Land Value: Surplus vs. Excess

I recently came across this interesting animated GIF from an article from RealtorMag regarding land values over the last 40 years.  It followed the overall housing market by peaking in 2006 and bottoming in 2011.  When thinking about land value it is important to understand a fundamental concept of surplus land vs. excess land.  Jonathan Montgomery also wrote an excellent post with some additional information on this topic you can read here.


EXCESS LAND is the portion of the lot that is not necessary to meet the existing zoning requirements AND could possibly be sub-divided and sold off as a separate parcel.  
SURPLUS LAND is not large enough to be separated from the existing parcel and therefore, does not have as much value as excess land.


The trick I was taught to remember this is excess land is excellent.  Let's look at the following two slides below from a recent class I took from the Hagar Institute (which I highly recommend for all appraisers).

Source: How to Support and Prove Your Adjustments by Richard Hagar 

Source: How to Support and Prove Your Adjustments by Richard Hagar 

In this example, a 3000 sq. ft. lot is valued at only $3 per sq. ft. as it is considered unbuildable and has minimal utility.  Once you get to 5000 sq. ft. the value per sq. ft. increases to $40 per sq. ft. Therefore, a 3000 sq. ft. lot would have a market value of around $9000, while a 5000 sq. ft. lot would have a market value of $200,000.  

Remember that when appraisers are analyzing land values, we are NOT making adjustments on the total size, but instead the incremental change in size.  This same theory can be applied to many other features of real estate as well (GLA, first bed or bath, first 50' of water frontage, etc.)  If you have any questions please feel free to call me at (847) 863-5776 or leave your question or comment below. 

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