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Land And Site Valuation

In valuing vacant land, the best approach is generally the Direct Sales Comparison Approach. When you have improvements on the site, you have to consider what effect a building has on the land value. The improvements could have a positive or negative affect on the land value, as opposed to if the site were left vacant.

In valuing vacant land, the best approach is generally the direct sales comparison approach.

As always, the Highest and Best Use and the "As Of" Date of Valuation are critical factors for your appraisal. Sub-soil conditions are also important. Such as, is the land part of a wetland or conservation area that can't be built upon? Or are there minerals in the soil that are worth money? Has the soil been contaminated with toxic substances or oil leaking from an underground tank? Or are there any other factors that affect the value? A site is valued from an appraisal standpoint as if it is vacant and available to be put to its Highest and Best Use. A Site is a buildable lot derived from taking vacant land and improving it so that it's ready to be built upon. For example, knocking down some trees, leveling the lot, running utility lines underground, etc. are all examples of improving vacant land. Location is important in H&B Use, and particularly important in land value.

You value land on a physical basis or by its productivity. The productivity of the land refers to how many houses, apartments or the maximum building square footage amount that can be built upon it.

Plottage refers to two or more adjoining lots that when combined, they produce a higher utility and value. Assemblage refers to two or more lots that when they are combined, do not produce a higher utility and value. Meaning that just because you buy two lots that are next to each other, it doesn't necessarily mean that you increase their market value by combining them. Perhaps there are zoning restrictions or some other factor that wouldn't make it beneficial to be the sole owner of the two combined lots. You may get the same market value if the lots were owned by two different people.

  • There are many different ways of estimating land values. Some of these include:
  • Front Foot Basis

  • Gross Area Basis

  • Price Per Acre Basis

I'll give you some examples on how these work. We'll assume we have found a lot that sold for $56,000 and the dimensions are 40 feet wide by 128 feet long. Front Foot Basis is calculated by the sales price of the lot divided by the total amount of frontage feet of the property. Frontage Feet simply refers to the length of the lot that is touching or facing the street. The larger the frontage feet the more property you have on the street. This is often more desirable than just having a narrow property by the street which widens as it goes inward more. This is especially true for commercial properties. Commercial businesses want as much exposure as possible to attract more customers off the street. Anyway, the estimated value of our example on a Front Foot Basis is:

$56,000/40 = $1,400 per frontage foot

Gross Area Basis is calculated by the sales price of the lot divided by the total square feet of the property. Square Feet simply refers to the length of the lot multiplied by the width of the lot. The estimated value of our example on a Gross Area Basis is:

40 x 128 = 5,120 square feet

$56,000/5,120 = $10.94 per square foot

Price Per Acre Basis is calculated by the sales price of the lot divided by the percentage of acres of the property. The first thing we need to do is to find out what the actual acreage is of the subject lot. To do this, we divide the square feet of the lot, by the number of square feet in an acre. You do remember that there are 43,560 square feet in an acre, don't you? (I'll be disappointed if you forget that!)

40 x 128 = 5,120 square feet

5,120/43,560 = .12  or   12% of an acre

We then take the sales price and divide it by the actual acreage. This will give us the estimated value of the property on a Price Per Acre Basis.

56,000/.12 = $466,667 per acre

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