Why should an appraiser confirm the zoning of each land comparable rather than assume it matches the subject?
Correct Answer
B) Permitted use and density drive what land is worth
Why this is correct: Zoning regulations (permitted uses, density, setbacks) fundamentally determine a property's development potential and highest and best use, which are primary drivers of land value. Assuming zoning matches the subject without verification risks using incomparable sales. Why the other choices are wrong: 'Zoning determines who may lawfully sell the parcel' is incorrect; zoning regulates use, not ownership transfer. 'Zoning must be identical for a sale to be comparable' is too rigid; comparable sales can have different zoning if adjusted, but the difference must be known. 'Confirming zoning removes the need for adjustments' is false; it informs the need for and size of adjustments. Exam tip: Never assume zoning. It's often the largest single determinant of land value, so verification is critical.
Why This Is the Correct Answer
Zoning governs permitted use and density, which is what a buyer of land is purchasing, so differences in zoning drive substantial differences in value.
Why the Other Options Are Wrong
Option A: Zoning determines who may lawfully sell the parcel
Zoning regulates use of land, not who may lawfully convey it. Ownership and transfer are separate matters.
Option C: Zoning must be identical for a sale to be comparable
Differently zoned comparables may be used with a supported adjustment. Identical zoning is not required for comparability.
Option D: Confirming zoning removes the need for adjustments
Confirming zoning identifies where adjustments are needed rather than removing the need for them.
What Can Be Built Is What It Is Worth
What Can Be Built Is What It Is Worth. Same street, different zoning, different value entirely.
How to use: Confirm from the jurisdiction's records. Zoning boundaries run along and sometimes through blocks.
Exam Tip
Confirm overlays and special districts as well as the base zoning. Historic and environmental overlays can bind harder than the underlying district.
Common Mistakes to Avoid
- -Assuming nearby parcels share zoning
- -Relying on a listing's zoning description
- -Excluding differently zoned comparables rather than adjusting
Concept Deep Dive
Analysis
Land value is driven above all by what may lawfully be built on the parcel, so zoning is the first characteristic to establish for every land comparable. Two parcels of identical size and shape on the same street can differ several fold in value if one permits multi-family development and the other single-family, or if one allows retail and the other does not. Density limits, permitted uses, setbacks, height limits and minimum lot sizes all shape the development potential that a buyer is actually purchasing. Assuming a comparable shares the subject's zoning because it sits nearby is a serious error, since zoning boundaries commonly run along or even through blocks. Confirmation comes from the jurisdiction's own records rather than from a listing description. Note what confirmation does not do: it does not make adjustment unnecessary, since differently zoned comparables can still be used with a supported adjustment, and identical zoning is not a precondition of comparability.
Background Knowledge
Zoning determines permitted uses, density, setbacks, height and minimum lot sizes, which drive land value. Zoning must be confirmed from jurisdictional records for the subject and each comparable rather than assumed from proximity.
Real-World Application
An appraiser confirms one land comparable is zoned for multi-family while the subject is single-family, and adjusts substantially with support from sales in both districts.
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In a built-up area where no vacant land has sold for years, which approach to site value is the usual fallback?
How is entrepreneurial profit treated in the subdivision development method?
A land comparable sold 18 months ago in a market rising about 4 percent a year. What adjustment direction applies?
In a land residual analysis for a proposed office development, the appraiser estimates total annual net operating income (NOI) will be $1,250,000. The improvement value, derived via the cost approach, is $15,000,000. Market evidence indicates a 7.0% overall capitalization rate is appropriate for similar improved properties. What is the indicated land value?
A developer plans a 36-lot residential subdivision on raw land. Each lot is expected to sell for $85,000. Total development costs (excluding land) are $1,420,000, including $220,000 for entrepreneurial incentive. The developer requires a 12% annual yield on invested capital over a 3-year development period. Using the subdivision development method, what is the maximum price the developer should pay for the land if all lots sell at the projected price and timing?
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Previous Question
An appraiser is valuing land for a proposed townhouse subdivision using the subdivision development method. The site requires a $350,000 environmental remediation cost that will be incurred 6 months after project commencement. The developer’s required annual yield is 14%. What is the present value of the remediation cost to be deducted from gross lot sales?
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In the subdivision development method, which item is NOT deducted from projected gross lot sales?