Determining a vacant lot value

Determining a vacant lot value

When determining the value of a lot there are numerous issues that need to be addressed including ensuring the lot appraised is the correct property.  This can be an issue when the lot is landlocked and does not have access to the street. This is especially true when the lot is being subdivided and not in a typical new development subdivision.  Other issues may include, unknown easements that could not be discovered during the course of a simple inspection, the “buildability” of the lot and the “highest and best use”.

Assuming the “highest and best” use is a single family home building lot and the lot is “buildable”.  Meaning there is access, the city zoning will allow the building, the soil will allow for a building lot, there are no easements, etc.  There are 3 methods to determine a site value. They are 1- The Sales comparison method, 2- Allocation method and 3- The extraction method.


The Sales Method


The sales comparison method is the most common and in most cases the most reliable.  This is similar to completing an appraisal on a single family home. The appraiser looks at the features that a home has and compares them to other similar homes.  The biggest difference is that lots do not have as many features as homes. Another issue that may be common with infill lots is there are limited similar sales.


Using paired sales to determine price per square foot is one way to determine the price per square foot.  For example, I am looking at a subdivision in which there are 2 lots that are very similar in all respects but size.  One property is 13,503 square feet. This property sold for $250,000. A second lot is 18,295 and sold for $272,000 all things being equal the value of the additional 4,792 (.11 acres) is worth $22,000 or $4.59 per foot.  This method is effective where there are smaller differences between lots with in similar or the same subdivision. However, this would not be effective when looking at much larger or much smaller properties. Much larger lots may represent a surplus of land or an excess of land (could be subdivided).  Whereas, much smaller lots would not have the same utility for example the neighborhood may have large homes which require a much larger lot and the lot in question may be large enough to build a home but not a home similar to other homes in the neighborhood.


The Allocation Method

This method is effective when looking for comparable lot sales in an area with new construction.  The idea is the lot value represents some percent of the total cost of the sale. For example, if a new construction home sold for $600,000 and the cost to build can be determined to be $400,000 based on a conversation with the builder or some other method it can be surmised that the value of the lot is $200,000 or 33% attributed to the land.  If houses near the subject have recently sold near the subject for $560,000 to $650,000 it can assumed that the lot values range between $185,000 and $214,500.


This method is not effective in areas with older home sales because the depreciation of the home is subjective and difficult to determine.


The Extraction Method


This Method is the most complicated and requires the most work.  In brief, the site value is the difference between the sale price and the value of the contributory value of the improvements.  This method is similar to the allocation method in that it requires the cost of all lot improvements with the additional component of the accrued depreciation.  The end result is not a percent of the total value as in the Allocation method, but rather, a site value on each property. For example:

Address 123 Abc St 321 Abc St
Date of sale 01/31/2019 02/01/2019
Sale price (SP) $250,000 $285,000
Replacement cost new $175,000 $200,000
Depreciation of improvements $48,500 $75,000
Depreciated value of improvements (DVofI) $126,500 $125,000
Site value (SP – DvofI) $123,500 $160,000
Site size 10,000 sf 12,000 sf
Site value per square foot $12.35 $13.33

The method that is most reliable is the sales approach, however, is some circumstances one of the other two methods may be employed to determine the value of a lot.


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