How do I put value on a large lot

Question

I have been looking at a property that has a large lot. The lot is narrow and deep. At the very front of the property and all the way to one side there is a 50 yo 3/1 frame house. The house has been been divided (un permited) to make a 1 bedroom/1 ba apartment (the bath is unfished), making this a 2/1 and a 1/1. There is an unattached small garage that has another un permited apartment (not finished). The entire lot is .61 acre so about .55 acre is behind the house. The long narrow lot is fenced and has houses on all sides of the property so the only access to the empty back portion of the lot is a 14-16 feet space between the garage the edge of the property. There is a small apartment complex across the street and around the corner of the street. There are no comparable sales in the area for a lot of this size.

I can come up with a MAO for the house but how do I value to the property for the added land.

Doug

Account Closed · Answer

If you are planning to demo the lot, you should consider what the highest and best use might be. Two duplexes may be the best use, but an apartment might be. I would suggest examining all the possibilities before making a choice.

Bill Gulley · Answer

Hi, excess land in a buildable lot or existing residential lot usually runs about 50 to 80% per sq. ft. of the necessary or comparable lot values. It is really in the eye of the beholder and depending on the amenities or features, the additional land could be much more valuable. I have two properties that fall in the situation. One is a lake property that has additional land at the top of the hill that is seperated from the main area by a private roadway. It's not big enough to build on and ends up just being a storage area, so it runs about half the value of the other buildable area. The other, is a larger lot that has a stream and woods at the rear, a great retreat and private area. The value of that, is viewed as a very marketable ammenity to the property and is worth about 150% for that portion over the comparable buildable lots, everyone one wants live water on their property... The best way to view it is to look to the comparable properties and lot values, then add value for any special feature that can generlly be proven in the market. Some additional property can be a liability to some, like a swimming pool, more space to care for, more area to be responsible for and not much intrinsic value added. What can the area be used for? What additional amenoities can be added to increase value due to having the additional land? What valuable purpose will it serve? If you really can't justify a usable alternative, the additional value deminsihes as the exess land increases. It's like an opportunity cost, if I'm very thirsty I'll pay five dollars for a drink, if I'm full, I might only be willing to pay 50 cents for another drink, maybe nothing at all. If I have a valuable use for the excess land, I'll pay for it, if not, I may not be willing to pay anything for it, and I have turned down free land before! Value is in the eye of the beholder on this. Good luck, Bill

Steve Babiak · Answer

When checking why it has not yet been developed, one reason that might get overlooked is setbacks - distance to nearest building could be too close to allow for the construction. Another is easements, where utilities might be buried right where the larger structure would be built.

Bill Gulley · Answer

Most defintely true, most cities own good examples of that, but that is another thread, IMO, on redevelopment, I think there is a forum for developers.

Trudy Taylor-Fritz · Answer

From an appraiser's perspective, the surplus land doesn't always increase the value unless it can be subdivided. As Financexaminer mentioned, it usually depends on the ameneties or special features oferred if the property can't be subdivided. Differences in lot sizes can be measured in the market in some areas, but it is a lot of work and takes a lot of time to research the data. Check with your local planning dept. to find out what the minimum lot size requirements are for the zoning. If you can sub-divide, determine what the costs for demo-ing vs. rehabbing the existing structure is, and what additional utility costs may be to add for new construction on the other lot. Keep in mind that there may be a reason it hasn't been sub-divided even though zoning allows. Are utilities so far from the lot that it would cost thousands to bring them to it? If most of the lots in the area are commensurate with the size you would get after subdividing, and the cost of utilities are reasonable, then it really boils down to the cost-benefit analysis of whether or not it would be more profitable in the end to rehab or rebuild where the current structure stands- and highest and best use is to make two lots of it. Get some estimates, but it is usually much less expensive to improve on the existing structure unless the improvement has serious structural issues such as foundation, or other issues such as outdated electrical that required the intire house to be rewired to bring it to code, in addition to roof or other major cosmetic expenses involved. Perhaps you should pay for a home ispection from a reputable inspector so that you have a good idea what the problems are before you start calling contractors for estimates. Then you can get a full understanding of the repairs needed and decide which direction to go.

Lucas Ruppert · Answer

Not sure if this is worthy of a new topic or not, but is there ever a time where the value of the property is increased if the residence/building on it is torn down? Thanks

Bill Gulley · Answer

Hi, I'd suggest if that's the case, you check with building regs. If the house is not trash and can be salvaged you can add on in many cases and have a duplex for alot less money and headaches. An addition and improvements is alot cheaper than starting over. Inspections should be easier too for an addition as opposed to new construction, check the rules. As Charles mentioned, it's best to use a property at it's highest permitted use, if you can afford it....Good luck with it, Bill

Doug Haisten · Answer

Thanks guys, good information. I am leaning to demo'ing the existing house and building 2 duplexes with maybe a small play area. The area is already zoned for apartments. Again, thanks!

Nick Cifonie · Answer

Unless you plan to tear down and rebuild, I would just use the comps for the property itself. The extra land won't be worth too much more unless it's being re-constructed on. The only exception (in my opinion, if I were doing the deal) I would consider is if it's in an area where land is insanely high or it could be changed to commercial. If it's not in a premier area, comp it on the house and the land is just a bonus. Of course, you could get it appraised, but I don't feel you'll find it's worth much more than the other lots in the area. (again, unless it's in a prime location) Nick