Follow Up -What Has Happened to Land Values in New York Metropolitan Area?
In the last post, it was discussed that real estate appraisers have been taught that there are six appropriate techniques to estimate land value by the Appraisal Institute. These include:
1. Sales comparison approach
4. Land residual approach
5. Capitalization of recent ground rents
6. Subdivision or land development method.
In that post, the allocation method for estimating the market value of vacant sites was explored based on a survey completed by MacCrate Associates LLC of brokers, developers, lenders and appraisers serving the greater New York Metropolitan area, including the Manhattan, Queens, Brooklyn, Bronx, and Nassau and Suffolk Counties. The purpose of the survey was to determine the estimated land value as a percentage of the total price paid for new construction in each county in 2005, near the peak of the market.
In order to determine the validity of the survey, MacCrate Associates LLC analyzed 58 land sales in one of the counties, Nassau County, Long Island, New York, from 2005 through 2008. The sale prices ranged from approximately $150,000 per improved site to $1,900,000 per improved site. The range in total sale price including a new single family dwelling ranged from $325,000 to $3,300,000. It is interesting to note that the data fell right within the range indicated by the survey.
Some other interesting facts to note are summarized below.
Percentage of Site Value Over Time
The following graph indicates that the percentage of the total site value as a percentage of the final sale price has changed very little over time. The solid blue trend line is almost level.
Percentage of Site Value to Total Value
The following graph indicates that the percentage of the total site value as a percentage of the final sale price varies but appears to increase slightly with the change in the total price. The solid red trend line increases as the total price increases.
In this particular county, the survey predictions were quite accurate with the actual sale prices of the vacant sites ranging from approximately 20% to 60% with a median of 43.66% and a mean of 42.99% over time. Obviously, the analysis was based on broad market indicators and the ratios will vary from market to market. But, it supports the hypothesis that land values must have declined as home prices have fallen which was indicated in What Has Happened to Land Values in New York Metropolitan Area?. In addition, land prices have fallen more drastically than house prices.