Property Inspection: Building Description and Use Classification

Chapter Title: Property Inspection: Building Description and Use Classification

Introduction

A comprehensive site inspection is a crucial step in real estate valuation and analysis. While it shares similarities with property inspections conducted for pre-sale purposes, its focus differs. Appraisers conduct site inspections to gather primary data about a property and its immediate surroundings, enabling them to assess its market value. This chapter will delve into the systematic approach to describing a building and classifying its use, considering various factors that influence value.

1.0 The Importance of Building Description

A detailed building description is fundamental for several reasons:

• Comparison: It provides a basis for comparing the subject property with comparable properties in the market and with the ideal improvements identified in a highest and best use analysis.
• Valuation: It allows appraisers to identify and analyze the impact of the building’s design, layout, construction, materials, energy efficiency, and mechanical systems on its market value.
• Adjustments: Appraisers can make market-derived adjustments based on the quality, condition, and performance of building components.
• Hypothetical Scenarios: In cases where improvements have been demolished or destroyed, a thorough understanding of the building’s previous condition is essential, potentially relying on extraordinary assumptions when certainty is lacking.
• Specialized Properties: For complex properties like manufacturing plants, detailed descriptions and supporting documents like blueprints are crucial.

2.0 Elements of a Comprehensive Building Description

A methodical approach to building description involves considering specific information in a logical sequence:

1. Type of Use:

   • Identify the current use of the building (e.g., residential, office, retail, industrial, mixed-use, agricultural, specialized).

   • Determine if the use conforms to current zoning regulations. If nonconforming, analyze the potential impact on property value.
     2. Codes and Regulations:

   • Research and identify all relevant building codes, ordinances, and regulations (federal, state, and local) affecting the property.

   • Consider building codes related to structural strength, fire resistance, energy efficiency, water usage, lighting, ventilation, accessibility (ADA compliance), and environmental protection.
   • Recognize the dynamic nature of building codes, with updates occurring frequently (e.g., every three years), impacting building performance.

2. Building Size, Plan, and Construction:

   • Accurately measure and document the building’s size using appropriate measurement techniques for the property type and market area.
   • Understand the distinctions between various measurement types (Gross Building Area (GBA), Gross Living Area (GLA), Usable Area, Rentable/Leasable Area).
   • GBA: Total floor area of a building, excluding unenclosed areas, measured from the exterior of the walls; includes both the superstructure floor area and the substructure or basement area.
     GBA = Σ(Area of each floor), measured from exterior walls
   • GLA (Residential): Total area of finished, above-grade residential space; calculated by measuring the outside perimeter of the structure and includes only finished, habitable, above-grade living space.
     GLA = Σ(Area of finished above-grade residential space)
   • GLA (Commercial): Total floor area designed for the occupancy and exclusive use of tenants, including basements and mezzanines; measured from the center of joint partitioning to the outside wall surfaces.
   • Consider the building’s plan (layout, configuration, and design) and its impact on functionality and value.
   • Detail the building’s construction type (e.g., wood frame, steel frame, concrete), materials used, and any unique construction features.

3. Exterior and Interior Details, Equipment, and Mechanical Systems:

   • Provide a comprehensive description of the building’s exterior (e.g., roofing materials, siding, windows, doors, landscaping).
   • Document the building’s interior finishes, layout, and condition (e.g., flooring, walls, ceilings, fixtures).
   • Describe the building’s equipment and mechanical systems (e.g., HVAC, plumbing, electrical) including their age, condition, and efficiency.
   • Identify any subsequent improvements or renovations made to the building.

3.0 Use Classification: Categorizing Land Uses

Land use classification is the process of categorizing real estate based on its intended or actual use. Common classifications include:

• Residential: Properties used for dwelling purposes (e.g., single-family homes, apartments, condominiums).
• Office: Properties used for administrative or professional services (e.g., office buildings, medical offices).
• Retail: Properties used for the sale of goods or services (e.g., shopping centers, restaurants, stores).
• Industrial: Properties used for manufacturing, warehousing, or distribution (e.g., factories, warehouses).
• Mixed-Use: Properties that combine multiple land uses (e.g., residential and retail, office and residential).
• Agricultural: Properties used for farming, ranching, or other agricultural activities.
• Other Specialized Uses: Properties with unique or specific uses (e.g., hotels, hospitals, schools, churches).

Within each major group, there are more specific subgroups. The classification system used should be consistent with market norms and understandable to the client.

4.0 Zoning Regulations and Building Codes

• Zoning Regulations: These regulations define the permitted uses of real estate within specific geographic areas. Zoning codes dictate setbacks, height restrictions, and density limitations.

  • Conforming Use: A use that complies with current zoning regulations.
  • Nonconforming Use: A use that does not comply with current zoning regulations but was legally established before the current regulations were enacted. The appraiser must consider the impact of nonconforming use on the property value.

• Building Codes: These codes establish standards for the design, construction, and maintenance of buildings to ensure public health, safety, and welfare. Building codes cover structural integrity, fire safety, accessibility, energy efficiency, and other critical aspects of building construction.

5.0 Green and High-Performance Buildings

• Definition: Green buildings prioritize environmental responsibility and resource efficiency throughout their lifecycle, from design to demolition. They often incorporate features that reduce energy consumption, water usage, and waste generation.
• Impact on Valuation: Green building features can result in lower operating costs, improved marketability, and potential tax advantages or incentives.
• Valuation Challenges: The market reaction to green features may not always be readily apparent in the sales comparison approach due to limited comparable sales. In such cases, the income capitalization and cost approaches may provide more reliable value indications.
• Benchmarking is the practice of comparing the measured performance of a device, process, facility, or organization to itself, its peers, or established norms, with the goal of informing and motivating performance improvement.

6.0 Building Measurement Standards

Different methods of measurement will impact the calculated size of the building. It is important to note that the acronym GLA can stand for two different area measurements. Residential appraisers use GLA for gross living area; nonresidential appraisers use it to refer to gross leasable area.

• Gross living area (GLA): Used by federal agencies to measure one-unit residential properties. Total area of finished, above-grade residential space; calculated by measuring the outside perimeter of the structure and includes only finished, habitable, above-grade living space.

• Gross building area (GBA): Used by federal agencies to measure multifamily properties; also the common standard of measurement for industrial buildings. Total floor area of a building, excluding unenclosed areas, measured from the exterior of the walls; includes both the superstructure floor area and the substructure or basement area.

• Gross leasable area (GLA): Commonly used to measure shopping centers. Total floor area designed for the occupancy and exclusive use of tenants, including basements and mezzanines; measured from the center of joint partitioning to the outside wall surfaces.

7.0 Conclusion

A thorough building description and accurate use classification are essential components of a comprehensive site inspection. By systematically analyzing the building’s characteristics, considering relevant regulations, and understanding market norms, appraisers can develop credible value opinions and provide valuable insights to their clients.