American Society of Civil Engineers.

Transactions of the American Society of Civil Engineers (Volume 81) online

. (page 47 of 167)
Online LibraryAmerican Society of Civil EngineersTransactions of the American Society of Civil Engineers (Volume 81) → online text (page 47 of 167)
Font size
QR-code for this ebook


entirely satisfactory, and that it is well within the province of the
engineer to check the values submitted to him, or even to make the
determination of land values himself.

After some discussion of this point, there follows an exposition of
the methods and procedure to be used in valuing land, a brief outline
of which is as follows:

The principles of land values;

Sources of data regarding land values;

Method of utilizing the data ;

Rules for long and short lots;

Corner lot rules;

Plottage ;

The cost of acquiring land ;

Values based on special utilization;

The valuation of railroad land;

The cost of land appraisals.



* Presented at the meeting of December 20th, 1916.



VALUATIOlSr OF LAND 583

In recent years there lias been a great increase in the demand for
valuation of physical property of every description. One great stimulus
has perhaps been the organization of public bodies for the purpose of
investigating and regulating semi-public corporations, but modern
methods of accounting and keeping records are also an important
factor. The work of making these valuations has naturally fallen into
the hands of engineers, owing to the fact that they, more than any one
else, have had to do with the design, construction, and in many cases
the selling, of the structures and equipment for which an appraisal is
demanded. The various items of inventory — of which, with some ex-
ceptions, the most common is land — fall within the knowledge of an
electrical, mechanical, civil, or gas engineer.

The item of land appears in almost every inventory, and its im-
portance in appraisal work may be seen from the fact that its value
ordinarily constitutes from 5 to 50% of the total value of a utility. It
is probably customary for an engineer, in handling a valuation proposi-
tion, to feel that the land is somewhat out of his field, and to turn this
part of the work over to one or more real estate dealers. In this paper
the contention will be made that, even where the services of reliable
and well-informed dealers are secured, their appraisals are not entirely
satisfactory, and that it is well within the province of an engineer to
check the values submitted to him, or even to make the determination
of value himself. In some of the greater cities large real estate ofiices
maintain highly organized appraisal departments and, unquestionably,
no one is better qualified to make land valuations in certain territory
than they are, but it is held that in the country at large the average
real estate dealers' appraisals are likely to be in error, due to careless-
ness, prejudice, or incompetence. It is proposed to show that land
values are fixed by more or less definite forces, and to indicate how, by
the systematic collection and application of data, a man unfamiliar
with land values, as a dealer or even as a near-by resident, may obtain
reliable appraisals.

The development of the methods suggested herein should be useful,
not only in valuation work, but also in acquiring land for utilities, and
especially in cases where controversies arise. In a contest, a real estate
broker testifies that he has been a land dealer for a certain number of
years, that he has platted and sold land in the vicinity of the tract in
question, and that in his opinion the tract is worth a certain sum. In



584 VALUATIOX OF LAND

some cases the very sales he himself has made would, if analyzed, dis-
prove his contention. In what a multitude of cases have not city and
county authorities, railroad companies, and other corporations been
forced to pay exorbitant sums for land on evidence of this character!
In no case may an appraiser gather data enough actually to prove the
value of a tract of land, and in the end his conclusions represent his
opinion only, but he can present logical reasons for his opinion, and
can generally submit enough facts to define a value within narrow
limits.

In approaching this subject, it should be borne in mind that land
has a value as a result of the operation of definite economic, political,
or social forces, and that changes of value take place by reason of
similar forces. The location of cities does not occur at random, nor
does their growth take place by chance; likewise, the development of
farming communities is regulated by their natural facilities. It is the
consideration, then, of the factors which affect land values to' which
the writer will proceed.

The true value of land is the ground rent capitalized. The ground
rent is the net income which remains after paying the taxes on the
land and the taxes, depreciation, interest, and maintenance on all im-
provements. The market value may be entirely different from the true
value, as it is based, not only on the ground rent capitalized, but on
tlie future prospects of the land's utilization. Farm land differs from
city land in that the fertility of the soil, in addition to the advantage
of location, is a source of ground rent. Farm land values are com-
paratively simple, however, and will be treated briefly before taking up
city land values, as the latter are much more important.

The value of farm lands depends primarily on the fertility of the
soil. Other factors are the topography, water supply, climatic condi-
tions, and the development of the community as regards markets,
highways, schools, villages, etc. The advantages of location consist in
nearness to cities, railway stations, and schools. The value of farm
land is comparatively low and the range of values small. The factors
just mentioned vary but little over large areas, and consequently the
change in values is gradual. The problem of determining farm land
values, therefore, is comparatively simple, because any data which may
be obtained are generally applicable over a large district.



valuation of land 585

The Structural Development of Cities.

The problem presented by cities is much more complex. In the
first settlement of new territory, land has no value. A settler has his
choice of numerous locations, and occupies any tract that suits his
fancy. As other settlers appear, however, there comes a time when
there is a difference in desirability between two tracts, due to their
location. It is at this point that value arises in the land having a
superior location, and it becomes a source of ground rent. As the com-
munity grows, more distant lands come into use, a larger area of land
has a value, and the value of the best location is forced higher. When
the proportions of a city are reached, the grades of land are very
nvimerous, and they are occupied by a variety of utilities. City land
is useful only as a site for buildings, and advantages of location govern
the values entirely. Any location in the city may be sought by any
utility, and the land goes to the one which can make it yield the
liighest ground rent and, therefore, pay the greatest price for it.

City land may be divided roughly into the following classes as
regards utilization:

Distribution. — Retail stores, wholesale stores, railroads.
Administration. — Banks, office buildings, public buildings.
Production. — Factories.
Residence. — Dwellings, tenements, apartments, hotels.

There are other utilizations, such as theaters, hospitals, libraries,
etc., which do not fall readily under these classes, but they do not form
a large percentage of the total number of utilities. For each of the
utilities in this classification there is, with respect to other utilities, a
portion of a city within which it is almost forced to locate.

In retailing, the seller must draw the buyer into his establishment.
He seeks a location where the largest number of prospective customers
will pass, and, consequently, retail stores gather at the heart of the
city. Wholesale dealers locate where transportation facilities are best,
and as close as rentals will warrant to any retailers whose business they
may seek to hold or obtain. Railroads procure sites close to the busi-
ness center in order to secure passenger traffic, and their freight
terminals are located in the wholesale and manufacturing districts.
Banks and office buildings are found in the business center, but they
can scarcely compete with retail stores for the best locations. Manu-



586 VALUATION OF LAND

facturing, to some extent, has the same requirements as wholesaling,
but, in addition to railroad facilities, their labor conditions must be
considered.

The basis of business values is strictly economic, the land going to
the highest bidder, but the basis of residence values has a social ele-
ment. The wealthy class select the best locations, near parks, easy of
access, and free from nuisances. Those of lesser means take locations
as near them as possible, and the poorest people are obliged to live in
the outskirts of the city or in undesirable places near tanneries, rail-
road yards, gas plants, etc. Apartment houses are distributed about
the same as dwellings ; and hotels locate near the retail stores, theaters,
and passenger terminals.

The conspicuous feature in cities is the tendency of utilities in the
same business to cluster together. The influences which favor one are
favorable to another, and, moreover, each establishment endeavors to
benefit by the business which other concerns draw. A buyer in a city
may visit a number of wholesale houses by traversing a small district,
and a jobber located in some other part of the city would probably not
receive his attention. In every large city, then, there will be found at
the center a business section, certain portions of which are occupied by
different groups of utilities, such as retail stores, banks and financial
institutions, jobbing houses, etc. Surrounding the business center are
sections occupied by the several classes of residence structures, by
storage warehouses, factories, railroad yards, and many other utilities.
The lines of demarcation between these sections are generally not well
defined, as the change from one class of utilization to another is for the
most part gradual. It is not imcommon, however, to find two distinct
classes of utilization separated by a single street; and barriers, such as
a river or a railroad line, often constitute sharp division lines.

The increase in population, the changes in style of architecture and
types of construction, and the constant depreciation of buildings cause
a continuous movement of utilities from one district to another. In a
fine residence section the houses eventually become old and out-of-date,
and, as a result, more modern dwellings are built in new districts else-
where in the city. The old section soon begins to lose its reputation
as a fashionable district, the wealthy people gradually move out, the
vacated dwellings are used for boarding houses, and the section suffers
a decline in land values, even as a rise in values is experienced in the



VALUATIO^sr OF LAND 587

new district. It is possible for real estate men to gain control of a
district, and, by platting it in a suitable manner, making street and
park improvements and placing building restrictions on all lots sold,
to develop a good residence section. Similarly, by filling in low lands
or providing railroad or harbor facilities, a manufacturing or shipping
district may be fostered. Frequently the movement of groups of utili-
ties, and consequent changes of land value, are regulated by activities
along such lines. In many cases the movement of utilities from one
district to another is guided more by the natural growth of the city and
the development of its transportation systems, and cannot be influenced
as in the foregoing instances. Business property is the least susceptible
to such influences.

Business remains on level ground and where topography does not
interfere, the retail section moves in the direction of the best residence
section. The reason for this is that the residents of such a section
represent the heaviest buyers, and their custom is sought by all shops,
not alone for the value of their patronage, but also by reason of the
fact that all classes go to the shops where the wealthy class trades.
The advance of a retail section toward a residence section involves the
movement of banks and offices into new districts. The buildings
vacated by shops, offices, and banks must necessarily succeed to a lower
utility, such as wholesale houses and factories, and these are often fol-
lowed by tenements and vacancies, so that land once the best in the
city sometimes drops to a low value. The point of highest value is con-
stantly moving, and, unless the increase in population is sufficient to
overcome the tendency, the land behind this movement suffers a de-
crease in value.

City Land Values.

From the business center, the main traveled streets project axes
of higher value into the outlying territory. As a rule, values grade
down regularly from the point of highest value at the business center
to the outskirts of the city, and also grade down on each side of the
main traveled axes radiating from the heart of the city. This general
scheme of values is modified by the location of railroads, bridges, parks,
and the different classes of utilities, and also by the topography, kind
of platting, extent of street improvements, etc. It is not common to
find sharp differences in the values of two adjoining properties. Where
a district of low utility adjoins one where land values are compara-



588 VALUATION OF LAND

tively high, the low-class land near the boundary is of greater value
than the remainder of the district, owing to the proximity of higher
values, and, correspondingly, the high-class land near the boundary
reflects to a certain extent the low values near-by. Marked changes of
value take place, not by sudden variation, but by degrees, over a dis-
tance of several blocks.

The total land value of a city depends primarily on the population,
but is influenced to so great an extent by the city's wealth and other
factors that comparisons between cities of the same population, as to
either the total land value or the value of highest priced land, offer
considerable variation. It is believed that the range of values in Fig.
2 will cover the conditions in all except a very small percentage of
cities. The lower values represent more nearly the normal conditions,
and the higher values occur in cities where there is a large transient
population or where the business district is restricted. All factors
which tend toward the expenditure, in a city, of money which is earned
elsewhere, raise the value of business land. For instance, the location,
in a city of 25 000 people, of a university with several thousand students
would materially increase business land values above those of other
cities of the same size. In determining the population of a city, there
should be considered such suburbs as are close enough to constitute a
part of the city proper. The 1910 census shows the population of
Boston to be about 670 000, but the addition of Cambridge, Somerville,
Wiuthrop, and other communities which directly adjoin the city and
are closer to the business center than some parts of Boston proper,
brings this figure up to nearly 1 000 000. Entering Fig. 2 with this
latter figure, the value of the best business land is seen to range from
$9 000 to $15 000 per front foot and, when the great tributary and
transient population of the city is considered, one would expect to find
there, as is in fact the case, values corresponding to the higher figure.

It will be seen from the foregoing that an investigation of land
values generally involves a study of the forces at work in a city's devel-
opment, the land requirements and distribution of its utilities, and the
strength and direction of the structural movements which are con-
stantly taking place. The extent of such a study would depend, of
"course, on the land under consideration. In valuing a single lot in a
residence section, such preparation would not be called for, but, in the
case of high-priced business land, it is necessary to be informed on these
points.



VALUATION OF LAND 591

For the purposes of this paper the "market value" of land will be
considered as the ordinary exchange price that one party would pay
another for a farm, city lot, or other tract of land, under normal con-
ditions, that is, when the purchaser is not compelled by circumstances
to pay an excessive price nor the grantor to sell at a sacrifice. The mar-
ket value will not include additional amounts which are often paid for
plottage, severance charges, or damages; also, the term "front foot"
will be made to mean a strip of land having a frontage of 1 ft. on a
street and a depth of 100 ft. measured at right angles thereto. The
unit used in measuring city land varies in different parts of the country.
In some places it is the custom to use the front foot of 100-ft. depth, or
some other depth, and in other places the square foot is the unit. Those
accustomed to think of land values by the square foot can readily con-
vert the figures in mind to the front foot as used herein by multiplying
by 100.

Sources of Data for Determining Land Values.
In making land appraisals, the following classes of information are
available :

Inspection and general study.

Sales of real estate.

Tax assessments.

Rentals.

Opinions of land dealers.

Opinions of land owners.

Character of buildings, as an index to land values.

Real estate for sale.

Inspection and General Study. — In connection with any property,
there should be obtained at the outset all information with regard to the
dimensions of the tract, the accuracy of the survey, the condition of the
title, the amount of taxes and special assessments due, and the
existence of mortgages or restrictions as to the use of the land. An
inspection is generally necessary in order to determine the extent and
condition of street improvements, and the nature of the property as
regards topography, filling, protection of water frontage, etc. A gen-
eral study also involves some investigation of the district in which the
property is located and of the city's development and structural growth,
as heretofore outlined. A knowledge of general conditions enables an



i92



VALUATION OF LAND



Value of Land per Front Footo




VALUATION OF LAND 593

appraiser to make use of data which are not directly applicable to the
land in question, and often establishes limiting values on a tract of land
before a detailed study is undertaken. It is always advisable to be pro-
vided with a map showing, not only the parcel of land in question, but
the surrounding district for a good many blocks on every side. By
recording on this map sales, assessments, rentals, topographic features,
etc., their bearing on land values may be most clearly understood.

Sales of Real Estate. — Actual sales of real estate offer one of the
best criteria of land value available to an appraiser. Where they can
be found in sufficient numbers to form a basis for the judgment, there
is no better evidence of market value. In residence districts, where
transfers are always taking place, and in the newer portions of a city,
where sales are numerous, the work of an appraiser is simplified. After
a list of sales has been obtained for land valuation purposes, the ap-
praiser should go to the public record and read the deeds, in order to
cull out transfers which do not show true values. Some of the rea-
sons for which sales should be rejected are nominal consideration, ma-
terial reservations or restrictions, only part interest conveyed, personal
property included, conveyance to perfect title, trade, deal between rela-
tives, conveyance to railroad company or municipality, scattered par-
cels in one conveyance, sheriff's deed, tax deed, etc. These facts cannot
always be determined simply by reading the deed, and there are other
reasons for rejecting a sale which are almost sure to escape observation
by that method. Among such are conveyances by swindlers, fictitious
considerations, company and partnership deals, and land contracts. It
is advisable, therefore, in important cases, to learn as much as possible
regarding the circumstances under which a transfer of real estate is
made.

The use of sales is subject to the following disadvantages:

1. — Large numbers of sales are recorded with a nominal or fictitious
consideration, and it is often difficult to learn the hona-fide
sale price. This is more particularly true of high-priced
land.

2. — As land reaches high values, the proportional number of sales
decreases, so that in certain classes of property such as high-
class business land, or dock property where harbor space is
limited, the sales data are very meager.



594 VALUATION OF LAND

3. — Sales of real estate often include buildings which must be sep-
arated in order to determine the sale value of the land alone.
In cheap properties many vacant lots are sold, but where land
reaches a high value it is not allowed to stand idle, and a sale
price is sure to include more or less extensive improvements.
In a considerable portion of the high-priced property that
comes to sale, the improvements are old, poorly designed, or
not suited to the location. These propositions generally in-
volve the wrecking or remodeling of a building, and the appor-
tionment of the sale price between value of improvements and
value of land is a doubtful process.

It may be seen, therefore, that sales are more directly useful in
appraising cheaper lands, such as ordinary residence sections, where
values are low and changes of value gradual, but that their availability
decreases in somewhat the same proportion as land increases in value.

Tax Assessments. — Assessments of real estate for taxation purposes
are generally considered to be of little or no use as a guide to land
values, and it is true that the average city assessment exhibits many
irregularities. The assessments are made, however, by men whose par-
ticular business it is to study the values in a certain section, and as
most of them gain great familiarity with their districts, the figures de-
termined by them are a valuable aid to the judgment. Assessments may
be faulty in two particulars : first, in that the different parcels are not
assessed on the same basis ; and, second, in that the whole district is not
assessed at full market value, but at some percentage thereof. The best
way to determine whether an assessment is well equalized is to reduce
the figures in the section to the same unit, such as dollars per front
foot, per acre, or per lot, and plat them on a map. Irregularities show
up very clearly on such a graphical representation. As a rule, however,
an assessment will be foimd to be fairly good as regards the compara-
tive value of different parcels, especially where it has been developed
during a period of years. Taxpayers are constantly comparing their
assessments with those of their neighbors, and, as marked differences
meet with complaint until rectified, the tendency is always toward
better equalization. It should be noted that not all assessments sep-
arate land and buildings, for in many communities the sum of the two
appears as one item on the public records. In such cases the assessment



VALUATIO^^ OF LAXD 595

on land alone cannot be obtained, unless, as is often the case, it is
obtained from the private records of the assessor.

It is possible, then, where land assessments are available, for an
appraiser to make an examination of them and, by the elimination of
irregularities and discriminations, determine a fair assessed value for
a given piece of land. It only remains, then, to determine what per-
centage the assessment bears to the true market value. This is done
by gathering hona-fide sales of property, ascertaining the assessed value
of such properties, and computing the ratio of assessed value to market
value. For this purpose it is possible to use sales throughout a small
area surrounding the tract in question, or a ward, or even an entire
city. This method amplifies the use of sales data very materially, for
it permits the use of sales which have no direct bearing on the land
being appraised, and, moreover, is not affected to such a large extent
by the fact that real estate sales involve the value of improvements.
Assessments, therefore, when carefully studied and used in connection
with land sales, constitute valuable evidence with regard to land values.

Rentals. — If ground rent is determined it is possible to capitalize it
and arrive at a value for the land. This process involves gathering



Online LibraryAmerican Society of Civil EngineersTransactions of the American Society of Civil Engineers (Volume 81) → online text (page 47 of 167)