The Various Techniques Used to Value the Land of a Property

The valuation of the land has a direct relationship with an analysis of higher and better use. The comparison between the highest and best use and the land or land value will show whether an existing use is the highest and best use of the land.

The valuation of the land plays a very important role in the total valuation of the value of the property or real estate. Appraisers will often create a land value estimate separate from other real estate features, such as building improvements. Land value and building value will change at different rates depending on improvements and their corresponding depreciation factors. For many real estate valuation estimates, a separate figure for land is the best way to assess perceived value.

While the total property estimate can be obtained from the direct comparison or income approaches without separating the land and building values, it may be necessary to value the land separately to separate the land figure from the total property value. real estate property. In the cost approach, it is absolutely necessary to estimate land and improvements separately.

Creating an opinion about the value of land can present itself as a separate hurdle in the valuation process. You can use various techniques to obtain an expression of the value of land, including the following:
– Direct comparison
– Extraction
– Residual Land
– Land Rent Capitalization
– Subdivision Development
– Assignment

Generally, the most accurate and effective technique for deriving land value is the direct comparison approach. However, when a limited number of sales are available or when the estimate produced needs additional support, other techniques can be used to support the comparison approach, such as those mentioned above. With the technical allocation, the sales transactions of improved properties can be analyzed or the total prices paid would be distributed between the land and the improvements. Comparable sites under development can also be analyzed and the cost of completed properties must be allocated between land and improvements or buildings. Under the extraction technique, the value of the land is determined by subtracting the estimated value of the depreciated improvements from the known sale price of the property.

The other methods of land valuation that were mentioned use Income Capitalization. The use of these techniques is subject to more limitations and is used less frequently in land estimation. The subdivision development technique is a special method useful in specific cases of land use. The residual land technique is most often used as a highest and best use analysis to test the feasibility of different uses that value land as part of traditional valuation approaches. Land rent capitalization can be used when land rents and land capitalization rates are available in the market or targeted area. A comparison of that information will then be cross-referenced with the land in question that needs an estimate.