How do you adjust for differences in land to building Ratio?

Answer 1

The first step is to calculate the land value of the subject parcel using a sales comparison analysis. Then, consider that surplus land (land that is used for expansion of the subject building or future overflow parking) is unlikely to add value based on the same per-square-foot or per-acre rate as a vacant lot that is ready for development, so some percentage of the raw land value may be used. As an example, say that you determine (through sales comaprison) that the value of vacant land in the subject market is $10 per square foot, and you are appraising a 10,000 Sq. Ft. building on a 20,000 square foot lot (a 2:1 land to building 'LTB' ratio). You have a comaprable with the same size building but it has a 30,000 square foot lot (3:1 LTB), then going from 3:1 to 2:1 would be a decrease in land of 10,000 square feet from the 30,000 sq. ft. lot, and the added land associated with the comaprable would have a value of $100,000 ($10 X 10,000 Sq. Ft.). If you feel that the added land would add only about 50 percent of the raw land value, then the adjustment would be $50,000. To derive the percentage adjustment, take the total dollar adjustment and divide it by the sale price of the comp. Say the comp sold for for $1.0 million, then all else being equal, a 5% downward adjustment is indicated, or 5% for each 1:1 variation. You should note that is is only one indicator, and many may be required in order to derive a correct adjustment. Further, a smaller building and larger building on the same size lot will still have an adjustment, making the LTB adjustment somewhat of a size adjustment as well.