Two Is Better Than One in Subdivision Appraisal
Comparing two approaches for appraising subdivisions
Want to know how to quickly start a debate in a room full of appraisers? Ask each their opinion on appraising subdivisions. You’ll quickly find that appraisers fall into one of two categories – those who are comfortable with using the two approaches of appraising subdivisions and those that aren’t. At Argianas and Associates, we understand the complexity of appraising a subdivision and which approach to use in your specific situation.
Pick your approach
When appraising a subdivision, there are different techniques available for this type of valuation. Which technique we choose to use on a specific assignment depends on numerous factors, most of all the market data available.
Our preferred method, and the one that experienced lenders rely upon, is the gross-retail selloff method. When performing a gross-retail selloff, individual lots are priced out on a retail basis over a selloff/absorption period. Holding costs and sales costs are estimated and deducted, resulting in an estimate of net revenue. As a final step, the net revenue is discounted/ present valued, resulting in an estimate of market value.
The second approach used when appraising a subdivision is the direct sales comparison approach. This approach uses properties that resemble the subject property to determine a value by identifying sales of like-kind properties sold within a reasonable time period. Because no two properties are identical, we adjust for differences between the comparables and the subject. The final step involves a weighted analysis of the values of each comparable, which is conducted to arrive at a value for the subject property.
comparison with a side of criticism
Appraising subdivisions comes with a bit of hesitancy from some appraisers. This reluctance is often due to the method of appraising these types of properties being so different from those considered in a more routine assignment. In a standard appraisal, the value of real estate usually involves annual returns (return on investment) plus the value of the property when it is divested (return of investment). In a subdivision analysis, the lots are assumedly sold off of a projected absorption period. When the last unit is sold, the investment is complete. Appraising subdivisions requires speculative appraisal methods that are not used in standard appraisals. That is one reason we prefer and encourage using the gross-retail selloff method when applicable.
Experts you can trust to use the right approach
If you are looking for experts who understand the ins and outs of appraising subdivisions, give us a call. Our 30 years of experience have equipped us with the skills and knowledge needed to understand the value of using each approach. If you need a team you can trust for a subdivision appraisal or have a question about the process, don’t hesitate to contact us. You can call us at 630-390-0113 or contact us through our website here or email us at [email protected]. Learn more about what we do and join our mailing list to receive our e-newsletter featuring case studies, industry events and news.