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The Trouble with Rates in the Subdivision Development Method to Land Valuation
Feature article originally published in The Appraisal Journal Spring 2013 issue.
22 pages, PDF Download
Valuation of subdivision land is not a one-size-fits-all endeavor. This article demonstrates the relationship between profit and yield and their application in land valuation. A subdivision development static method is suggested, and the impact of leverage, trending, and project duration on profit and yield are demonstrated. The article illustrates the pitfalls of adhering to a discount rate from published studies and calls into question the applicability of discounted cash flows for short-term developments. It emphasizes that appraisals should reflect what market participants actually do in their analyses of subdivision land and that the best sources for profit, yield, or discount rates are actual developer or builder pro formas, surveys, and interviews with market participants.
Brian J. Curry, MAI, SRA
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