As all appraisers know its important for us to analyze each amenity or disamenity associated with a real property during the appraisal process. In many cases an entitlement is pointed to by the owner as one of the most important factors contributing to its value, and in some cases they are right.
When it comes to zoning owners are often correct in their assumption that if the zoning allows for a higher intensity of development it makes a property more valuable. Its not a guarantee, a property may have more value if developed for a less intense residential use even though it has commercial zoning, but its often the case that commercial zoning is more beneficial.
Here in Clark County, Nevada vacant land parcels have all been planned for future development, and its not difficult to find out what type of planning a parcel has. If the planning of a vacant parcel of land is for a future low density residential use versus a future commercial tourist use, that makes a difference. That is an example of an entitlement that benefits a real property since market participants realize that the risk associated with chaning the allowed use established via zoning from its existing residential to zoning that allows tourist commercial development has been reduced.
That is the reason that most appaisers will not use residentially zoned properties, with obvious development restrictions, that are planned for low density residential development and compare them in an appraisal report with a property that has commercial zoning or a property that has planning in place (an entitlement) for a future commercial or mixed-use commercial / residential development. They are simply not reasonably compared.
While I subscribe to the opinion that you can use clearly disimilar properties in an apparisal analysis, they can help you display what your subject property is not, there are limits to that approach, and (again my opinion) you don't offer the clearly disimilar properties up with small adjustments when they have a disimilar use potential. Yes, an orange is not an apple, that being clear you don't want to then use the orange for comparison.
Entitlements can include much more than zoning and planning. They often extend to special approvals for vertical construction, for roads, landscaping, utilities and even to the use of special areas like elevated "hillsides." Its for the appraiser to decide whether entitlements, including zoning and planning, contribute to value in the real world. Like the "my castle" drawings of homes that describe an owners perception of his home the pride associated with an entitlement to do something that no one else in the market wants to do may simply be misplaced optimism.
Just so we are clear on this point, I am not saying that entitlements generally do not add value. In fact I have seen many properties command huge premiums because of their entitlements, often they were entitlements that someone else took the time and effort to fight for. My point is that as an appraiser you should have some market evidence to support a conclusion that a property has a higher value because of an entitlement. If you can build a high-rise on a property and no one is building high-rises, how much value does that entitlement add?
For more appraisal information contact Glenn Rigdon
, MA,MRICS, ASA a Las Vegas / Henderson Nevada appraiser via email or via his business website Horizon Village Appraisal
), or you can also click on “Contact Us” on the home page of this website.
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