Site and Building: Characteristics and Analysis

Site and Building: Characteristics and Analysis

Introduction

This chapter delves into the crucial aspects of site and building analysis within the real estate appraisal process. A comprehensive understanding of both the site and the improvements is essential for accurate valuation. This section outlines the key characteristics to be examined, the scientific principles underlying their impact on value, and practical methods for analyzing these elements.

Site Characteristics

The site, or land, is the foundation upon which real estate value is built. Its characteristics significantly influence the property’s utility, desirability, and ultimately, its market value.

1. Location Analysis

   • Macro-Location: This refers to the broader geographic area in which the property is situated (city, region, or state). Economic factors (employment rates, income levels), demographic trends (population growth, age distribution), and government policies (zoning regulations, tax incentives) play a vital role.
   • Micro-Location: This pertains to the immediate surroundings of the property (neighborhood, street). Considerations include proximity to amenities (schools, parks, shopping centers), accessibility to transportation (highways, public transit), and neighborhood characteristics (crime rates, school quality, noise levels).
   • Mathematical Model: The concept of distance decay is applicable here. The utility (U) of an amenity decreases with distance (d).
     • U = k / d^n
       • Where:
         • U = Utility or desirability
         • k = A constant representing the inherent value of the amenity
         • d = Distance from the property to the amenity
         • n = Distance decay exponent (typically between 1 and 3, reflecting the rate at which utility diminishes with distance)
   • Practical Application: Observe traffic patterns at different times of the day to assess accessibility. Conduct a drive-through of the neighborhood to identify potential nuisances or amenities.

2. Physical Characteristics

   • Topography: The slope, elevation, and contour of the land can impact building costs (excavation, foundation work), drainage, and usability. Steeper slopes may limit development potential.
   • Soil Conditions: Soil composition (clay, sand, loam) affects foundation stability, drainage, and landscaping possibilities. Soil surveys, like those from the USDA Natural Resources Conservation Service (NRCS), provide detailed information.
     • Bearing Capacity: Soil’s ability to support a load. Expressed in pounds per square foot (psf).
     • Settlement Analysis: Using soil mechanics principles, calculate the expected settlement of a structure based on soil type, load, and foundation design. This involves consolidation theory.
   • Drainage: Proper drainage is crucial to prevent water damage and erosion. Evaluate the site’s natural drainage patterns and the need for artificial drainage systems.
     • Rational Method for Stormwater Runoff: Q = CiA
       • Where:
         • Q = Peak runoff rate (cubic feet per second)
         • C = Runoff coefficient (depends on surface type - impervious vs. pervious)
         • i = Rainfall intensity (inches per hour)
         • A = Drainage area (acres)
   • Size and Shape: The dimensions and configuration of the lot influence building size, layout, and usability. Irregular shapes may present design challenges.

   • Environmental Factors: Assess potential environmental hazards (soil contamination, radon gas) and their impact on value.

     • Phase I Environmental Site Assessment: A preliminary investigation to identify potential environmental concerns.
     • Soil Sampling and Analysis: Laboratory testing to determine the presence and concentration of contaminants.
       • Practical Application: Perform a percolation test to assess soil drainage. Consult with a geotechnical engineer to evaluate soil bearing capacity and stability.

3. Legal and Regulatory Factors

   • Zoning Regulations: Zoning ordinances dictate permitted land uses (residential, commercial, industrial), building height, setbacks, and other development restrictions.
   • Easements and Rights-of-Way: These are legal rights granted to others to use a portion of the property (utility lines, access roads). They can impact usability and value.
   • Deed Restrictions: Private agreements that limit the use of the property.
   • Building Codes: Local and national regulations that govern building construction and safety.
   • Setback Requirements: Minimum distances a building must be set back from property lines.

   • Floor Area Ratio (FAR): FAR = Total Building Floor Area / Lot Area. This limits the density of development.

   • Practical Application: Obtain a zoning map from the local planning department. Review the property deed for easements and restrictions.

Special Characteristics of Rural, Agricultural, or Resource Land

Rural or agricultural resource lands have specific characteristics that appraisers should investigate to describe these properties adequately.

1. Soil
   Precise soil surveys that indicate the soils found on properties, appropriate crops, and expected production are often available. These surveys are useful in comparing agricultural properties.
2. Water Rights, Drainage, and Irrigation
   The legal right to water is as important to the value of a property as the physical source of the water. The long-term dependability and cost of adequate drainage and water supplies should be analyzed. It is always necessary to know whether the water rights are appurtenant to the land or transfer- able separately from the land. If water rights do not transfer with the land, the property’s value may decline significantly and its highest and best use may be changed.
3. Climate
   General climatic conditions and growing seasons can affect crop production and selection and, therefore, land value. Microclimates within a local area can also affect the productivity of a property as compared to nearby, competitive properties.
4. Potential Crops
   The crops grown on a property are related not only to climate, soil, and irrigation, but also to the availability of labor, transportation, and access to the markets that make, transport, and sell the products produced from crops.
5. Environmental Controls
   Cropping patterns are influenced by regulations on herbicides, insecticides, fertilizers, air and water pollution, and wildlife protection. Lead-based paint, underground storage tanks, asbestos in farm buildings, and cattle vats are common environmental liabilities.
6. Mineral Rights
   The presence of precious metals, oil and gas, sand and gravel, quarry red rock such as building stone, clay deposits, or gemstones on a plot of land can affect its value. As with water rights, the legal right to extract all minerals contained in or below the surface of a property is as important as ownership of the land itself. Various lease and ownership relationships may be in effect and should be investigated. Appraisers should recognize the risks and uncertainties associated with mineral properties.

Building Characteristics

The building, or improvements, on the site contribute significantly to the overall property value. A thorough analysis of the building’s characteristics is essential.

1. Architectural Style and Functional Utility

   • Architectural Style: The aesthetic design and appearance of the building (e.g., Victorian, Colonial, Modern). Style can influence market appeal and desirability.
   • Functional Utility: The building’s ability to meet the needs and preferences of its users. This includes layout, room sizes, traffic patterns, and amenities.
     • Functional Obsolescence: A deficiency in the building’s design or features that reduces its utility and market value. Examples include an outdated floor plan or inadequate insulation.
   • Relationship: Style and function are interrelated. A visually appealing building with poor functional utility may have reduced value.
   • Practical Application: Compare the subject property’s style and functionality to those of comparable properties in the market. Identify any deficiencies that may require adjustments.

2. Building Size and Layout

   • Gross Living Area (GLA): The total area of finished, above-grade living space.
   • Floor Plan: The arrangement of rooms and spaces within the building.
   • Space Efficiency: The ratio of usable space to total building area.
   • Impact: These factors influence the building’s capacity, usability, and appeal to different users.
   • Calculation: GLA is typically measured from exterior wall to exterior wall.

3. Construction Quality and Materials

   • Quality Grade: Subjective assessment of the overall quality of construction (e.g., low, average, high).
   • Materials: Type and quality of materials used in construction (framing, roofing, siding, flooring).
   • Impact: Quality and materials affect durability, maintenance costs, and aesthetic appeal.
   • Analysis: Use a construction cost estimating manual (e.g., Marshall & Swift) to assess the cost of replacement or reproduction.

4. Condition and Age

   • Physical Condition: The overall state of repair and maintenance.
   • Age: The chronological age of the building.
   • Effective Age: An estimate of the building’s remaining useful life, considering its condition and maintenance history.
   • Physical Deterioration: Loss of value due to wear and tear, deferred maintenance, or damage.
     • Curable Deterioration: Defects that can be economically repaired or replaced.
     • Incurable Deterioration: Defects that are not economically feasible to repair.
   • Remaining Economic Life: The estimated period during which the building will continue to generate income or provide utility.

   • Mathematical Modeling:

     • Age/Life Ratio: Effective Age / Total Economic Life. This ratio can be used to estimate the percentage of depreciation.

     • Straight-Line Depreciation: Annual Depreciation = (Replacement Cost - Salvage Value) / Total Economic Life.

       • Practical Application: Conduct a detailed inspection to identify signs of physical deterioration. Review maintenance records to assess the building’s condition over time.

5. Mechanical Systems

   • HVAC (Heating, Ventilation, and Air Conditioning): The system responsible for maintaining indoor temperature and air quality.
   • Plumbing: Water supply, drainage, and waste disposal systems.
   • Electrical: Power distribution, lighting, and wiring.
   • Impact: Efficient and well-maintained mechanical systems are essential for comfort, safety, and energy efficiency.
   • Energy Efficiency: Assess the energy performance of the building using metrics like Energy Star ratings or utility bills.
   • Life Cycle Cost Analysis: Evaluate the long-term costs of mechanical systems, including initial investment, maintenance, and energy consumption.

6. Green Building Features

   • Sustainable Design: Incorporating environmentally friendly materials, energy-efficient technologies, and water conservation measures.
   • LEED Certification: A rating system for green buildings.
   • Impact: Green features can reduce operating costs, improve indoor air quality, and enhance marketability.
   • Analysis: Research local market acceptance and value premiums associated with green building certifications.

7. Unapparent Environmental Hazards
   Many of the same liabilities may be present in other properties. Investors and analysts cannot assume that green rural properties that appear clean are actually free of environmental liabilities. Farms often have aging underground storage tanks that held gasoline used to fuel farm vehicles. Farmland may also be contaminated by the accumulation of fertilizers and pesticides. Old railroad beds can constitute an environmental hazard because railroad ties were commonly soaked in creosote-filled trenches dug on site when tracks were laid. Timberlands are not free of contaminants either. Old turpentine stills are often found in areas where forests were once harvested.

Site Visit

Sometimes consumers equate an appraisal with the act of physically inspecting the subject real estate, but visiting the site is just one of the many tasks that may be performed during an appraisal assignment. An appraiser’s site visit differs from a property inspection conducted by a professional property inspector and often performed prior to a sale transaction. Appraisers observe the components and characteristics of a subject property to identify their influence on property value in the market.

Building Description

In the valuation process, an appraiser analyzes the design, layout, and construction details of the subject improvements, which include the structural components, ma- terials, energy and water efficiency, and mechanical systems of each building under investigation. The appraiser also determines the size and the function, condition, and serviceability of each building element described.

Use Classification

Traditionally, most appraisers have divided land uses into these major groups:

• Residential
• Office
• Retail
• Industrial
• Mixed use
• Agricultural
• Other specialized uses

Conclusion

A thorough site and building analysis is a critical foundation for accurate real estate appraisal. By carefully examining the characteristics of both the site and the improvements, appraisers can develop a comprehensive understanding of the property’s strengths, weaknesses, and overall market value. This analysis should be based on sound scientific principles, accurate data, and a clear understanding of market dynamics.