Land Real Estate Appraisals

Land Appraisal

Land photograph

Land appraisers, who produce land appraisals, have many different approaches they can use to value real property. Some of the factors and considerations used by appraisers to determine land value include access, topography, amenities, configuration, location, size, improvements, soil characteristics, land use and zoning requirements, easements, and surrounding land use and area market trends, to name a few.  

Appraisal Considerations of Land Use

Land is a physical commodity and a source of wealth. Within economics, land is considered one of the four major agents of production, along with labor, capital, and entrepreneurial coordination. Land is unique in its location and composition. Land is immobile and durable. The supply of land is finite, and land is useful to people.

The utility of land and the highest and best use are impacted by its geography. The geography and surface conditions determine the habitability of the land to humans, and those limitations also limit the human activities that can be placed on the land. Those activities are collectively referred to as land use. Land use decisions are influenced by climate, topography, the distribution of natural resources, and trends in economics, population, technology and culture.

The primary uses for land include:   

Section of Land

Legal

Cultural, political, governmental, and economic beliefs of the society are demonstrated by their land laws. Typically the law focuses on the rights and obligations inherent in the land. In the US, the right of individuals to own and use land for profit and the right of all citizens to use the land - is in conflict.

One of the legal definitions of land is that land...includes not only the ground, or soil, but everything that is attached to the earth, such as trees, or by man, such as houses and buildings. It includes not only the surface of the earth, but everything under it and over it.

This definition suggest than land ownership includes possession of the land from the center of the earth to the ends of the universe. However in practical terms, airspace rights are given to the government, and many states restrict the use of underground minerals or aquifers. The basic concept of private ownership calls for uses of the land that do not harm or interfere with the rights of others. From a value perspective, the rights that are most important focus on:

Land economics

Economic

Land is a physical thing with ownership rights that can be limited by law. Land is a major source of wealth, which can be measured in terms of money or exchange value. Land and its products have economic value only when converted into items that are useful, desirable, and in limited supply.

Social

Over time, the laws governing land changes. Citizens are often concerned with land use, and how rights to the land are exercised. The supply of land is fixed, so increased demand for land exerts pressure for the land to be used more intensively. There is conflict among those who believe in private property rights and those who believe in land as a shared resource for all. Some view the land as a marketable commodity, while others want to preserve land for its scenic beauty and ecology.

Throughout American history, land ownership has been understood to be a founding principal of society. That said, laws and the operation of government are intended to serve the public. Therefore in the public interest, society can impose building restrictions, zoning ordinances, development regulations, and other land use controls. These controls impact what can be developed, where development can occur, and what activities are permitted.

In recent years, the US government has imposed regulations on air and water emissions.  Protective controls over land use now extend to wetlands, beaches, and the preservation of wildlife habitats. 

Real Estate (vs) Real Property

Bundle of rights

From the perspective of the appraiser, there is a difference between real estate and real property. Real Estate is the physical land and the vertical improvements on the land. More broadly, Real Estate is the land, and all things that are a natural part of the land, like trees and minerals, and all things attached to the land by people, like buildings and site improvements.

Real Property considers the interests, benefits, and rights in the ownership of the physical real estate as described above.  A right can be imagined as a bundle of sticks where each "stick" represents a separate right or interest.  Collectively, the rights are known as "Fee Simple Ownership".   Some of the rights of Fee Simple include the right to use, or sell, or lease, or give away.  Each right can be separated from the bundle of rights and traded or sold in the marketplace.  

Finding the Subject Property

Appraiser class 101 - make sure you are appraising the subject property. Rudimentary, but not as easy as it seems in some situations. Especially with rural land, and often with few structures, it can be easy to make a mistake. Usually you can figure this out, but sometimes it is an expensive waste of time, as you waste time in the field, which can often translate into a missed appraisal deadline. Some tools that can help make sure you don't make this mistake include:

Plat map

Site Analysis

In an appraisal of land or anything else, a study needs to completed to determine the subject's market appeal to both the region and neighborhood. This study is used to help determine the subject's highest and best use. The site's ownership rights, zoning, easements, flood hazards, and soil conditions are all important to a site analysis.

Highest and Best Use

The subject's highest and best use is the best use considering what is physically possible, legally permitted, financially feasible, and maximally productive.