Zoning is a governmental power used to limit and control the future development of property within an established geographical area. It is therefore, one of many important factors in the consideration of market value. A recent use of the zoning power is known as comprehensive zoning. In comprehensive zoning, a large area containing multiple parcels is reviewed at one time with any changes in zoning made to all parcels for one effective date.

In considering the full cash value of any property, highest and best use must be examined. Highest and best use is defined as that use which results in the highest present land value.

Land values should be determined from comparable land sales data and standard site evaluation techniques of similarly zoned properties. Consideration must be given to the probability of developing the property to current zoning uses.

Improvements should be analyzed to determine whether they are appropriate or inappropriate for the zoning in place. The most common example of an inappropriate improvement is a residential dwelling on the newly rezoned land. When this occurs, a market analysis of similar properties should indicate the amount of economic obsolescence that should be added to the physical depreciation.

In analyzing inappropriate improvements, the emphasis should be placed on remaining economic life, the period over which improvements will continue to contribute to property value, rather than effective age, the age indicated by the condition and utility of a structure.

To calculate the amount of economic obsolescence, similar properties that have sold should be analyzed. An allocation for the land value is made by comparing values on properties with similar zoning or use. After subtracting the allocated land value from the adjusted sale price, the residual is the estimated value paid for the building. After calculating replacement cost, the amount of accrued depreciation can be estimated based on the difference between the cost new and the estimated value allocated for the building.

The following examples are provided to help illustrate methods which can be used in valuing inappropriate improvements on land zoned by the comprehensive zoning process. Factors and rates are used for illustration purposes only and are not to be construed as suggested factors or rates to be used in your jurisdiction.

Example #1:

A residential dwelling located on commercial or industrial land. The site size is 20,000 sq. ft. which is typical for the area. The highest and best use of the property remains residential.

Facts:

Zoned land value - $5.00 sf or $100,000.

Value of residential property - $125,000.

Estimated after physical depreciation improvement value by Cost Approach - $95,000.
 

$125,000 residual value - $100,000 land value = $25,000 residual to improvement

$25,000 residual value / $95,000 value by Cost = 74% economic obs. factor

Subject:

$95,000 x .26	=$	24,700
Land Value	=	100,000
Total	=$	124,000

Example #2:

A residential dwelling located on commercial or industrial land. The site size is 20,000 sq. ft. which is typical for the area. The property is located in a commercial area, and is occupied by a real estate company and used as office space. There have been two sales of similar properties since the zoning took place.

Facts:

Zoned land value - $5.00 sf or $100,000.

Estimated after physical depreciation improvement value by Cost Approach - $95,000

Sale #l, used as a real estate office - $145,000.

Sale #2, used as an attorney's office - $175,000, contains 27,000 sf of land.

Both sale improvements are estimated at $100,000 after physical depreciation by Cost Approach.
 

Sale #1: $145,000 - $100,000 = $45,000 residual.
 

$ 45,000 residual value/$100,000 value by Cost = 55% econ. obs.
 

Sale #2: $175,000 - $135,000 = $40,000
 

$ 40,000 residual value/$100,000 value by Cost = 60% econ. obs.

Subject:

$100,000 x .45	=$	45,000
Land Value	=	100,000
Total	=$	145,000

Example #3:

A residential dwelling located on commercial or industrial land. The site size is 7.5 acres. The property is located in an industrial area, but is occupied by the owner as a dwelling unit. There have been no sales of similar properties since the zoning took place.

Facts:

Zoned land value - $5.00 sf or $1,633,500.

Value of residential property -$ 125,000.

Subject:

In this instance, the improvement is a detriment to the value of the parcel. A minimal value Should be placed on the improvements.

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