Land Appraisal

Land Appraisal Overview

The valuation of land requires careful consideration of its Highest and Best Use (HABU). HABU analysis ensures that the appraiser identifies the most legally permissible, physically possible, financially feasible, and maximally productive use of the property.

Sales Comparison Approach

For land appraised in its fee simple estate, the sales comparison approach is typically (virtually always) the most appropriate method. This involves selecting comparable sales that share a relatively similar HABU, ensuring that the analysis reflects market-supported indications of value.

Income Approach for Leased Land

However, when land is encumbered by a ground-lease, such as parcels underlying shopping centers, office buildings, or quick-service restaurants, the Income Approach becomes more relevant analysis. Depending on the lease structure, this may involve:

• Direct Capitalization – converting a single year’s income into value, or

• Discounted Cash Flow (DCF) – projecting income and expenses over time and discounting them to present value.

Key Takeaway

• Fee Simple Land → Sales Comparison is usually most appropriate.

• Leased Land → Income Approach (Direct Cap or DCF) is often most appropriate.

Conclusion

In summary, a well-supported land appraisal hinges on a clear understanding of Highest and Best Use (HABU) and the careful selection of comparable sales that reflect similar market dynamics. While the sales comparison approach is generally the most appropriate method for valuing land in its fee simple estate, the income approach—whether through direct capitalization or discounted cash flow—becomes essential when the property is subject to a lease. This balanced framework ensures that each assignment is both defensible and aligned with market realities.

If you would like to discuss a potential assignment or request a fee quote, please don’t hesitate to reach out. We welcome the opportunity to provide clarity, transparency, and a valuation you can rely on.