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Valuing Excess Land Creates Challenges for Appraisers: The Appraisal Journal

June 23, 2015 08:00 AM

CHICAGO (June 23, 2015) – Appraisers tasked with valuing excess land are often met with unique challenges for developing opinions of the value for the unneeded tract, according to an article published this week in The Appraisal Journal.

The Appraisal Journal is the quarterly technical and academic publication of the Appraisal Institute, the nation’s largest professional association of real estate appraisers. The materials presented in the publication represent the opinions and views of the authors and not necessarily those of the Appraisal Institute.

“A Discussion of Excess Land Concepts and Theory,” by Joseph M. Webster, MAI, reviews the three criteria necessary to determine whether a portion of a site can be considered excess land. First, the land must be marketable as a separate tract. Second, the parcel must be severable from the original site, which is based in governmental regulations in the market. Finally, the appraiser should be mindful of the highest and best use of the remainder tract of land.

The author cautions against using a sum-of-all-parts approach to providing an opinion of value of the excess land compared to the remaining tract to avoid under- or over-stating the value of the land. As an alternative, the author recommends a discounted cash flow analysis to determine the value of excess land.

The author also reminds appraisers of factors that potentially could have an impact on the value of excess land. Some property owners pay a premium for adjoining tracts of land, which could affect the value opinion of the excess land. Market factors can also have an impact on the value of land, including the appreciation or depreciation in excess land value, level of market risk and anticipated marketing time.

Webster began appraising in 2006 and is employed by Webster & Associates, Inc., which has offices in Urbana and Decatur, Illinois. He received a Bachelor of Science degree in finance and a Master of Business Administration from Southern Illinois University Carbondale.

Read “A Discussion of Excess Land Concepts and Theory” in the Spring issue of The Appraisal Journal.

Also in The Appraisal Journal’s Spring 2015 issue:

“Real Estate Theory versus Practices: A Case Study of Valuation Practices of Jamaican Valuers,” by Tina Beale, illustrates the gap between valuation theory and local practices. It also reveals that a relationship exists between the theory/practice gap and disparities in the determination of variables.

“Net Zero Energy Buildings: An Introduction for Valuation Professionals,” by Timothy P. Runde, MAI, introduces key characteristics of commercial net zero energy buildings, how they differ from conventional buildings and what that means for the appraiser and appraisal process. 

 

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The Appraisal Institute is a global professional association of real estate appraisers, with nearly 21,000 professionals in almost 60 countries throughout the world. Its mission is to advance professionalism and ethics, global standards, methodologies, and practices through the professional development of property economics worldwide. Organized in 1932, the Appraisal Institute advocates equal opportunity and nondiscrimination in the appraisal profession and conducts its activities in accordance with applicable federal, state and local laws. Individuals of the Appraisal Institute benefit from an array of professional education and advocacy programs, and may hold the prestigious MAI, SRPA, SRA, AI-GRS and AI-RRS designations. Learn more at www.appraisalinstitute.org.

 

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