What is Land?
Land is defined as the earth's surface, both land and water, plus natural resources
in their original state, such as: mineral deposit, wildlife, fish, timber, and water.
Property rights in land are established on the theory that the rights in fee simple
ownership normally include the rights to:
- Give away
- Enter or Leave
- Do nothing at all
There are several characteristics of land that are commonly understood:
- Land is a non-wasting asset
- Land cannot be moved
- The supply of land is limited
- Each parcel of land is unique
- Land is useful to people
Land Value is an economic concept resulting from an understanding of these
characteristics, in that two of the four factors that create value (utility and
scarcity) are present within these characteristics and, when combined with desire
and transferability, form the basis for value.
Raw Land is defined as land in its natural state (untouched).
Waste Land is land that is unusable.
Vacant or Unimproved Land is land that lacks the essential, functional improvement
to make it useful.
Site is defined as land that has been made ready to use for its intend purpose.
Situs is the actual physical location of a property (often the street address).
Legal Description is a description of property that identifies it according
to a system established or approved by law.
Units of Comparison
It is often necessary to analyze the differences in size and shape of comparable
sale properties in order to apply uniform methods of valuation. To directly compare
sites of varying size and shape, the appraiser must find a common denominator, or
unit of comparison, that will permit him to compare the properties fairly. This
unit of comparison should also be able to maintain equity and uniformity for similar
properties in different parts of a city or county. Several basis units of comparison
to value land:
Front Foot or Frontage is a strip of land one foot wide, fronting on the
street, water, railroad or other frontage, and continuing to the rear of the parcel.
This method is useful in valuing commercial retail property, warehousing or industrial
property fronting on a railroad siding, or parcels fronting on golf courses or bodies
Square Foot is that square foot of land, no matter where located in the parcel,
is equal to any other square foot in the parcel. This method can be used to value
residential, commercial, small industrial sites, and irregularly shaped parcels.
Acre is in theory and computation is similar to that of the square foot method.
This method is used in valuation of large industrial sites, shopping centers, rural
and farm properties.
Site or Lot assumes that each site (or lot) in a particular subdivision or
area is relatively equal to all others in the same group. This method is often found
in residential subdivisions, but may also be useful to value sites located in industrial
Unit(s) or Buildable should be used when the market indicates that value
is derived by how many living units can be constructed within a given area, as with
an apartment property. In using this method, consideration must be given to market
demand and zoning ordinances.
Animal Units or Crop Capacity are other method of units of comparison, used
primarily in the valuation of agricultural property. Value calculations are similar
to those of units buildable.
Land Valuation Methods
Equitable land valuation frequently calls for the assessor to make optimum use of
a very limited database. Of the three approaches to value (income, cost and market
comparison) the cost approach is virtually without use in land appraisal. Land rents
can be very helpful when using an income approach, but are often dated and generally
limited to commercial and agricultural lands. In case of residential land, only
the market comparison approach is directly applicable, and its use is often limited
by a shortage of vacant land sales. Hence, land valuation often requires the appraiser
to examine available land sales information very carefully. Perhaps more than any
other aspect of property valuation, accurate land appraisal relies heavily upon
the judgment of the appraiser.
Six methods of land valuation based on the three approaches to value are:
Direct Sales: Recent sales of similar vacant parcels are compared with the
subject property. Adjustments are made for differences among the properties and
are used to create indicators of value for the land under appraisal. The sales comparison
approach is the most reliable method of land valuation. Reliable sales data is not
always available. The assessor must then rely on other methods of land valuation.
Allocation: This method is based on the principle of balance, which states
that there is a sense of proportion in the four agents of production. Land, as one
of the agents of production, has a logical value relationship to total property
value. Sales of improved properties are analyzed and the values are allocated between
land and improvements.
Abstraction: In this method the cost approach is used in the analysis of
the improved property sales data. The depreciated replacement cost of the improvements
are subtracted from the sale price. The remainder is the indication of land value.
Anticipated Use or Development: Primarily used to value land in transition
from agricultural to other uses, this method subtracts total development costs from
projected sales prices to derive a value for the land.
Capitalization of Ground Rent: This method uses the income approach to value
to establish a current value for land through its future income potential. Valuation
of Agriculture Land in Arizona is valued using this method.
Land Residual Procedure: Calculates land value by first estimating net income
earned by a property and then subtracting income that can be attributed to the improvements,
leaving a residual value attributable to the land.