Why value land?
• For mortgage, sale etc
• As part of an improved property
• Requirement under the Rating Valuations Act 1998
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Valuation of Residential Land
• Direct Comparison – Site Value
– Area Method
– Unit Metre
• Residual
• Allocation
• Income Capitalisation
Which are the most suitable for residential land valuation? Why?
Direct Comparison Methods
• Sales of similar vacant parcels are analysed, compared and adjusted to derive value of a subject property
• Units of comparison will depend on the nature of the subject property
– Unit metre – Density
Site Value
• Simplest method: uses experience and judgment
• Used where more technical methods inappropriate
• Useful check method
• Limitations: no unit of comparison
Area Method
• Relatively simple
• Widely used
• Unit of comparison approach
• Sales analysed to square metre or per hectare rate
• Rate then adjusted for site variables
• Adopt adjusted rate and apply to subject
Unit Metre
• Technical approach
• Used where uniformity and consistency are paramount
• Unit of comparison approach
• Frontage and depth the main determinants of value
• Depth tables used to derive street unit metre
• Adjustments required for other site variables
Unit Metre
• A parcel of land having one metre frontage to a street and a defined standard depth perpendicular to the frontage
• Variations from the standard depth are adjusted for by the use of a depth table
Depth Tables
• Rank the relationship between value and depth
• Unit metre standard depth is taken to be 100%
• Site depth above or below the standard depth are expressed as a percentage of the 100% standard depth
Depth Table Principles
• The deeper the site the greater its value
• Value increases with depth but at a declining rate
• The front of the site has greater value than the rear
• The deeper the site the less the value of the rear
Value = Unit metre rate * effective frontage * depth% +/- other adjustments
Street Units derived by: Sale Price
Effective frontage*depth%
Use of Street Units
• Should not be thought as applying to an entire street
• In commercial/industrial locations street units may vary within a short distance
• Unit metre method may not be appropriate for extremely irregular shape or steep contour sites
Density Method
• Uses measure of physical density and land use allowed under Territorial Authority bulk and location controls
• Density controls vary with site size, frontages, types of uses etc.
• Potential application – high rise. $ per floor, $ per unit (under highest & best use)
• Requires considerable research and understanding of planning controls
• The valuation of land by applying a dollar rate to the development unit
• E.g. Four residential units @ $60,000 per unit (land value)
• Unit rate is analysed from sales data
• Resource Management Act has made it difficult to specify how many units are permitted on a site.
Direct Comparison Approach
An introduction to the sales approach for the valuation of a residential section
Requires understanding of the market and current market conditions
changes in supply and demand
good and bad saleability characteristics zoning changes
The sales approach has been called ‘the most acceptable path to market value”
The Method
a subject property is compared with a group of similar properties, which are then adjusted to bring them as closely in line with the subject as possible
Comparable 1 superior –
Comparable 2
inferior +
Substitution Principle
the approach is based on the substitution principle
where there have been recent, comparable sales in the same area at about the same time it is an accurate estimate of market value
the willing buyer/ willing seller concept applies
Weaknesses
• Unreliable when there are few comparables or they are not in the same location
• Details about the comparable sales need to be accurate and this is not always possible
• Often pure judgment, opinion & experience comes in especially when considering the influence of time within rapidly changing markets
The Court usually places most weight on the sales comparison method, with at least one other method to back it up
Possible influences on value between comparable properties
lot 1 lot 2 lot 3 lot 4
What is the price of lot 3?
What sorts of things will affect the price?
$75,000 ? ?
Steps to Sales Comparison Approach – 7 Defined Steps
search for initial data on subject property inspect subject property
search for sales & other data from authoritative sources
select comparable sales
analyse the sales
compare with subject property
estimate the value of the subject property
adjustments need to be made in terms of:
Physical features
Location
Availability of services
Other legal considerations
Externalities
Improvements
Knowledge of the market, experience and judgment will be the basis for making time adjustments
We may be able to use the relationship between RV and sale prices.
Will this be accurate?
Section Size
Can relate this to the price per metre squared extracted from section sales
Consider the utility a section provides to the homeowner
Other Physical Features
Situation (corner or rear site)
Location, Services and Zoning
Adjustments for locality will be knowledge based
Water, sewerage, gas, electricity,
telephone Externalities
In what circumstances will zoning be important?
• Influences are dependent on type of residential use i.e. low/medium/high cost, multi unit
• Theoretical basis of valuation is as a vacant site, and therefore capable of being used to highest and best use
Other improvements
Based on depreciated cost or
Added Value
Residual Method
• Estimate depreciated replacement cost of improvements
• Deduct from total sale price
• Derive land value
Applicable if improvements have low value in comparison to land value
e.g. rural land
Allocation Method
• Apply typical ratio of land value to current market value of improved property to determine land value
• Use as check method only
Income Capitalisation
• Ground rent capitalisation
– Market derived capitalisation rates
• Yield capitalisation – Discounted cash flow analysis
– Useful for land that has subdivision potential
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