Site and Building: Key Appraisal Elements

Chapter: Site and Building: Key Appraisal Elements

This chapter delves into the critical appraisal elements of a property’s site and building, focusing on the scientific principles and practical considerations necessary for accurate real estate valuation. We will explore the characteristics of the site and building improvements that influence value, providing a comprehensive understanding of the factors that appraisers must analyze.

1. Site Analysis: Unveiling the Land’s Potential

The site is the foundation of any real estate property. Its characteristics, both natural and man-made, significantly impact its utility, desirability, and ultimately, its value.

1.1 Soil Composition and Bearing Capacity:

• Scientific Principle: Soil mechanics is the branch of physics that deals with the behavior of soils under stress. The bearing capacity of soil refers to its ability to support the loads imposed by a structure.
• Explanation: Different soil types (e.g., clay, sand, gravel, loam) exhibit varying bearing capacities, permeability, and drainage characteristics. A soil survey, which is often available from governmental agencies (see Figure 12.10 in the source PDF), provides detailed information on soil types, depth, and other relevant properties. These surveys are vital for determining suitability for construction and agricultural use.
• Mathematical Representation: The ultimate bearing capacity❓❓ (qᵤ) of a soil can be estimated using Terzaghi’s bearing capacity equation for strip footing:
  • qᵤ = 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) which are functions of the soil’s friction angle (φ).
• Practical Application: For example, a site with predominantly expansive clay soil will require special foundation designs to mitigate potential damage from soil swelling and shrinking due to moisture content variations. Similarly, the source PDF mentions precise soil surveys❓❓ which are useful in comparing agricultural properties.

1.2 Topography and Drainage:

• Scientific Principle: Topography refers to the shape and features of the land surface. Drainage is the process by which water is removed from the land.
• Explanation: Steep slopes can increase construction costs and limit accessibility. Poor drainage can lead to soil erosion, water damage to structures, and increased risk of flooding.
• Practical Application: Sites with significant slopes may require terracing or retaining walls, which add to development costs. Proper grading and drainage systems are essential to prevent water from accumulating around foundations.
• Example: The slope stability can be assessed using the factor of safety (FS) against sliding:
  * FS = (ΣShear Strength) / (ΣShear Stress)
  * Where:
  * FS is the factor of safety, typically needing to be greater than 1 for slope stability.
  * Shear Strength is determined by parameters such as the soil’s cohesion (c) and friction angle (φ)
  * Shear stress is the force tending to cause the landslide.

1.3 Environmental Factors:

• Explanation: The source PDF mentions several important considerations here. Rural/agricultural land has unique aspects like water rights, climate, and potential crops. Further, unapparent environmental hazards are a specific concern.
• Water Rights: The legal right to access and use water is crucial, especially in arid regions. This right could stem from a contract, certificate, stock in an irrigation company, etc. The appraiser must determine if these rights are transferable with the land.
• Climate: General climate (growing season, temperature ranges) and microclimates affect land value, especially for agricultural land.
• Potential Crops: Crop selection is related to climate, soil, irrigation, labor availability, transportation, and market access.
• Environmental Controls: Regulations on herbicides, pesticides, pollution, and wildlife protection affect cropping patterns. Potential liabilities include lead-based paint, underground storage tanks, asbestos, and contaminated cattle vats.
• Mineral Rights: As with water, the legal right to extract minerals (oil, gas, sand, gravel, gemstones) affects land value.
• Unapparent Environmental Hazards: Farmland may be contaminated by old cattle vats containing DDT, aging underground storage tanks, fertilizer and pesticide accumulation, and old railroad beds containing creosote. Timberlands may have contaminants from turpentine stills.
• Practical Application: An environmental site assessment (ESA) may be necessary to identify potential contamination. Remediation costs can significantly impact property value. The source PDF highlights the use of sales of adjacent or proximate sites involved in documented environmental investigations to value a contaminated site.

1.4 Location and Accessibility:

• Explanation: Proximity to amenities, transportation networks, and employment centers significantly influences property value. Accessibility includes factors like road quality, traffic congestion, and public transportation availability.
• Scientific Principle: Location theory, in urban economics, explains the spatial distribution of economic activities.
• Practical Application: Properties located near major highways or public transportation hubs typically command higher prices.

2. Building Analysis: Evaluating the Improvements

The building improvements represent the tangible structures on the site. Their design, construction quality, condition, and functional utility all contribute to the overall property value.

2.1 Architectural Style and Functional Utility:

• Explanation: Architectural style refers to the aesthetic design of the building, while functional utility refers to its ability to meet the needs of its intended use. As the PDF mentions, “Architectural style and functional utility are interrelated, and their combined effect on property value must be analyzed by appraisers.”
• Practical Application: A building with an outdated architectural style or poor functional layout may suffer from functional obsolescence, which negatively affects its value.
• Example: A building designed for manufacturing purposes but now located in a residential area may suffer from functional obsolescence due to its incompatibility with the surrounding environment.

2.2 Structural Components and Materials:

• Explanation: The foundation, framing, roofing, and exterior cladding are all critical structural components. The quality and durability of the materials used in these components directly impact the building’s lifespan and maintenance costs.
• Scientific Principle: Material science provides the knowledge of the properties of different building materials and their suitability for specific applications.
• Practical Application: A building constructed with high-quality, durable materials will generally have a longer lifespan and require less maintenance than a building constructed with inferior materials.
• Example: Different types of roofing materials have different lifespans. Asphalt shingles may last 20-30 years, while metal roofs can last 50 years or more.

2.3 Mechanical Systems:

• Explanation: HVAC (heating, ventilation, and air conditioning), plumbing, and electrical systems are essential for the comfort and functionality of a building.
• Scientific Principle: Thermodynamics governs the operation of HVAC systems, while electrical engineering principles govern the operation of electrical systems.
• Practical Application: An energy-efficient HVAC system can significantly reduce operating costs. Modern electrical systems with adequate capacity are essential for supporting modern appliances and equipment.
• Example: The Seasonal Energy Efficiency Ratio (SEER) is a measure of the cooling efficiency of air conditioners. A higher SEER rating indicates greater energy efficiency.

2.4 Building Condition and Depreciation:

• Explanation: The physical condition of the building reflects its level of maintenance and wear and tear. Depreciation is the loss of value due to physical deterioration, functional obsolescence, and external obsolescence.
• Practical Application: A building in poor condition will require significant repairs or renovations, which can significantly reduce its value.
• Methods of Depreciation: Several methods exist for estimating depreciation, including the straight-line method, the cost-to-cure method, and the market extraction method.
  • Straight-Line Depreciation: This method assumes a constant rate of depreciation over the building’s useful life.
    • Annual Depreciation = (Cost - Salvage Value) / Useful Life
  • Cost-to-Cure Method: This method estimates the cost of repairing or replacing deteriorated building components.
  • Market Extraction Method: This method derives depreciation estimates from market data by comparing the sale prices of similar properties in different conditions.

2.5 Green and High-Performance Buildings:

• Explanation: Green buildings are designed and constructed to minimize their environmental impact. High-performance buildings emphasize energy efficiency, water conservation, and indoor environmental quality.
• Practical Application: Green and high-performance buildings may command higher prices due to lower operating costs, improved tenant satisfaction, and positive environmental impacts.
• Challenges: As mentioned in the PDF, green buildings can offer challenges to appraisers due to unique features, lower energy costs, and tax incentives. Limited market data might make the sales comparison approach difficult. The income capitalization or cost approaches may then produce more credible value conclusions.
• Example: Features like solar panels, rainwater harvesting systems, and high-efficiency insulation can contribute to a building’s green rating and increase its value.

2.6 Building Codes and Regulations:

• Explanation: Building codes establish minimum standards for construction safety and performance. Zoning regulations govern land use and development.
• Practical Application: Compliance with building codes and zoning regulations is essential for obtaining permits and ensuring the long-term viability of a property.
• Example: Fire codes dictate the types of fire suppression systems required in different types of buildings.

3. Site Visit and Data Collection

The source PDF clearly mentions the importance of a site visit. The most accurate appraisal comes from understanding the real estate in the context of its immediate surroundings.

• Explanation: A thorough site visit is crucial for gathering accurate data and identifying potential problems. The appraiser should carefully inspect both the site and the building improvements, noting any strengths, weaknesses, and unusual features.
• Importance: As the PDF states, careful and adequate inspection of both the subject and comparable properties can make a difference in the appraisal. Overlooking structural problems or performance features can make the three approaches to value meaningless. The goal of the site visit is to identify those characteristics which create value.
• Procedure: The site visit should involve a systematic inspection of all major building components, including the foundation, framing, roofing, HVAC systems, plumbing, and electrical systems.
• Documentation: The appraiser should document the findings of the site visit with photographs, sketches, and detailed notes.
• Reliance on Experts: As the PDF mentions, the appraiser might not have the expertise to judge the quality and condition of certain specialized equipment. The appraiser might need to rely on the judgment of other professionals.

By thoroughly analyzing the site and building characteristics, considering the relevant scientific principles, and conducting a comprehensive site visit, appraisers can develop accurate and reliable property valuations.