1. VALUING THE SITE Chapter 10

2. CHAPTER TERMS AND CONCEPTS Abstraction method Allocation method Developer’s profit Development method Elements of comparison Highest and best use criteria Interim use value Land residual method Market method Plottage value Sales history Site characteristics Units of comparison 2

3. LEARNING OUTCOMES 1.Name five different uses of site value appraisals. 2.List the five methods of appraising land. 3.Name five physical characteristics of a site that affect its value. 4.Name three legal and economic considerations in site value. 3

4. PURPOSE OF LAND VALUE ESTIMATES Sale and Purchase Development Financing Land Leasing Government Actions Agriculture Court Actions 4

5. SITE VALUE ESTIMATES Allocation for Tax Purposes  Ad Valorem taxes o Land and improvement values are often separated  Income taxes o Building value is allocated for depreciation purposes 5

6. SITE VALUE ESTIMATES Site Value in the Three Approaches  Cost Approach o Land + Building = Total Value  Income Approach o Certain techniques require allocated site value  Sales Comparison Approach o Estimate of land value is often needed for comparison techniques 6

7. METHODS OF APPRAISING LAND Market/Direct Comparison Allocation or Abstraction Land Development Land Residual 7

8. APPRAISING LAND 8 Figure 10-1

9. HIGHEST AND BEST USE Definition:  “The reasonable and profitable use that will support the highest land value as of the date of value.” A Highest and Best Use Opinion is Required by USPAP when the assignment is Market Value 9

10. Highest and Best Use Criteria 10

11. STEPS IN THE MARKET METHOD Appraising Land 11

12. SITE VALUE-ALLOCATION OR ABSTRACTION When to Use  When vacant land sales are not available  To appraise shared land interests Example  Sale Price $240,000  Dep. Cost of Bldg -$156,000  Abs. Site Value $84,000 Allocation  In some jurisdictions, the allocation between land and improvements by the County Tax Assessor may give the appraiser some guidance. In other jurisdictions, it is meaningless. 12

13. LAND DEVELOPMENT METHOD Used to Estimate Value of Land Ready to be Subdivided. Used When no Comparable Sales Available, or Detailed Analysis of Project is Desired. Procedure for Residential Subdivision:  Estimate number of lots to be developed  Estimate total gross sales dollars  Subtract all direct and indirect costs of development  Conclude the value of the raw land 13

14. The Lots May Be of Equal Value 14 Figure 10-5

15. LAND RESIDUAL METHOD Version of the Income Approach Based on the Principle of Surplus Productivity Used when no Comparable Sales are Available Suitable for Vacant or Improved income properties  Estimate net operating income for property  Estimate income attributable to improvements  Capitalize residual income to the land 15

16. MARKET COMPARISON TECHNIQUES Comparability Criteria  Competitive property  Market transaction  Recent in time of sale Sales/Listings of Subject  Analyze any agreement of sale/option/listings close to the date of value  Investigate prior sales (36 mo) Data Needed  Size, shape, other physical features  Legal data (zoning, taxes, restrictions, etc.) 16

17. MARKET COMPARISON TECHNIQUES Sales History of the Comparables  Important in speculative markets  Assess the relevance of any transfer Data Sources  Public records, MLS, commercial databases Verification  Open market transaction  Price and terms  Assumed loans 17

18. Important Site Characteristics 18 Figure 10-7

19. PHYSICAL AND LEGAL FACTORS IN LAND VALUE Physical 1.Size 2.Shape 3.Frontage 4.Width 5.Depth 6.Plottage 7.Type of Lot 8.Topography 9.Other Legal 1.Legal Entity 2.Zoning 3.Environment 1.Protection 2.Laws 4.Use Restrictions 5.Negative Loc. Factors 6.Utilities & Municipal Services 7.Level of Taxes 19

20. Major Physical Features Affecting Land Value 20 Figure 10-8

21. ANALYING SALES DATA Terms Time Location Physical Features 21 Elements of Comparison Units of Comparison Physical Economic Example

22. LAND SALES ADJUSTMENT GRID 22

23. SUMMARY 23 The five primary methods used by appraisers for land values are: 1. The market method 2. The allocation method 3. The abstraction method 4. The land development method 5. The land residual method The most important physical factors include size, shape, frontage, width, depth, plottage, type of lot, and topography. Legal and locational factors include the most likely profitable use, zoning and other land use regulations, as well as utilities and public facilities available.