Site Attributes and Value Drivers

Site Attributes and Value Drivers

This chapter explores the crucial relationship between site attributes and their impact on real estate value. A thorough understanding of these factors is essential for effective site analysis and informed decision-making in real estate investments. We will delve into various site characteristics, examining how they contribute to or detract from a property’s overall worth, and how to quantify their influence using established principles and methodologies.

1.0 Site Size and Shape

The size and shape of a site are fundamental attributes that significantly influence its utility and, consequently, its value.

• 1.1 Size and Unit Value: Generally, there’s an inverse relationship between size and unit price. This stems from economies of scale in development, as larger sites often allow for more efficient use of resources.

  • As Area ↑, Unit Price ↓

  • As Area ↓, Unit Price ↑

  • Example: Consider two industrial lots, one being 1 acre and the other 5 acres, in the same industrial park. The 5-acre lot might sell for a lower price per square foot than the 1-acre lot because it can accommodate a larger, more efficient operation, and also requires more capital investment, which reduces the number of potential buyers.

• 1.2 Functional Utility and Desirability: The suitability of a site’s size depends heavily on its intended use. Different uses require different optimal size and depth characteristics.

  • Formula: Land-to-Building Ratio (LBR) = Total Land Area / Gross Building Area
  • Different property types have typical LBRs. For example, industrial properties often have higher LBRs than retail properties due to parking and storage needs.
  • Deviations from typical LBRs can impact value.

• 1.3 Shape and Usefulness: Irregularly shaped sites may present challenges for development and limit the types of uses they can support. For instance, a triangular lot might be unsuitable for certain building designs.

  • Example: A large triangular lot in a residential area may only be suitable for one dwelling unit due to zoning and setback regulations, even if the total area is substantial. The excess land beyond what’s needed for the dwelling becomes surplus land and might not contribute proportionally to the overall value.

2.0 Frontage❓❓

Frontage refers to the length of a site that borders a public way (street, lake, river, etc.). It plays a critical role in determining accessibility, visibility, and overall desirability.

• 2.1 Definition: Frontage is the measured footage of a site abutting a street, lake, river, railroad, or other recognized feature.

• 2.2 Influence on Value:

  • Increased frontage often leads to higher visibility and accessibility, boosting value, especially for commercial properties.
  • However, excessive frontage can sometimes be a disadvantage, leading to increased exposure to noise and traffic, which might negatively impact value for residential properties.

3.0 Corner Influence

Corner properties have frontage on two or more streets, offering unique advantages and disadvantages compared to interior lots.

• 3.1 Advantages:

  • Increased visibility and accessibility, particularly for retail businesses.
  • Greater flexibility in building layout and subdivision.
  • Potential for enhanced ingress and egress for drive-in businesses.

• 3.2 Disadvantages:

  • Increased exposure to traffic noise and reduced privacy for residential properties.
  • Potential for higher costs due to sidewalk maintenance and assessments.
  • Stricter setback requirements may limit the buildable area.

• 3.3 Market Perception: The market’s perception of corner locations can vary depending on the intended use. Commercial properties near intersections with high traffic volumes and traffic lights generally benefit from corner influence, while residential properties in quiet, interior locations often command higher prices.

4.0 Plottage Potential

Plottage is the increment in value that occurs when two or more contiguous sites are combined to create a larger site with greater utility and a different highest and best use.

• 4.1 Definition: Plottage is the increase in value resulting from the combination of two or more parcels of land.
• 4.2 Conditions for Plottage: Plottage occurs when the combined value of the parcels as a single unit exceeds the sum of their individual values.

  • If V_combined > ΣV_individual, then Plottage Value Exists.

    Where: V_combined = Value of the combined parcel, ΣV_individual = Sum of the values of the individual parcels
    * 4.3 Reverse Plottage: Conversely, dividing a large site to achieve a higher and better use can result in a lower unit price due to development costs and risks. This may result in subdivision discount.
    * Example: Large land assemblage for residential development often sells at a discount per square foot, reflecting the cost, risk, time, and management required for subdivision, infrastructure installation, marketing, and sales of individual lots.

5.0 Excess Land and Surplus Land

Distinguishing between excess land and surplus land is crucial for accurate valuation. Both are portions of a property not needed to support the existing use, but their potential for separate use differs significantly.

• 5.1 Excess Land: Land that can be separated and sold for its own highest and best use.
• 5.2 Surplus Land: Land that cannot be separated and sold independently; it may contribute to the value of the primary site but is not valued as a separate entity.
• 5.3 Valuation Considerations: Excess land requires separate valuation using comparable sales of similar vacant land. Surplus land contributes to the value of the main property based on its potential for expansion, parking, or other ancillary uses, often at a reduced rate compared to vacant land.
• Example: A residential property with two standard-sized lots where only one lot is needed to support the house. The second vacant lot is excess land because it can be sold and developed as a separate property. In contrast, consider an industrial warehouse with a 5:1 land-to-building ratio in an area where the norm is 3:1. If the extra land is at the rear of the property without street access, it’s likely surplus land because it can’t be sold separately but adds value for potential expansion or storage.

6.0 Topography

Topography refers to the surface features of a site, including its elevation, slope, and natural drainage patterns. These characteristics can significantly impact development costs and site suitability.

• 6.1 Influence on Construction: Steep slopes can increase construction costs due to the need for grading, retaining walls, and specialized foundation systems.
• 6.2 Drainage: Proper drainage is essential for preventing flooding and maintaining site stability. Natural drainage patterns can be advantageous, but sites in drainage basins may have limited usability.
• 6.3 Geological Survey Program: Topographic maps prepared under the direction of the US Geological Survey (USGS) are referred to as quadrangles or quads. They provide information useful in land descriptions. Base lines, principal meridians, range lines, and township lines are shown along with topographic and man-made features.
• 6.4 Terminology: Terminology may change depending on the location, therefore it is important to use accurate language.

7.0 Geology and Soil Analysis

The geological composition and soil characteristics of a site are crucial for determining its suitability for various uses and estimating development costs.

• 7.1 Soil Bearing Capacity: Soil’s load-bearing capacity affects the type of foundation required. Weak soils may necessitate special pilings or floating foundations, significantly increasing construction costs.
• 7.2 Soil Suitability for Septic Systems: For properties relying on septic systems, soil permeability and drainage are critical factors.
• 7.3 Agricultural Properties: Agronomists and soil scientists measure the agricultural qualities of soil and the capacity of soil for specific agricultural uses. Engineers trained in soil mechanics test for soil consistency and load-bearing capacity.

• 7.4 Soil Triangle:

  • The soil triangle is a graphical representation used to classify soil types based on the proportions of sand, silt, and clay. This allows appraisers to know the makeup of the soil content.
  • Refer to the USDA resources on soil composition for information.

• 7.5 Structural Distress: Structural distress in improvements such as cracks in walls or the foundation may be evidence of geotechnical or soils problems.

• 7.6 Mineral Rights: Appraisal of mineral rights (i.e., the right to extract natural resources found on a site) is a highly specialized appraisal assignment, and appraisers often must work with a geologist or other expert in the mining industry.

8.0 Floodplain and Wetlands Analysis

Proximity to floodplains and wetlands can significantly impact property value due to development restrictions, insurance requirements, and potential environmental liabilities.

• 8.1 floodplain maps❓: Appraisers must consult floodplain maps prepared by FEMA to determine if a property lies within a 100-year floodplain or other designated flood hazard area.
• 8.2 Wetlands Definition: Wetlands are defined as areas inundated or saturated by surface or groundwater, supporting vegetation adapted for life in saturated conditions.
• 8.3 Regulatory Considerations: Wetlands are subject to local, state, and federal regulations that may restrict development activities. Section 404 of the Clean Water Act is the major federal environmental legislation regulating activities in wetlands.
• 8.4 Wetlands Map: The detail from National Wetlands Mapper Website provides more information. Appraisers should look to soils and hydrology experts when necessary for credible conclusions.

By carefully analyzing these site attributes and understanding their influence on value, real estate professionals can make informed decisions, mitigate risks, and unlock the full potential of a property.