The appraisal of acreage – whether it be raw land or forty acres upon which sits a family estate, is something I’ve not quite been able to fully understand. Realizing this, I decided to reach out to my network contacts in search of some clarity.
My first stop was to LinkedIn, where I found what I feel is a pretty good explanation offered up by Rosie Hetman, a Jacksonville, Florida Real Estate Professional. I want to take a moment to say here that I voted Rosie’s response as the best one received.
Thanks for your help, Rosie!
Here’s the question I posted, along with Rosie’s response. I hope it provides some insight if you too were wondering how land appraisals factor out:
Q: Need someone to help explain exactly how raw land is appraised here in Florida. I’ve seen many cases where land appraises at say, $6,000 / acre and then sells for cash at much higher prices. True – the buyer could just “really” want the property, but there have been several cases where valuations came in much lower than market prices dictated.
I’m also curious as to how homes on large acreage lots appraise out if there are no comps nearby. Is the land valued in the same manner as it would be if it was raw land, or does the fact that it has a house on it automatically shift it into a higher valuation?
A: The most common appraisal approach to Land is the comparable sales method. Of course, depending on the region and area, recent comparable sales may be hard to find. In this case, adjustments are made with time, condition and zoning. Every piece of property – vacant or not – is unique. It’s the process of adjustment that makes the comparables price the subject property.
For Example: If you have a subject property of vacant land zoned agricultural that is 5 acres, typical appraisal guidelines in lending will allow for a property to be comparable if the size is within 20 percent of the subject.
The property will also need to have been zoned at the same, be within 5 miles of your subject property, and will have to have been sold in the last 6 months. If there is no comparable sale that meets these criteria, then the search is expanded incrementally through size, distance to subject and finally – time.
Often times, a property when securing a mortgage will be appraised at the lands highest and best use.
For example: If a property is zoned rural residential and has a contract on it subject to changing the zoning to neighborhood commercial for a shopping center, the appraisal would be based on neighborhood commercial instead of rural residential.
In response to the residential property with large parcel of land – the approach is much the same.
If there are no comparable properties that are a similar to the subject property, then a piece of vacant land will be used to justify a price per acre or square footage and then added as an upward adjustment on comparable sales to equal the subject properties additional land value.
In the end, appraising is just the process of matching and or adjusting properties to be the same as the subject property in order to arrive at a true value. However, an appraisal is an opinion and may differ with the appraiser and the adjustments used.
I hope you found this information helpful. In my market area (Jacksonville, Florida), we come across this frequently given the size of our area and urban sprawl; therefore, finding the accurate value is often a challenge. Occasionally, multiple appraisers are asked to participate in the process.
Folks – this is what networking is all about. Reach out and ask a question – more often than not, you’ll get your answer. I’ll keep looking into how the appraisal for acreage process works. In the meantime, if you have some insight into the issue, please share it with us here!
Thanks again, Rosie. Hope to return the favor very soon!
I hope you found this post useful! As always, if you or anyone you know is in need of a local Florida mortgage broker, I’m your guy. Call me at 863-604-3019 or apply online for your Florida mortgage. We’ll keep you posted and let you know when it’s time to pull the trigger!
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Thanks for that. As you say, one of the big issues with these sorts of comparative valuation methods is that so often you are not really comparing the same thing, and it skews the value you have been given.