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

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considerable data and the use of very good judgment in choosing a rate
of capitalization. Ground rent is computed by deducting from the gross
rental the taxes on the land, and the taxes, insurance, interest, main-
tenance, and annual depreciation on the improvements. There are mod-
ifications of this procedure by which the gross rental, or the gross rental
less certain items, is capitalized, and the rate of capitalization is in-
creased to allow for the items just mentioned which are not deducted.
There is a disadvantage in using gross rentals, however, for when cap-
italized they represent the land and buildings together, and there re-
mains the difficulty of separating the value of land from that of the
total improved property. On the other hand, the amount of ground
rent as computed may fluctuate greatly, due to the influence of man-
agement, and it is necessary to know that a property is well admin-
istered, lest the ground rent as determined be too low or even non-
existent. It is also necessary to use current rentals, for rentals agreed
upon at some previous time may reflect incorrect values, and this is
especially true where land values are changing.

The rate of capitalization follows the same course as the yield on
securities, and depends on the safety and permanence of the earning


power. The rate ranges from 4% for the best property in large cities up
to 8 and 10% for poor properties in small cities, and even higher for
land suitable only for temporary or disreputable utilization. The rate
varies in different cities, and, as a rule, is lower in the Eastern States
than in the West or South. In a district where land values are increas-
ing, the rate of capitalization is below normal, and where values are
decreasing, it runs very high. As previously stated, the use of rentals
requires care and good judgment in order to obtain satisfactory results.

Opinions of Land Dealers. — The most common method of ascer-
taining the value of land is to consult real estate dealers, but, in
a large number of cases, their figures are found to be unsatisfactory.
The average real estate dealer's appraisal represents an inspection, some
thought on such sales and rentals as he is familiar with, and an inter-
view possibly with some other dealer, but no systematic collection and
presentation of data. Sometimes great carelessness is displayed in their
work. As an instance may be cited the case where several dealers made
valuations of a piece of dock property, ranging from $75 to $200 per
front foot. Some of them evidently overlooked the fact that the property
was not accessible from any street except by passing a long distance
over land belonging to another owner, for, in consideration of this fact,
the tract was transferred for $66 per front foot. As a rule; the suc-
cessful real estate dealers' principal assets are nerve and salesmanship.
They do not want honestly to know values, but to make sales. They
possess an advantage, however, in their knowledge of sale and rental
figures, and it is often necessary to gain their co-operation in order to
obtain this information. Eeal estate dealers are generally optimists,
and in their opinions often incline to high values, especially in the
districts where they are selling lands. Ordinary prejudice, however,
does not account for the almost incredible variation which is sometimes
found in the opinions of real estate men regarding the same piece of
land, which indicates that this class of information may be far from
correct, and should be weighed carefully before being accepted as evi-
dence on which to base judgment.

Opinions of Land Owners. — A land owner nearly always has a
definite opinion as to the value of his holdings, even though he is
not in the market for land, either as a buyer or a seller. This is held
to be important information by some authorities on the ground that it
is the opinion of land owners which fixes the market value of land. The



probabilities, however, are that the converse is much more often the
case, and the opinion of the land holder is fixed by such knowledge as
he obtains regarding sales. It is believed that in a great number of
cases a land holder is not well enough informed to pass reliable opinions
on land values, and that when he is competent it is difficult to obtain
from him an honest expression. This class of information can be ob-
tained readily, and should be given some consideration.

Character of Buildings as an Index to Land Values. — The cost of
buildings is in a measure an index to the value of the lands which they
occupy. In a large proportion of the buildings constructed for business
purposes, the cost is about equal to the value of the land. There is, of
course, great deviation from this rule, but marked departure is almost
always accompanied by financial loss. A cheap building on expensive
land is unable to earn an income proportionate to the high land value;
and an expensive building on cheap land must necessarily be located
outside the district where structures of its class are in demand. On
this basis Table 1 has been prepared, showing the value of land occupied
by the ordinary types of business buildings, in dollars per front foot,
but it should be useful only for very rough estimating. There are
numerous instances where there is a great variation in the value of
buildings along a street on which lots have approximately the same
value, and in such cases the tendency is for the land values to corre-
spond more nearly to those of the highest structures. Exceptions to the
general rule are frequent, as, for instance, where cheap structures are
erected on good land to serve but a short time, while waiting a better
opportunity to make permanent improvements on the property.


Size of building:.


Average value of land per
front foot.


Brick and frame


Tending to flre-proof .

$150 to §200
250 to 350
400 to 500
600 to 800

1 000 to 1 500

2 000 to 3 000

3 500 to 5 500
5 500

Real Estate for Sale. — Although there may be no sales of real estate
in a district, it is generally possible to find property which is on the
market, and obtain an offer of sale. Such an offer throws light on land


values, but should generally be considered as establishing a maximum
figure. A party in making an offer usually endeavors to get a high price
at first and is obliged to lower his figure before a transaction is finally
made. Such offers, consequently, represent values in excess of the
market value. They constitute valuable information, however, and
have the additional merit of being readily obtainable in the majority of

Determination of Value.

Information bearing on land values may often be found by investi-
gating the expert testimony given in damage cases and other Court
actions or hearings. Probate Court records, inheritance tax appraisals,
mortgage records, and tax disputes. In valuing land, there may be
utilized one or more of the classes of information which have just been
discussed. In a district where good sales are plentiful, a brief study
of the transfers may be sufiicient. As lands reach high values, however,
the information bearing on them, not only exists in smaller quantities,
but is more difficult to obtain, and often there are few enough data on
which to base judgment, even after a careful investigation. The final
determination of a market value is ultimately a matter of the judgment
of the appraiser, and it is for him to decide in each case what informa-
tion is required, and just what weight should be given to all the evi-
dence finally obtained.

In summing up it may be said that the important steps in deter-
mining the market value of land are as follows :

1. — A thorough investigation of all conditions affecting the land
in question, in order that no important considerations may
be overlooked, as, for instance, the lack of street connections,
in the case already cited.

2. — A systematic and thorough collection of information.

3. — A graphical representation of the data gathered, for by no
other means may the relation which values bear to each other
be so readily understood.

4. — Determination of value after weighing all evidence.

It should be remembered that the market value of a given piece
of land is not a definite sum, and cannot be estimated with absolute
accuracy. Several unprejudiced men, all working with the same data,
will not obtain similar results. In certain cases it may be possible to


establish a definite market value on cheap vacant lots, but, when prop-
erty values run into several thousand dollars, reliable estimates will
vary 5%, and in complex situations 10%, 25%, or even more.

Long and Short Lots. — Having determined a market value of land,
the next problem is the application of that value to lots of irregular
size and shape, corner lots, and groups of lots. A market value of
dollars per front foot refers to property of average depth, depending on
the manner in which the city is plat,ted, and it is frequently necessary
to apply this value to a lot either shorter or longer than the average.
Several tables have been compiled by different authorities showing the
percentage of the total value of lots 100 ft. in depth which is repre-
sented by a lot of any other depth, either greater or smaller. A number
of well-known rules have been tabulated and are submitted herewith
in comparative form. The Hoffman rule appeared prior to 1870, and
was based on the assumption that the front half of a 100-ft. lot was
worth two-thirds of the total value of the lot. The 4-3-2-1 rule, which
is as old, assumed that the front 25 ft. of a 100-ft. lot represented 40%
of the total value, the second 25 ft., 30% of the value, the third 25 ft.,
20%, and the rear 25 ft., 10 per cent. The Hoffman-Neill rule is a
modification of the Hoffman rule, and the Newark rule was developed
by the assessing body in the City of Newark. The Somers rule is the
work of Mr. Somers, who was long associated with assessment work in
New York City. Mr. Pleydell's rule is based on extensive studies in
New York City; and the Lindsay-Bernard rule was developed from
a mass of data gathered in Baltimore. The Milwaukee rule has been
developed during a period of years by Mr. J. H. Leenhouts, connected
with the Milwaukee assessing body, adjustments having been made
from time to time as additional data warranted. In Milwaukee and
Newark separate rules are used for business and residence property.
The Davies rule is the work of Mr, William E. Davies, of New York
City, and was adopted by him after a study of more than 10 000 sales.
Most of the rules are based on a 100-ft. depth of lot, but the Lindsay-
Bernard and Pleydell percentages are based on a 150-ft. lot. By a
simple computation it is possible to reduce these percentages to the
100-ft. lot basis, as, for example, to find what ratio a 50-ft. lot bears
to a 100-ft. lot, according to the Lindsay-Bernard rule, enter their
table and divide the percentage for a 50-ft. lot by the percentage
for a 100-ft. lot. This operation gives 58 -^- 88 = 66 per cent. This



computation has been made for all values in tlie rules which are not
based on a 100-ft. lot, and recorded in Table 2 for purposes of com-
parison. Columns (1) to (11) have been platted on Fig. 3. All the
rules are not shown here in their complete form, as some of them give
a percentage for every foot of variation in depth instead of every 5 ft.,
and, also, some of them have the percentages worked, out to three deci-
mal places instead, of two. Percentages for depths of lots other than
those shown in the tables may be determined by interpolation, and the
application of percentages worked out to one-tenth of 1% is a needless
refinement, as market values cannot be determined with any such
degree of accuracy.

TABLE 2. — Comparison of Rules for Long and Short Lots.















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Online LibraryAmerican Society of Civil EngineersTransactions of the American Society of Civil Engineers (Volume 81) → online text (page 48 of 167)