What is the Difference Between Excess Land and Surplus Land, and How Does the Highest and Best Use Change Depending on the Classification?

In real estate, surplus land refers to land that is not needed to support the existing improvement but can be separated from the property. However, it does not have it’s own highest and best use. For example, one can separate surplus land but may not be able to build on it, as its use may be limited. Alternatively, one can sell surplus land to a neighbor for use as an additional yard or driveway.

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Excess land, on the other hand, is land that is not needed to support the existing improvement but has the potential to be sold and valued separately. Its highest and best use may not be the same as the highest and best use of the improved portion of land. To sell excess land, three conditions must be met: sufficient size, shape, and accessibility to be divided into a separate parcel, no legal barriers to such subdivision, and a market for unused vacant land.

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It is important to understand the difference between surplus and excess land for two reasons. Firstly, it is essential knowledge in the field of real estate. Secondly, while many assume that bigger land is more valuable, when purchasing a property, one must consider if the entire parcel of land is usable. If one is considering selling part of the land, one must also consider how much land one must keep and how the portion under consideration for sale can be used.

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Which is better to have, excess land or surplus land? It is better to have excess land as it can be subdivided and sold separately from the whole property, unlike surplus land.

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The Highest and Best Use (HBU) is the probable and legal utilization of a vacant parcel of land or an improved property that is physically possible, legally permissible, financially feasible, and maximally productive. The HBU determines the most profitable use of a property, be it vacant or improved, based on the use that will bring the highest value to the property. The HBU is based on the appraiser's judgment and analysis and is therefore an opinion, rather than a fact. The motivations of potential purchasers must be identified, as their planned use of the land will affect its value. It should be noted that appraising a property with excess land can be challenging, as its HBU may not be the same as the whole property, and it can be sold separately. Zoning requirements and market expectations must be considered as well.

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For example, suppose there is a commercial property on a one-acre plot of land, and the zoning requirement is only ? acre, provided the parking conforms to the zoning for building size and utilization. The commercial building and its parking space occupy half of the land, while the other half is undeveloped. If commercialization in the area is growing, there would be a high demand for land for commercial use. Thus, such excess land can be separated, valued, sold, and developed separately from the whole property, while surplus land can be separated and sold, but not developed for independent use.

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