Site and Building Attributes: Appraisal Essentials

Chapter: Site and Building Attributes: Appraisal Essentials

Introduction

real estate❓ appraisal relies heavily on the thorough analysis of site and building attributes. These attributes are the fundamental building blocks upon which value is determined. This chapter delves into the essential aspects of site and building analysis, providing a scientific framework for appraisers to understand and evaluate these critical components. The goal is to equip appraisers with the knowledge and tools to identify, analyze, and interpret site and building characteristics that influence property value. A careless or inadequate inspection of the physical characteristics and features of the subject and comparable properties can create difficulties for an appraiser in later phases of the appraisal.

1. Site Attributes: Foundation of Value

The site, or land, is the foundational element of any real estate property. Its characteristics directly impact its utility, suitability for various uses, and ultimately, its value.

1.1 Location and accessibility❓❓

• Principles: Location is a primary❓ driver of real estate value. Accessibility, related to location, refers to the ease with which the site can be reached and utilized.
• Theories:
  • Von Thünen Model: This economic model explains land use patterns based on transportation costs and market accessibility. Land closer to the market center is used for more intensive agriculture due to lower transportation costs.
  • Bid-Rent Theory: This theory suggests that different land users are willing to pay different amounts for land at various locations. The user who can generate the highest profit will outbid others for a particular location.
• Factors:
  • Proximity to amenities (schools, shopping, healthcare)
  • Access to transportation networks (roads, public transit, airports)
  • Neighborhood characteristics (crime rates, quality of schools, property values)
  • Environmental factors (noise levels, air quality)
• Practical Application: Analyzing traffic patterns, commute times, and demographic data to assess the desirability and accessibility of a location.
• Experiment: Compare property values in areas with varying levels of accessibility, holding other factors constant.

1.2 Physical Characteristics

• Geology and Topography:
  • Principles: The underlying geology and surface topography influence the suitability of a site for construction and its vulnerability to natural hazards.
  • Theories: Soil mechanics principles govern the stability and load-bearing capacity of soil. Understanding soil types, compaction, and drainage is crucial.
  • Factors:
    • Soil type (sand, clay, loam) and bearing capacity
    • Slope and elevation
    • Drainage patterns
    • Risk of landslides, earthquakes, and flooding
  • Practical Application: Reviewing geological surveys, soil reports, and flood maps to assess site suitability.
  • Example: A site with unstable soil may require expensive foundation work, reducing its value.
  • Mathematical Formulation: The bearing capacity of soil (q_ult) can be estimated using Terzaghi’s bearing capacity equation:
    • q_ult = cN_c + qN_q + 0.5γBN_γ
    • Where:
      • c = cohesion of the soil
      • q = effective overburden pressure
      • γ = unit weight of the soil
      • B = width of the footing
      • N_c, N_q, N_γ = bearing capacity factors (dimensionless)
• Environmental Factors:
  • Principles: Environmental conditions can significantly impact property value and usability.
  • Factors:
    • Air and water quality
    • Presence of hazardous materials (e.g., asbestos, lead paint, underground storage tanks)
    • Proximity to environmental hazards (e.g., landfills, industrial sites)
    • Wetlands and protected areas
  • Practical Application: Conducting environmental assessments and reviewing regulatory records to identify potential environmental liabilities.
  • Example: A property contaminated with hazardous waste may require remediation, adding to the cost and reducing its value.
  • Document Part Info: In recent years, attention has turned to techniques for estimating the value of non-source, adjacent, and proximate sites. Sales of these types of properties can be found in large numbers by researching markets around sites involved in documented state or federal environmental investigations and approved remediation programs.
• Size and Shape:
  • Principles: The size and shape of a site influence its utility and development potential.
  • Factors:
    • Lot dimensions (frontage, depth)
    • Shape (regular, irregular)
    • Acreage
    • Setback requirements and zoning regulations
  • Practical Application: Analyzing site plans and zoning ordinances to determine buildable area and potential uses.
  • Example: An irregularly shaped lot may be difficult to develop efficiently.
  • Mathematical Formulation: Lot Coverage Ratio (LCR) = Building Area / Lot Area. This ratio impacts the density of development allowed.

1.3 Legal and Regulatory Considerations

• Zoning Regulations:
  • Principles: Zoning regulations dictate permissible land uses, building heights, setbacks, and other development standards.
  • Factors:
    • Zoning classification (residential, commercial, industrial)
    • Permitted uses
    • Density restrictions
    • Height restrictions
    • Setback requirements
  • Practical Application: Reviewing zoning ordinances and contacting local planning authorities to understand development restrictions.
  • Example: A site zoned for single-family residential use cannot be developed for commercial purposes without a zoning change.
• Easements and Rights-of-Way:
  • Principles: Easements and rights-of-way grant specific rights to third parties to use a portion of the property.
  • Factors:
    • Location and purpose of easements
    • Impact on property use and development
    • Access to utilities
  • Practical Application: Reviewing property deeds and surveys to identify easements and rights-of-way.
  • Example: A utility easement may restrict building construction in a specific area.
• Property Taxes:
  • Principles: Property taxes are a significant cost of ownership and can influence property value.
  • Factors:
    • Tax rate
    • Assessed value
    • Exemptions and incentives
  • Practical Application: Researching property tax records and understanding local tax policies.
  • Example: High property taxes can reduce the affordability and desirability of a property.

1.4 Special Characteristics of Rural, Agricultural, or Resource Land

• Soil: Soil surveys indicate the soils found on properties, appropriate crops, and expected production and are useful in comparing agricultural properties.
• 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.
• Climate: General climatic conditions and growing seasons can affect crop production and selection and, therefore, land value.
• 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.
• Environmental Controls: Cropping patterns are influenced by regulations on herbicides, insecticides, fertilizers, air and water pollution, and wildlife protection.
• 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.
• Unapparent Environmental Hazards: Investors and analysts cannot assume that green rural properties that appear clean are actually free of environmental liabilities.
• Other Considerations: The location of wildlife habitats, the distances from populated areas, and the potential for recreational land uses are among the many other considerations to be analyzed in appraising agricultural land.

2. Building Attributes: Evaluating Improvements

The building, or improvements, are the structures erected on the site. Their characteristics determine the property’s functionality, aesthetics, and overall appeal.

2.1 Building Type and Use

• Principles: The type of building and its intended use significantly influence its value.
• Factors:
  • Residential (single-family, multi-family)
  • Commercial (office, retail, industrial)
  • Mixed-use
  • Special-purpose (hospital, school)
• Practical Application: Identifying the building’s primary use and evaluating its suitability for that use.
  *Document Part Info: Land uses can be divided into any number of types, depending on market norms and personal preferences. Traditionally, most appraisers have divided land uses into these major groups: Residential, Office, Retail, Industrial, Mixed use, Agricultural, Other specialized uses

2.2 Size and Layout

• Principles: Building size and layout impact its functionality and efficiency.
• Factors:
  • Gross building area (GBA)
  • Net leasable area (NLA)
  • Floor plan efficiency
  • Room sizes and configurations
  • Accessibility for people with disabilities
• Practical Application: Measuring building dimensions, analyzing floor plans, and assessing accessibility features.
• Mathematical Formulation: Floor Area Ratio (FAR) = Gross Building Area / Lot Area. This ratio indicates the density of development on the site.

2.3 Construction Quality and Materials

• Principles: The quality of construction and the materials used influence the building’s durability, aesthetics, and energy efficiency.
• Factors:
  • Foundation type (concrete, masonry)
  • Framing materials (wood, steel, concrete)
  • Exterior cladding (brick, siding, stucco)
  • Roofing materials (shingles, tile, metal)
  • Interior finishes (flooring, wall coverings, fixtures)
• Practical Application: Inspecting building materials, assessing workmanship, and evaluating energy efficiency features.
• Example: A building constructed with high-quality materials and energy-efficient systems will generally have a higher value.

2.4 Architectural Style and Functional Utility

• Principles: Architectural style and functional utility combine to influence property value.
  • Architectural style is the character of a building’s form and ornamentation.
  • Functional utility is the ability of a property or building to be useful and to perform the function for which it is intended, according to current market tastes and standards.
• Factors:
  • exterior design❓❓ and aesthetics
  • Interior layout and functionality
  • Compatibility with neighborhood aesthetics
  • Market acceptance of the style
• Practical Application: Analyzing architectural style, assessing functional utility, and comparing the property to similar properties in the market.

2.5 Mechanical Systems

• Principles: Mechanical systems provide essential services such as heating, cooling, ventilation, plumbing, and electrical power.
• Factors:
  • HVAC systems (heating, ventilation, air conditioning)
  • Plumbing systems (water supply, waste disposal)
  • Electrical systems (wiring, lighting, power distribution)
  • Energy efficiency of systems
• Practical Application: Inspecting mechanical systems, assessing their condition, and evaluating their energy efficiency.
• Example: An outdated and inefficient HVAC system may need to be replaced, adding to the cost and reducing the property’s value.
• Mathematical Formulation: Energy Efficiency Ratio (EER) for HVAC systems. Higher EER values indicate greater energy efficiency.

2.6 Condition and Maintenance

• Principles: The condition of the building and the level of maintenance influence its value.
• Factors:
  • Physical condition of the building and its components
  • Deferred maintenance
  • Evidence of repairs and renovations
• Practical Application: Inspecting the building for signs of damage, deterioration, and deferred maintenance.
• Example: A building with significant deferred maintenance will generally have a lower value.

3. The Interplay Between Site and Building Attributes

The value of a real estate property is determined by the synergistic interaction between site and building attributes. A desirable site can enhance the value of a well-designed building, and vice versa.

3.1 Highest and Best Use Analysis

• Principles: The highest and best use is the use of a property that is legally permissible, physically possible, financially feasible, and results in the highest value.
• Application: Appraisers must consider both site and building attributes in determining the highest and best use of the property.

3.2 Market Analysis

• Principles: Market analysis involves studying the supply and demand factors that influence property values in a specific market area.
• Application: Appraisers must consider how site and building attributes influence the marketability and value of the property in the context of the market.

3.3 Appraisal Approaches

• Sales Comparison Approach: Comparing the subject property to similar properties that have recently sold, considering differences in site and building attributes.
• Cost Approach: Estimating the cost of constructing a new building, considering the value of the site, and deducting for depreciation.
• Income Capitalization Approach: Estimating the value of the property based on its potential to generate income, considering operating expenses, vacancy rates, and capitalization rates.

Conclusion

A comprehensive understanding of site and building attributes is essential for accurate real estate appraisal. By applying scientific principles, analytical techniques, and market knowledge, appraisers can effectively evaluate these critical components and arrive at a credible opinion of value. The site visit is a critical part of this process, and thorough analysis of the site and building characteristics lays the groundwork for a sound appraisal.