land value

[mpbro]

Here's something I've been trying to do for a while, to no avail: Estimate land value from sale price (for non-teardowns).

Many of you are familiar with HCAD's land assessment formula. Each subdivision has a cutoff square footage (6300 sqft for mine). Land up to 6300 sqft is a linearly declining function of sqft. Land past 6300 sqft is assessed at half the rate. So you get value curves that look like this: linear up to 6300 sqft, quasi-exponential for > 6300.

My question is this: is there any reason to believe that *true* land values follow a curve like this?

I suspect that they do not. When a property sells for more than the HCAD assessment, presumably HCAD tries to increase the assessed value. Most of the appreciation is in the land, but since HCAD has a rigid land valuation formula, any "slop" will have to go into the structure assessment, unless HCAD changes the parameters of the land formula. For instance, while my assessed land value rose by 17% (2005 to 2006), my assessed structure value rose by a healthy 7%! And my house is a butt-ugly 1952 ranch style. Not exactly an appreciating asset.

Probably the more important question for the board: what does the true land value versus land sqft curve look like?

Edited December 3, 2006 by mpbro

[jdbaker]

Probably the more important question for the board: what does the true land value versus land sqft curve look like?

Generally speaking, tract size alone will not significantly affect psf market value. The primary exception to this occurs when a parcel is very, very big and nearly all potential buyers are priced out of the marketplace. However, it take more than a few 6200sf lots before this might occur. Conversely, in areas where larger parcels sizes are scarce or difficult to assemble, an unusually large parcel will often command a substantial premium in terms of $/psf.

[TheNiche]

Here's something I've been trying to do for a while, to no avail: Estimate land value from sale price (for non-teardowns).

Many of you are familiar with HCAD's land assessment formula. Each subdivision has a cutoff square footage (6300 sqft for mine). Land up to 6300 sqft is a linearly declining function of sqft. Land past 6300 sqft is assessed at half the rate. So you get value curves that look like this: linear up to 6300 sqft, quasi-exponential for > 6300.

My question is this: is there any reason to believe that *true* land values follow a curve like this?

I suspect that they do not. When a property sells for more than the HCAD assessment, presumably HCAD tries to increase the assessed value. Most of the appreciation is in the land, but since HCAD has a rigid land valuation formula, any "slop" will have to go into the structure assessment, unless HCAD changes the parameters of the land formula. For instance, while my assessed land value rose by 17% (2005 to 2006), my assessed structure value rose by a healthy 7%! And my house is a butt-ugly 1952 ranch style. Not exactly an appreciating asset.

Probably the more important question for the board: what does the true land value versus land sqft curve look like?

The best and most reliable way to go about estimating the land value for a lot is to look at sales comps for vacant lots within that neighborhood or a similar one that is nearby, then compare the qualities of those other lots to yours, and apply a discount or premium if necessary to reflect competitive advantages/disadvantages. For instance, if you have improvements on a lot that are certain to be demolished by the buyer, as is pretty much always the case in places like Bellaire, then you should price your property like a vacant lot and discount by the cost of demolition.

But if you can't find good sales comps for vacant lots, then seperating out land and improvment prices can get horrendously complicated (and by the way, improvements can appreciate if the cost of replacement goes up, as has been caused by higher costs of construction). HCAD doesn't have the resources to come up with a valuation model that works consistently, so they utilize simplified heuristic models. They provide an intuitive solution, but one with low validity or reliability.

[mpbro]

Generally speaking, tract size alone will not significantly affect psf market value. The primary exception to this occurs when a parcel is very, very big and nearly all potential buyers are priced out of the marketplace. However, it take more than a few 6200sf lots before this might occur. Conversely, in areas where larger parcels sizes are scarce or difficult to assemble, an unusually large parcel will often command a substantial premium in terms of $/psf.

Very interesting info.

But if you can't find good sales comps for vacant lots, then seperating out land and improvment prices can get horrendously complicated

Tell me about it!

Well, if I get ambitious, I'll try to ferret out recent tear down sales and divine some trends. Easier said than done if you're not a realtor. In TX (non-disclosure state), all you get is a trailing indicator of land value.

[jdbaker]

Very interesting info.

Tell me about it!

Well, if I get ambitious, I'll try to ferret out recent tear down sales and divine some trends. Easier said than done if you're not a realtor. In TX (non-disclosure state), all you get is a trailing indicator of land value.

Actually, you can use HCAD to find recent sale prices, sort of. Start by searching HCAD for a street in the neighborhood that you're trying to get data on. Then, click on "ownership history" to see when the property last sold. Look for a jump in the assessment the following year. As long as it sold through MLS, and you see a jump, this should be the sale price. Definitely not 100% reliable, but it should get you in the ballpark.

[cwrm4]

It's actually very easy to determine the value of the land when there is also a house on the property (that isn't a teardown).

You need to get a list of recent sales in the neighborhood for houses in similar condition but of the full range of home sizes (and lot sizes, if they differ in the area). If you have a wide range of home conditions in your data set, you are going to need to either separate them into different groups, or add a condition factor - both methods will potentially lower the accuracy of your calculations. For most neighborhoods in Inner Loop Houston you can usually divide the data into 1) teardown, 2) livable but original, 3) restored/new construction and still be fairly accurate.

Next use Excel to run a two-variable regression analysis against that data set, with the two independent variables as home sq ft and lot size sq ft. If you have a good data set, and can establish a good "curve fit", you will be able to generate a formula that gives the contribution of both the lot size and home size to the overall value of the home.

This is the method used to establish home/lot values by the real pros (not pinhead local realtors or small-time flippers...I'm talking about the "Ug buys Ugly houses" people and the like). Google "two variable regression analysis Excel home value" or something similar to get some examples. It's really not that difficult to do.

HCAD values, for the most part, shouldn't be trusted from a valuation perspective.

[mpbro]

It's actually very easy to determine the value of the land when there is also a house on the property (that isn't a teardown).

You need to get a list of recent sales in the neighborhood for houses in similar condition but of the full range of home sizes (and lot sizes, if they differ in the area). If you have a wide range of home conditions in your data set, you are going to need to either separate them into different groups, or add a condition factor - both methods will potentially lower the accuracy of your calculations. For most neighborhoods in Inner Loop Houston you can usually divide the data into 1) teardown, 2) livable but original, 3) restored/new construction and still be fairly accurate.

Next use Excel to run a two-variable regression analysis against that data set, with the two independent variables as home sq ft and lot size sq ft. If you have a good data set, and can establish a good "curve fit", you will be able to generate a formula that gives the contribution of both the lot size and home size to the overall value of the home.

This is the method used to establish home/lot values by the real pros (not pinhead local realtors or small-time flippers...I'm talking about the "Ug buys Ugly houses" people and the like). Google "two variable regression analysis Excel home value" or something similar to get some examples. It's really not that difficult to do.

HCAD values, for the most part, shouldn't be trusted from a valuation perspective.

My experience doesn't agree with your "very easy" assessment! I definitely agree that some type of clustering approach could pay dividends for structure valuation in older neighborhoods. Here was my interpretation of various clusters for an ITL neighborhood with high land values. Many of the 30's-40's bungalows have been gutted and lovingly restored. But the scatter is huge. Just from a tax record, I'd not be able to pin down the structure PSF to within $20-40/sqft. That's simply not accurate enough to tease out a reliable land valuation.

However, I don't doubt that other neighborhoods have more simple structure trends.

A few random thoughts:

• How do you know that structure PSF is linear with sqft?
  
• Or, back to my original question, that land PSF is linear with parcel size?
  
• I've found that fixtures often matter more than sqft. Bathrooms, in particular, add considerable value for a fixed sqft/beds/age.
  

Anyway, interesting discussion, appreciate it.

Edited December 5, 2006 by mpbro

[RobertM]

From the COVERT v. WILLIAMSON CAD 241 S.W. 3D 655, Tex. App.-Austin, November 30, 2007 (NO. 03-06-00218-CV) case, it says that you can protest the land value, but it has to be part of a protest that the overall appraised value of the property is unequal. This case has been appealed to the Texas Supreme Court and it has affirmed the decision. Here is the ruling and a link to the case.

We therefore hold that a taxpayer challenging the equal and uniform assessment of an improved property under section 42.26 must allege that the overall appraised value of the property is unequal. While he is not prevented from bringing evidence that only the land or only the improvement was unequally assessed, the taxpayer must allege that the value of the improved property was appraised unequally in order to state a cause of action under section 42.26.

CONCLUSION

Because the trial court did not err in granting the dismissal, we affirm.

http://bulk.resource.org/courts.gov/states...p.03/16382.html