What are some common methods and sources for estimating land value in highest and best use analysis?

The adjustments for differences when using the Sales Comparison Method are what we call downward or upward revisions. For example, if a similar piece of land, which is identical in every aspect, was sold for price X but was closer to social amenities than the one being valued, then the latter's value must be revised downwards from X. The same principle applies in the opposite case; if a similar piece of land was sold for price Y but is located in an environment prone to flooding, then the latter can be revised upwards from Y. As a result, the value of commercial land is calculated as the market price of a comparable land plus or minus adjustments for differences.

The Sales Comparison Approach estimates land value by comparing the subject property with similar recently sold properties in the same market. The prices of these "comparables" are adjusted to account for differences with the subject property, such as size or location. The adjusted prices provide an estimated value for the subject property. It's a commonly used method in real estate appraisal, relying on active market data to determine value.

In highest and best use analysis, estimating land value involves several methods and sources. The Sales Comparison Approach compares recent sales of similar properties. The Income Approach estimates the land's potential income if developed to its highest and best use. The Cost Approach subtracts depreciation from the cost of reproducing or replacing the property. Data sources include public records, real estate databases like CoStar and LoopNet, appraisals, and market reports. These methods and sources ensure accurate and comprehensive land value assessments.

The residual method is based on the principle of surplus productivity which attributes the ‘surplus’ or residual amount after deducting all the costs of development (ie labour, capital and entrepreneurial profits) from the value of the developed property, to the land value. In short it assumes that land is the last of the four factors of production to be paid.

The Ground Rent Capitalization method is a way to estimate land value, particularly useful when land is leased for income generation. The process involves two key steps: Determine the potential ground rent, which is the income that could be earned from leasing the land. This typically involves analyzing rents of comparable properties. Capitalize the ground rent using an appropriate capitalization rate. This rate is based on the perceived risk of the investment, typically obtained from market sales of similar leased land interests. Ground Rent = Land Value * Capitalization Rate. Rearranging gives us Land Value = Ground Rent / Capitalization Rate. The resulting value reflects the present value of the land's income-earning potential