Land / Agriculture
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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 intended 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 of water.
- 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 parks.
- 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 another 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.