Methods for assessing the value of land plots. Method for assessing the market value of land plots

Income Approach to Valuation land plots

The income approach to land valuation is a method that allows one to obtain an estimate of the value of land based on the income expected by a potential buyer. This approach is applicable only to income-generating land plots. The income approach is based on three principles: the expectation principle, the supply and demand principle, and the substitution principle. The typical investor or entrepreneur acquires land plot in anticipation of receiving future cash income or other benefits.

Thus, the market value of a land plot is the sum of expected future rental income or other benefits given at the valuation date. Income streams during the period of ownership of the land, as well as proceeds from the subsequent resale of the land, are capitalized at current value.

Capitalization is the division of current income by the corresponding capitalization rate, as a result of which the amount of income turns into the cost of the land plot.

Using income method it is necessary to determine the income and capitalization rate. Depending on the intended purpose of the land plot, income may include:

rent for the valuation of agricultural and forest land;

part of the income from the property complex attributable to

on a developed land plot;

rent for the assessment of settlement lands;

income from the increase in the value of a land plot, received when it is sold in the future or when it is pledged against a mortgage loan.

A difficult problem with the income approach is determining the capitalization rate. In practice, there have been three approaches to calculating the capitalization rate, originally developed for the capitalization of land rent, i.e. assessment of agricultural land.

The first approach is to approach a land plot as a type of monetary capital and, accordingly, calculate the capitalization rate based on the characteristics of the money market at the valuation date.

The second approach is to calculate the capitalization rate using the cumulative construction method.

The third approach is the market squeeze method (analysis of comparative sales). This method is simple, but requires reliable information about comparable sales objects.

When analyzing income and expenses, you can use both retrospective (for previous periods) and forecast data. In this case, data can be taken both before and after taxation. The main condition that must be observed during calculations is flows Money from the use of the assessed and comparable land plots should be determined on the same basis.

To evaluate land plots built up commercial properties, the technique of the residual income attributable to the land plot can be used. According to the principle of residual productivity of land, buildings and structures constructed on land by attracting capital, work force and management, priority is given in the distribution of income. The remaining income after covering all costs of attracting other factors is attributed to the land plot.

Application of the income approach is difficult when high level inflation and unstable financial markets.

Comparative approach to land valuation

The sales comparison method is widely used in countries with developed land markets. The method is based on systematization and comparison of information on sales prices of similar land plots, i.e. on the principle of substitution.

The principle of substitution assumes that the market is open and competitive, that there are a sufficient number of sellers and buyers interacting on it, who act in accordance with typical motivation, economically rationally and in their own interests, without being under outside pressure.

The sales comparison method includes the following steps: Step 1. Identification of recent sales of comparable properties in the relevant segment of the land market.

The appraiser studies the land market, segments it and determines which market segment the appraisal object belongs to. Market segmentation is the process of dividing a market into sectors located in the same geographic area, having similar or competing land use options, similar characteristics of objects and entities.

As a result of segmentation, land plots are divided into the following groups:

areas used for horticulture and vegetable farming;

plots used for personal farming;

plots used for individual housing

construction;

sites used for mass housing construction;

plots for commercial real estate;

areas for public facilities, etc.

For For comparison, several sold plots of land are used. Usually three to five analogues are sufficient, but larger number increases the reliability of the assessment.

Stage 2. Verification of information on transactions with land plots. Selecting information to improve its reliability and obtaining confirmation that transactions occurred under typical market conditions. Data collected on sales of comparable land must be verified by one of the parties to the transaction (buyer or seller) or an intermediary.

Stage 3. Compare the land plot being assessed with plots sold on the market, and making adjustments to take into account differences between the property being assessed and each of the plots being compared.

Stage 4. Analysis of the given prices of analogues and derivation of the final value of the market value of the assessed land plot. After making adjustments to the prices of selected analogues, the results obtained must be agreed upon for the final assessment of the cost of the land plot. A simple calculation of the arithmetic average of the prices of selected analogues is rarely used.

title of property and registration data for the land plot, easements;

Stage 4. Analysis of the given prices of analogues and derivation of the final value of the market value of the assessed land plot. After making adjustments to the prices of selected analogues, the results obtained must be agreed upon for the final assessment of the cost of the land plot. A simple calculation of the arithmetic average of the prices of selected analogues is rarely used. To obtain a more accurate result, the weighted average formula is used.

To determine the market value of a land plot, the following information is used:

title and land registration details

new plot, easements;

physical characteristics of the site;

data on the relationship of the site with the environment;

Economic factors characterizing the site.

The sales comparison method assessment is most objective in cases where there is sufficient comparable information on transactions that have taken place on the market.

As practice shows, the sales comparison method gives unsatisfactory results in conditions of high inflation rates, when there is a lack of data on market sales of comparable objects or their low reliability, as well as when there are sharp changes in economic conditions.

Cost-based approach to land valuation

The cost approach to assessing the market value of a land plot assumes that the investor, exercising due prudence, will not pay for the plot a large amount than what it would cost to acquire the corresponding plot and erect on it a building similar in purpose and usefulness within a period acceptable for construction. The cost approach includes several methods.

The withdrawal (extraction) method determines the market value of the land plot itself as the difference between the market value of the entire property, i.e. a plot of land with improvements and the replacement cost of the improvements minus their depreciation. This method of calculating the value of a land plot is based on the residual technique for land.

The advantage of the cost method is its clarity and evidence of the principles embedded in it. It is widely used in determining the best and most efficient use of a plot of land as vacant. In addition, this is the only method for determining the market value of the land plot itself in cases where there is no reliable data on the market on completed transactions with similar undeveloped land plots.

The cost method leads to objective results if it is possible to accurately estimate the value of the replacement cost of improvements (buildings and structures) and their total depreciation, subject to the relative balance of supply and demand in the corresponding segment of the real estate market.

The limitation of the cost method is that it can give a biased assessment of the cost of buildings and structures whose age exceeds 10-15 years, since over time the probability of reproducing an obsolete property decreases, and the complexity of calculating accumulated wear and tear increases. In addition, in conditions of high inflation, it is very difficult to accurately calculate the cost of reproduction of buildings and structures, not to mention the cost of reproduction of all improvements to urban land with the allocation of the share attributable to the land plot being assessed.

The cost approach is a method of determining development costs that is applied primarily to undeveloped land. This method determines the total value of land, assuming that it will be divided into individual plots of land that will be sold. All costs of their development are subtracted from the cash proceeds from the sale of plots and, thus, the value of undeveloped land is determined.

The development cost method is used when the best and most efficient use is to divide the land mass into separate plots. Dividing a large land mass into separate plots is a widespread practice as it promotes more efficient use of land. The problem of determining the value of land intended for division is relevant for any growing city or town and is used for mass residential or dacha development.

When conducting transactions with land plots, different methodology for assessing market value may be used. Each of them is characterized by its own characteristics depending on the ultimate goal pursued. Let's look at the differences between effective approaches to calculating market prices land areas.

First, let's define the concept of market value. This term implies the maximum probable sale price of the plots in the current competitive realities Russian market with good information about the parties to the transaction (seller and buyer), as well as without the presence of forced pressure from force majeure circumstances from the outside.

The need for land assessment may arise for:

• Calculation of rent amounts.
• Taxation of certain categories of plots and real estate on them.
• Determination of the amount of damage caused.
• Conducting purchase and sale transactions.
• Calculation of compensation for land alienation.

The practical application of methods for assessing the market value of land requires the following information:

1. Registration information and title to the plot.
2. Economic characteristics - permitted uses, intended purpose, availability of infrastructure and transport links.
3. Physical characteristics - location, configuration, relief, area (size).
4. Information about the relationship of the assessed land with the surrounding environment.
5. Payment characteristics – terms of payment and financing, the possibility of changes in the contract price, specific circumstances of the transaction.

What methods exist for determining market price

There are 6 main ways to assess market land value. Moreover, not all of them are the most popular and in demand, but only the first 3 of them. Let's consider the features of using each method separately.

Methods for assessing the market value of plots:

1. The comparable sales comparison method is the most common way to obtain actual data on this moment about the market price of land. The process involves analyzing the existing market, comparing data on objects for similar transactions in the context of homogeneous elements and units. In this case, all significant factors that can affect the level of pricing are taken into account. For example, this is the location and ownership of the site; presence of communications, buildings, destruction, flooding; scope of reclamation work; environmental factors etc. Costs per site are not estimated using this method.
2. Method of correlation or transfer (allocation) - the method is used for transactions on plots with erected buildings. It involves an initial assessment of the cost of existing structures (buildings) and a secondary assessment of the direct cost of the site. The proportion between the total price and the net price of land is revealed. In the process, as with the first method, current actual data on the market value of similar objects is used to calculate the base value.
3. Rent or income capitalization method - the method is used to calculate the planned value of rental areas and involves processing data by amounts rental payments(rents). The amount of expected rent is determined based on rental income or profit from economic use land. For the calculation, a formula is used using the capitalization indicator (based on figures on the rental price and the cost of plots) and rental income. Factors such as location and purpose of land, area, infrastructure and transport interchange, availability of communications, etc.
4. Residual method for a land plot - if it is not possible to obtain data on current market prices for similar plots, it is recommended to use this method to determine the actual cost of land. The process calculates the residual value of productivity, the price of site improvements, and the net income that can be obtained by making these improvements.
5. The method of building or developing (developing) a site is a method that is optimally used when it is necessary to evaluate land suitable for dividing into separate, smaller areas. In the process, the number and size of each individual plot is calculated, upcoming costs and expected sales revenue are assessed, a schedule is drawn up, a discount rate is determined taking into account possible risks, and in the end net profit. For the most accurate calculations and obtaining truthful final indicators, it is necessary to take into account all upcoming costs - from preliminary ones (for assessment, consulting experts, obtaining various permits, etc.) to costs for clearing the territory, engineering and construction work, paying taxes, paying salaries, etc.
6. Extraction or extraction method - this method involves analysis of improved real estate. The cost of the site and the improvements made is assessed separately. In this case, the total price of land and real estate is divided into the cost of the object and the territory.

When choosing the optimal method for calculating market prices of land areas for various purposes, origin and type, it is necessary to first analyze all available methods, taking into account the accompanying terms of the transaction and the characteristics of the plot being sold/purchased. It must be remembered that the cadastral valuation is used to express the price of land in money; it is carried out government agencies mass method and is used in the process of taxation of objects. There is also a concept normative assessment, which determines the standard price of land and is used when donating, calculating the value of shares, transferring by inheritance, purchasing or confiscating land, and issuing secured loans.

Any human activity is inextricably linked with the land, which is used as a spatial basis and means of production. Therefore, land plots are increasingly becoming objects of commodity and economic relations.In the theory of land valuation, it is considered from two sides: on the one hand, the land is natural resource, characterized by space, relief, soils, flora and fauna, and is assessed from the perspective of its ability to perform multi-purpose functions.

Thus, from a legal point of view, land with improvements - buildings and structures located on it, is a complex thing, forming a single whole and being a single piece of real estate. Even without visible improvements, the land is a complex natural object and is a single piece of real estate. All possible improvements are carried out by the soil. Without it, it is impossible to use the land for various purposes. For example Agriculture etc.

When assessing a land plot, you should take into account:

The market value of a land plot changes over time, so land valuation is carried out as of a specific date. If the intended purpose of the site (permitted use) changes, its market value also changes.

Land valuation carried out based on the principle of the most efficient use of land. This means that the market value of a land plot is determined based on the use of the plot that is the most probable, physically possible, reasonably justified, meets the requirements of current legislation and is financially feasible, which results in the maximum estimated value of the land plot. In this case, it is possible to reasonably divide the land plot into separate parts that differ in shape, type and nature of use. The most effective use of the land may not coincide with its current use.

Valuation of land plots has its own characteristics, which vary depending on the ownership of the land plot. Here we should highlight the assessment of settlement land and the assessment of agricultural land.

The assessment of land plots is always carried out based on how effective the land plot can be when used. This means that the valuation of the land is determined based on the use that is most likely in all respects.

In this case, it is possible to reasonably divide the land plot into separate parts that differ in shape, type and nature of use.

Cases of land valuation:

The assessment of the value of a land plot changes over time, so the assessment of a land plot is carried out as of a specific date. If the intended purpose of the site (permitted use) changes, its market value also changes.

The assessment of a land plot is carried out based on the principle of the most efficient use of land. This means that the market value of a land plot is determined based on the use of the plot that is the most probable, physically possible, reasonably justified, meets the requirements of current legislation and is financially feasible, which results in the maximum estimated value of the land plot.

Valuation of a land plot takes into account quantitative and high-quality composition communications and the ability to join existing networks, if construction of real estate objects is planned on the land plot. An important factor in determining the market value of land, provided that the land plot is developed with improvements, is data from engineering-geological and engineering-geodetic surveys, which allows us to determine the composition, condition and properties of soils and data on the situation and terrain, necessary to predict possible construction and costs related to construction on land plots.

Increase in the value of a land plot depending on the availability of utilities

The increase in the cost of a land plot depending on the presence of connected communications can be differentiated as follows:

(The review was prepared by Center LLC Economic Analysis and Expertise" based on the results of 2012, based on research from companies specializing in the sale and development of suburban real estate. When preparing analytical materials, information was used on the sale of land plots located in the Moscow, Vladimir, Kaluga, Tver, Tula, Ryazan, Voronezh and Yaroslavl regions. A also information on the average cost of building access roads, connecting communications (electricity, gas, sewerage), the cost of drilling a well, etc.)
Information regarding the dependence of the cost of a land plot on the presence of connected communications indicated on our website may also be applicable when determining the market value of land plots for 2012 in areas bordering the Moscow, Vladimir, Kaluga, Tver, Tula, Ryazan, Voronezh and Yaroslavl regions.

Separately, a land plot can be assessed for the following purposes:
- taxation of real estate;
- determining the amount of compensation for the alienation of land;
- clarification of damage during the liquidation of existing improvements;
- determining the amount of rent;
- assessment of the market value of land in the cost approach. There are six main methods of land valuation:

1. Method of correlation (allocation).
2. Method of extraction (extraction).
3. Method of construction or development (development).
4. Residue method for land.
5. Method of capitalization of ground rent.
6. Comparable sales method.
7.
1. Method of correlation (allocation) (abstraction or allocation technique). The allocation method is based on the fact that the value of a site can be estimated by dividing the total sales price of comparable real estate between two main parts - land and improvements. The appraiser determines the proportion in which the sale price is distributed between them by first assessing the market value of the improvements

The method is a modification of the sales comparison method of the comparative (market) approach and assumes the availability of data on recent sales of already developed properties. The allocation method is based on the cost principle of balance - the assumption that the ratio between land and buildings and structures in the cost of competing objects is the same.

Example 11.17. Determine the cost of a plot located in a residential area. The latter is already 95% built up, and over the past three years there has not been a single sale of a vacant plot here. However, as can be seen from table. 11.38, in this area the appraiser has identified several recent sales of plots with residential buildings. During the collection and analysis of the collected data, based on the cost approach, an assessment of the cost of buildings and structures minus depreciation was carried out.

Based on the analysis of the data presented in table. 11.38, the appraiser calculated that after the development of the site, the land would account for approximately 20% of the total cost of the property. Thus, the cost of the assessed plot will be $17,000.

As buildings and structures age specific gravity plot in the total sale price increases. When using data on objects with very old buildings, the allocation method can produce a large error, since it is very difficult to estimate the amount of accumulated depreciation. The relationship between the cost of the site and the cost of buildings and structures can also be influenced by other factors - the low level of development of comparable objects or, on the contrary, their overload with development; problems associated with unusual shapes or sizes of areas. Due to such limitations, the allocation method should be used only in cases where other methods cannot be used to evaluate a site.

2. Extraction method. Also includes analysis of improved properties. The contribution of improvements is assessed and deducted from the total selling prices i)i of the property. Thus, the sale price of the land plot is obtained. The method gives good result when the share of improvements in the total value of the property being assessed is small.
3. Method of construction or development (development). It can be recommended when dividing the area into individual developed areas. In addition to the costs of acquiring undeveloped land, the new owner (primary developer) incurs a number of other expenses. Some of these costs are due to the resource quality of the land, others are due to local regulations, defining the breakdown order, or legislation on the protection environment. Costs incurred even before the start of physical development are called “preliminary costs.”

It may be necessary to obtain advice from specialists on various engineering issues and architects. All fees for obtaining various permits must be included in the estimate. Fees for civil liability insurance, mortgages, and financing fees are also taken into account. Land clearing, surveying and surveying of future sites and roads are being carried out, and various planning and topographic surveys are being carried out. Such activities require additional costs, which include the cost of laying additional streets, drainage work, creating sewerage and utility networks, selling costs. In addition, the primary developer must properly allocate overhead costs, indirect costs and the necessary profit.

Example 11.18.
The area of ​​the surveyed massif is 30 acres. “Preliminary” costs are estimated at $50,000. Surveys have shown that three lots can be laid out on each acre. Each lot can be sold for $10,000. Variable costs for the development of each lot, selling costs and profit are estimated at. $4667 30 lots may be sold annually.
All costs associated with planning, designing and preparing land for subdivision are expensed to date, while all proceeds from the sale and variable expenses- by the end of each relevant year.
Let's build cash flow excluding land acquisition costs. Current costs for planning, design and preliminary improvement of the array - $50,000.
1st year: Sales of plots (30 x 10,000) 300,000


- 160 000

2nd year: Sales of plots (30 x 10 LLC) 300,000
Minus: Selling costs, costs
development and profit (30 x 4667) - 140,000
- 160 000
3rd year: Sales of plots (30 x 10,000) 300,000
Minus: Selling costs, costs
development and profit (30 x 4667) - 140,000
- 160 000

Taking into account the cost of capital and expected risk, the discount rate is determined to be 10%.
The net present value at a 10% discount rate is $347,996

Based on the assumptions made to determine the cost of land development, the maximum price that a primary developer could pay for the land is $348,000. (for 30 acres) or approximately $11,600. for 1 acre.

4. Remainder method. It is assumed that the site is improved to NEI and the net operating income (N01) attributable to the site is capitalized using the capitalization rate for the land into a value indicator.
5. Method of capitalization of ground rent. Land rental income is capitalized to arrive at the value of the land. The method is based on the analysis of sales of land plots leased at market rates.
6. Comparable sales method. This method is based on a comparison of data from similar plots sold shortly before the valuation date of the plot in question. Particular attention should be paid to transactions completed under typical market conditions and as close as possible to the valuation date.
Let's take a closer look at the application of this method.
1. Organization of information. The information can be organized as follows:
a) characteristics of a comparable plot of land:
- location,
- dimensions,
- zoning, t
- form,
- topography,
- access,
- review,
- usefulness,
- easement;
b) market zone (coverage area);
c) degree of liquidity - is the property suitable for sale and what period of time will be required to sell the site.
2. Units of comparison. Appraised and comparable properties often differ in size and other parameters. When comparing, it is necessary to bring them to a “common denominator”.
The following units of comparison are used when assessing land:
- price per 1 m²;
- price per 1 ha;
- price per linear or frontal meter;
- price per lot or plot.
3. Making adjustments for comparison elements. In order for the comparable property to be completely similar to the one being valued, it is necessary to make adjustments for the elements of comparison. These adjustments should be made in a certain sequence:
1. Transferred rights to real estate.
2. Financing terms.
3. Terms of sale.
4. Market conditions, Date of sale.
5. Physical characteristics:
- location,
- size,
- form,
- topography,
- access,
- zoning,
- review,
- usefulness.
Adjustments 1-4 are introduced sequentially.

Land is used in many areas of human activity (municipal, political, economic, agricultural, etc.) and is an important factor in maintaining the proper level of the economy.

Since land is a finite resource, it is under strict control. To do this, an assessment is used to determine the market value of the property. This process has its own characteristics that are worth studying.

Legislative regulation of the issue

In Russia, legislative regulation of land exploitation issues is at an early stage. Regulations adopted by law, establishes all general principles and concepts in assessing the value of land, which has a positive impact on the situation as a whole.

There are 4 levels in the system of regulatory acts:

Purpose and methods of implementation

Appraisal is meant to determine the price of something. Accordingly, the valuation of a plot of land is cost determination process land property on the market. Many have encountered the sale, purchase, and rental of land, since it is very multifunctional for running their own business.

Often the assessment is used to determine the borrower’s creditworthiness (when applying for a mortgage), to attract investment, to divide property, to accounting etc.

Highlight three types of assessment lands:

• Monetary. Used to determine the land tax rate and when concluding contracts; in turn, there are two types of monetary valuation: normative and monetary;
• Economic. Used to determine the suitability of land for cultivation a certain culture, when analyzing the most rational use of land; taken into account when conducting a regulatory assessment of the object;
• Soil grading. It is part of the land cadastre and is the basis economic assessment in the field of agriculture; used to determine soil suitability and also to predict losses in agriculture and forestry.

Exists three types of land value: market, cadastral and regulatory.

Market price – the most possible price at which the appraised object can be presented at open market. In this case, the two parties to the transaction have all the necessary information and emergency circumstances do not affect the price.

If the assessment does not establish a certain type of value of the object, then the market price is established.

Cadastral price used for tax purposes. This type of cost is set as a percentage of the market value.

Regulatory – initial, fixed cost established by the state in its own interests. It is used when purchasing land into private ownership, when entering into an inheritance or when transferring it, etc. The standard cost is established annually by the government of the Russian Federation.

The regional standard price may be changed by the government of the Russian Federation depending on the characteristics of the soil and the object itself, but the price should not be more than 75% of the market value. It can be changed by local authorities in the corresponding region, but not more than 25% of that established by the state.

Existing methods and criteria

Cadastral valuation of land plots held Federal agency real estate cadastre, its regional bodies, organizations and enterprises under their management. Persons licensed to conduct assessments have the right to work in this area.

Exist land valuation methods, which are divided into 2 approaches:

Income approach includes methods

• intended use;
• capitalization of land rent;
• remainder method.

Intended Use Method used to determine the value of properties (built and undeveloped) with the aim of generating income by developing the site with improvements.

Ground rent capitalization method used to evaluate objects in order to obtain land rent. Both developed and undeveloped areas can be assessed. To use this method, land rental rates must be processed and their value determined as rental income. The rental fee is determined by the location of the object, its size, function, shape, communications, accessibility Vehicle, type of land use.

Remainder method used to evaluate land properties, makes it possible to generate income. Also, as in the capitalization method, both developed and undeveloped areas can be assessed. To apply this method, first of all, you need to determine the cost land plot, which can be improved to make a profit. Next, income is capitalized by establishing income from the facility and buildings.

Comparative approach includes methods

• discharge;
• distribution;
• sales comparisons.

Selection method used to evaluate land to determine whether improvements to the land correspond to its highest and most beneficial use. This method is only suitable for built-up areas.

Distribution method used to evaluate land plots in order to establish the relationship between the value of land and buildings built on it. Used for built-up objects. Most suitable for new buildings, as they must comply with efficient and rational use land. To use the distribution method, you need to have information about the relationship between the price of the plot and the buildings erected on it. However, the result will not be accurate.

Sales comparison method used to compare prices of similar land. It is one of the simplest and most effective. Gives fairly accurate market indicators. However, for the Russian market, which is not information-open, the mentioned method is not suitable. Its use is influenced by the market situation, site location, terrain, soil properties, application options, ownership, etc.

Evaluation criteria lands:

• site location;
• availability of communications and the ability to connect them if they are absent;
• transport accessibility to the land plot;
• purpose of use and the possibility of changing its purpose;
• data from geological and geodetic research.

Procedure

Initially compiled agreement. To do this, you need to indicate for what purpose the site will be used, the type of ownership, whether it is developed, etc. After this procedure, a date is set for the work to be completed, that is, the time at which the inspection will be carried out. Before him, it is necessary to collect all the documents, namely the characteristics, description of the land, its properties, the presence of any minerals. Next, the object is viewed, after which documentation based on the results of the procedure is collected again and the valuation option is established (market, cadastral, regulatory). The whole process consolidates land assessment report.

The documents required for assessment may differ slightly depending on the type of property, be it a plot of land, a residential building or an apartment (room).

Documents required for expert assessment land plot:

List of papers required for assessment residential building:

• copies:
  • owner's identity card;
  • BTI technical passport for a residential building;
  • state act on the land plot.

To determine the cost of an apartment (room) you will need:

• document confirming the right of ownership (ownership, lease);
• owner's identification card;
• copy of the BTI technical passport.

Prices for assessing the property fluctuate depending on settlement, the organization involved in this, etc. On average, the amount can be:

• 4000 rub. for a plot with a house;
• 3000 rub. for a residential building;
• 2500 rubles – plot.

For the rules and nuances of carrying out the procedure discussed, see the following video: