L. Shields]

Land in Transition...I have seen farmland sell very high that was proposed for a school largely on the promise of the city that they would run an 8" waterline and upgraded 3 phase electricity to the site. Such things are hard to anticipate and even harder to find comps and evaluate. Zoning was the least of the issues. A developer for housing would likely not be willing to pay that because he would have to pay the cost of the waterline and sewer. Saw the same with a church property. They were tasked with paying for the sewer crossing a state highway and that was a whooping $80k or so - almost as much as they paid for the 10 acre.

 

[sputnam]

Assuming your assignment is to report the market value of the property, you analyze and form an opinion about the Highest and Best Use and that's how you appraise it.

 

[Rlong]

Yes this is primarilly all done/analyzed in your H&BU analysis, including your estimate of 0.05% difference... then in your sale comparison approach you "adjust or don't" (sounds like it won't matter in the end) and refer back to your slightly longer H&BU analysis (longer than if it was current zoning.)

 

[Mark K]

Would you typically deduct for the cost to rezone the property?

I would not. Every significant land sale that I've encountered that needs zoning changes/variances has, included in the purchase agreement, a contingency on zoning changes, utilities, etc. either in a firm commitment from the relative authorities or a binding Memorandum of Understanding (MOU) prior to closing the transaction. This is part of the due diligence and these sales can take from 12-18 months to finalize.

Minor costs such as this or razing an old building, clearing out a small woods, etc. mean nothing to the typical developer.