Rev. of Appraisal of Real Estate, 12th Edition

Appraisal of Real Estate, 12th Edition

Published by the Appraisal Institute, 2001

Review by Stephen Traub, ASA

[Bookcover]

The book covers a wide range of land valuation tips and techniques on several land types. Although often covering complex topics, it is written simply and concisely.

It begins with a breakdown about land ownership in the US. The land area of the US is 2.3 billion acres. About 60% is privately owned, 37% is state or federally owned, and 3% is native American owned.

Site Analysis

In discussing land valuation, the author articulates the importance of performing a proper site analysis. Location, size, property rights, zoning, restrictions, boundary lines, easements, terrain, soil, and flood hazards should be analyzed. The purpose is to determine the usefulness of the site.

Although value should be based on current zoning, in some instances if rezoning would produce a higher use and rezoning is likely, then value may be based on rezoning.

Easements also may affect value. Easements give or take away property rights. Easements may be subsurface with water and sewer lines, surface with drainage and flow, and overhead with airspace. Subsurface easements within zoning setback areas will have less value impact than in areas of potential development.

In the chapter devoted to highest and best use, the use of the Land Residual method is illustrated.

Does Size Matter?

One chapter deals with the question: Does size matter? The answer is maybe. The author writes: "Generally, there are more small land sales than large sales. The [comparable] sale site should be a reasonably close substitute for the subject site, so that a prospective buyer would be indifferent about choosing one site over the other." So, look for the sales closest in size to the subject (if all else is equal). Then the need for an adjustment for size is reduced.

On the other hand, the author also writes: "One of the first lessons learned in real estate investing and valuation is that land is local in nature. Local economic influences cause demand to vary from locale to locale." (58) When appraising an unusually large site, the big tradeoffs are sales nearest in location versus those closest in size. Who said appraising was easy!

One method to determine if an adjustment is necessary is by plotting similar sales of various sizes by sale price per unit. This aids in picturing degrees of discounts for size if any exists. In a case study, this technique showed a steep unit price decline for parcels below 5 acres that flattened as parcels got larger.

The author shows how to determine time or market condition adjustments. He explains the arguments for and against calculating this adjustment on a straight-line basis versus an exponential basis. He also touches on the benefits of using listings particularly when few sales are available. Listings can show the ceiling of value as well as aid in estimating exposure time. Keeping abreast of the ratio of typical listing price to sale price can help translate listing prices into surrogate sales when land sales are scarce. Listings also can confirm the results of a sale only analysis.

SF, FF, Acre, or FAR

The author also discusses land sales with marginal improvements on them at the time of sale. Two possibilities exist: the improvements add to the value of the sale parcel and the improvement value must be deducted from the overall price, or the improvements detract from the value. Here, the cost to demolish the improvements must be added to the sale price to derive the total price paid to buy the land.

An appraiser also should understand the importance of using the proper unit of measure in analyzing land. Land is sold by physical units (SF, front foot, or acre) or by density units (value per SF of allowable building).

Is a corner site worth more than an interior site? With a gas station or retail site, the answer is probably yes since the corner allows greater visibility and traffic access. With a single-family residential site, the answer is probably no. Residential occupants do not want the additional traffic and noise. The author also analyzes the affects of median strips, speed limits, and expressway proximity on land values for various land uses.

Next, utilities are examined. Not only can the presence of municipal sewer and water sewer save the cost of constructing a well and septic system, but also by having such utilities, often the zoning will allow greater density. If more lots or more SF of building can be developed on the same site, this typically means greater value.

Water Views and Waterfront

An area in which the book excels is in the valuation of resort and waterfront land. The author warns us that lot sales can be erratic in resort areas because of uninformed impulse buyers. Therefore, check buyer knowledge and motivation on such sales.

... deep-water lots sold for 715% more.

Several studies cited showed the degree of value change as amenities improved. For example, lots with lagoon frontage sold for 155% of lots without frontage. Fairway lots sold for 160% of non-fairway lots and combined lagoon front/fairway lots sold for 240% of lots without either amenity. Additionally, marsh front lots sold for 260% more than lots without marsh front, and deep-water lots sold for 715% more than lots without this feature. Moreover, oceanfront lots sold at even higher multiples.

Additionally, increased beach width positively affected oceanfront land values, as did sheltered areas versus exposed lots (with strong winds), and deep-water lots versus shallow water lots. Views were another positive influence and value increased as the extent and quality of the views increased.

Land with subdivision potential was examined. The author warns: "The subdivision development method can produce unrealistic indications of market value when applied improperly. Therefore, it is always prudent to back up this method with the direct sales method."

The only sections that were weak were on office, retail, and industrial land. The office and retail sections were short. The industrial section was written in outline form.

Otherwise, the chapters on agricultural land, forestland, conservation easements, floodplains, and wetlands were adequate. Also, you will find chapters on contaminated land, eminent domain, a glossary, useful web pages, and an inspection checklist.

Except for a few sparse chapters, the book adequately covers a wide range of land valuation techniques and tips. Topics were easy-to-understand, organized, and concise. Therefore, I'd recommend you land this book.

The book above, Land Valuation: Adjustment Procedures and Assignments, is available on-line at Amazon Books.

Stephen Traub, ASA, the reviewer, is chief commercial appraiser for Property Valuation Advisors, 63 Hill St., Newburyport, MA 01950. He is a certified general appraiser in NH, ME, and MA.

To contact the author of this review, e-mail to: straub@shore.net or contact him at the address above, or call 978-462-4347.