Lot is 3X bigger does not "value out"

By
Real Estate Agent with Better Properties Seattle

Recently on Rain City Guide, a local area resident asked why we don't first add an additional 2X the land value and then value the structure value, when coming up with a listing or offer price.

In the post itself, I explained the 10% rule for extras, including extra land.  That rule being that when you pull the nearby comps and value the property based on it being a "normal" sized lot for the neighborhhood, you can only add 10% of that value to the total to account for extra lot size, a pool, a tennis court and any other extras that don't value out such as additional square footage of the home, an addtional garage, bedroom or bathroom, etc.

Earlier today I tested my theory using a local neighborhood with wide variances between the lot sizes that replicate the 3X land question and also addressing whether or not the land is taxed on a price per square foot basis, or deemed an "extra" of little to no value by the tax assessor.

Turned out that the assessor gave even less value to the extra lot square footage than the market.  The market allows 10%.  The tax assessor gave little or no value to the extra land.  See data and details in comment #35 of the above linked post.

I see that the resident who raised the question has come back in comment #36.  I'll head back and see how he liked the proofs to my theory.

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Rainmaker
1,402,493
Vickie Nagy
Coldwell Banker Residential Real Estate - Palm Springs, CA
Vickie Jean the Palm Springs Condo Queen

Wow! Great post! It made me revisit the comparables I was working on for a new listing presentation. Thanks.

Jul 17, 2008 05:38 AM #1
Rainmaker
215,151
The Brewer Team - Benchmark Realty
Benchmark Realty - Franklin, TN

Ardell - Great information about something that most people don't understand.

Jul 18, 2008 12:34 AM #2
Anonymous
LVTfan

Where I live, the assessor values any acreage beyond the minimum at 10% more.  That is, in a 1-acre zone where land is valued at $350,000 per acre, a 2-acre lot would be assessed at $385,000, a 1.5 acre lot at $367,500, and a 11-acre lot at $700,000.  Very nice for our landed gentry!  So it doesn't matter whether the lot is subdividable or not.   They get to enjoy their private park at a 90% discount!

So the large landholder pays property taxes at a vastly subsidized level, but do you think he sells at that price?  I don't think so!  And around here, the realtors campaign against the 0.5% transfer tax, which collects back a minuscule share of that value for the community which created it -- and fail to see any irony in their  6% fee for a few months' effort!

One can pay for a child's private school, college and graduate school educations on the proceeds of an acre of land.  Too bad that the local public schools only see 10% of the value in annual tax revenue.

Jul 18, 2008 05:14 AM #3
Rainmaker
304,760
ARDELL DellaLoggia
Better Properties Seattle - Kirkland, WA

LVTFan - Glad to see you stop by here.  Where do you live?  The land is only worth 10% more unless it is purchased by a developer or subdivided.  The taxing authority is correct as that is the current use of the property and how it would be sold if bought by another owner occupant using it the same way.

To charge more would be like charging a residential home at a commercial level because it COULD be a commercial property...wouldn't be appropriate. 

Jul 18, 2008 06:56 AM #4
Anonymous
LVTfan

Ardell, I'm in southwestern Connecticut ... within commuting distance of NYC, but not one of the really deluxe towns. 

I disagree, in light of the teardowns I see locally (I have a 6000 line spreadsheet of local properties -- certainly not exhaustive, but in some neighborhoods, I've got 90% of the properties); on smallish lots, even a small bit more land is definitely worth more, particularly where land is representing over 50% of the total value of the property.  I'm guessing that on average, land here is perhaps 2/3 of the value  -- and higher in waterfront communities and/or older homes in accessible neighborhoods -- bus to the RR station, for example.

A lot that is 10% or 20% larger might permit someone to put in a pool, a tennis court or a home addition without seeking a variance -- and there are people for whom that is worth a great deal.   They'll bid up such a property, and owners and brokers know to ask more for same -- and describe it accordingly.  (Our houses, on average, may be older than they are where you are -- and energy prices are becoming a big issue, so old insulation and old furnaces may help push people toward tearing down and rebuilding.  Similarly, being close in to NYC and good train schedules and parking availability at the RR station -- in addition to good schools -- are major influences of housing prices.  Many people pay for private schools if they don't like the public schools; some towns have spectacularly good schools; others have diverse student bodies, with children from families who struggle financially, which make some parents uneasy.)

Jul 18, 2008 02:24 PM #5
Rainmaker
304,760
ARDELL DellaLoggia
Better Properties Seattle - Kirkland, WA

You are in a unique area, I am most familiar with Granby where relatives of ours own the hardware store.  My children's great grandparents on their father's side owned huge amounts of land in Westfield Mass, just over the connecticut border from Granby.  All were elderly, some were invalid, but owned hundreds of acres of land.  Yes it was clearly subdividable and a developer may have some of it since gramps and grandmother died, but they owned it for two generations and were dirt poor.  There could likely have been 100s of houses there, but there weren't.  And there's no way they could afford to pay taxes on what it could later be.

They both died in their 90s...in the house that gramps built.  They likely had tax discounts as senior citizens and when it was a working farm with cows.  But Gramps had to give up the cows when he hit about 70.

As to the pool going on the extra land, same 10% rule.  So if the house is worth $650,000 the extra land is worth no more than $65,000 and the pool is part of the same $65,000 for extras.  No one is going to pay more thn $65,000 for a pool or extra land, are they?  10% is usually sufficient extra value and taxation for most extras.  Unlike the many hundreds of acres surrounding gramps and grandmother's home.

Jul 18, 2008 03:21 PM #6
Rainmaker
304,760
ARDELL DellaLoggia
Better Properties Seattle - Kirkland, WA

"I have a 6000 line spreadsheet of local properties"

May I ask why?  I am always amazed at the level of work people put into following real estate issues.  What is the purpose of the spreadsheet?  Is it a hobby?

Jul 18, 2008 03:23 PM #7
Anonymous
lvtfan

http://www.wealthandwant.com/themes/aa_all_themes.htmI am an advocate of land value taxation, a simple and just reform proposed most eloquently by Henry George (1839-1897) in his 1879 book, Progress and Poverty.  I have come, slowly and almost grudgingly, to the point of view that the reform he proposed is necessary and even, possibly, sufficient, to transform our communities into good places for all of us to live, rather than machines which systematically enrich some of us (the owners of choice sites) and impoverish the rest of us, who rely on good sites in order to live and to work.

My late grandparents were quicker studies than I was, and "got" these ideas around age 35 or 40.  I'm a bit slower, and, despite their gentle prodding (and my understanding that they devoted the second half of their lives to sharing these ideas), didn't do the study I might have done until I was close to 50 and they were dead.

I started the spreadsheet some years ago, figuring that I might learn something from following property values in my own town.  I follow the transactions and land values in neighborhoods I know well, and have learned a lot about assessment practices, and advocate for better ones.  Land should be assessed first, and the buildings treated as a residual.  The land will be here forever.  We and our buildings come and go.

George's ideas have been embraced by a wide variety of interesting and bright people, from all walks of life and many centuries; he didn't invent these ideas, but he crystalized them and presented them with a clarity that is still awesome in 2008.  See http://www.wealthandwant.com/themes/quotable_nobels.htm and http://www.wealthandwant.com/themes/quotable_notables.htm for some relevant comments.

George's "remedy" provides solutions to some of our most pressing problems: poverty, sprawl, wealth concentration, long commutes, energy usage, housing affordability.  It seems to me that being able to even put a dent in one or two of those problems is enough to commend it to our attention.  

To that end, I've created first a website, http://wealthandwant.com/ (the title comes from the subtitle to Progress & Poverty) and then this year a blog, http://lvtfan.typepad.com/.  Neither are professional, but I'm doing my best to bring these ideas to bright people who would like to leave this country a better place to live for the next generation -- or for themselves!

If you're curious, take a look at http://www.wealthandwant.com/themes/aa_all_themes.htm and see if there is a topic there that intrigues you.  Once you choose one, explore the related topics in the right sidebars for more material that might be a closer fit for your interests, questions or point of view.

You might also enjoy the "essential documents" listed on the front page.

We won't be here forever, and many of us want to leave the world a better place than the one we found.  I think these ideas and reforms provide a worthy framework within which to make valuable contributions to bettering the world for our children and everyone's children.  I'd welcome your comments!

 

 

 

Jul 19, 2008 01:47 PM #8
Rainmaker
304,760
ARDELL DellaLoggia
Better Properties Seattle - Kirkland, WA

WOW!!! An amazing site!  It has been years since I've read Adam Smith, and this quote is enough to send you into looking for more:

"I believe that the Declaration of Independence is not a mere string of glittering generalities. I believe that all men are really created equal, and that the securing of those equal natural rights is the true purpose and test of government. And against whatever law, custom or device that restrains men in the exercise of their natural rights to life, liberty, and the pursuit of happiness I shall raise my voice"

If only govenrment truly had those lofty goals.  It reminds me of the quote "If wishes were horses then beggars would ride..." for some reason.

It's truly amazing!  Thank you for introducing me to it.

Jul 19, 2008 04:48 PM #9
Rainmaker
304,760
ARDELL DellaLoggia
Better Properties Seattle - Kirkland, WA

My ancestors are more recent immigrants with no land issues to speak of.  But I often wondered about my ex-husband's grandparents holding on to all of that land for generations.  If they had to pay rightful taxes on it all, they would have had to sell some of it off over time.  That would have provided more housing on a gradual basis instead of huge development all in one swoop. A more equal and timely distribution of small parcels.

I admit it's all a bit over my head, and simply musings based on what I witnessed.  They were so Scarlett O'Hara about their land and not wanting it touched.  Yet grandmother was a prisoner to it all her life, and not necessarily a willing participant.

Jul 19, 2008 04:52 PM #10
Anonymous
lvtfan

Your ex-in-laws understood, either academically or at a gut level, or, if they or their parents were in an English-speaking place in the 1880s and 1890s, through the popularity of Henry George's writings and speeches (he, Edison and Twain were the 3 best known figures of the day), that owning choice land was the key to long-term riches in a society, an economy, that was progressing technologically and whose population was increasing, and in which the public was investing in infrastructure. 

Does that make it right? No.  Does it make them wrong in some way?  No -- as Churchilll pointed out circa 1909, they were only making the best of the situation.

But those of us who understand the dynamics AND care deeply about the wellbeing of our children's generation and of our country and our society, have an opportunity -- even a calling -- to correct the evils of our system, which deposit into the bank accounts of a few of us, as if on automatic pilot, the wealth of our society -- and thus deprive a large percentage of us of that which we have created through our labor.

Easy to say "not my problem" or "works for me" and to smile through the whole thing -- unless one is deeply invested in the next generation, as a whole, not just one's own children.

Often the difference between ancestors who struggled and ancestors who got along okay was the difference between being a tenant and being a landlord.   And our current crisis, which I think resulted from the attempt to increase homeownership from, say, 66% to 69%, even if it let permitting the lenders to go hog wild, would not have occurred if more of us understood the underlying dynamics and our alternatives.  We can tax ourselves differently, and head off this boom-bust cycle, and reduce the concentration of wealth, or we can keep doing what we're doing and bemoan the results.

 

Jul 20, 2008 01:59 PM #11
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