Question:   I need your input on a question regarding the 30% rule of land to total value.  Is the 30% rule determined by taking the total cost approach times 30% and if that value exceeds the 30% amount a  comment is required.

 

Example:   That total cost approach is $81,000.   The opinion of the  site value is $20,500.   The "As Is" value of site improvements is  $13,000.  In my opinion the land value is less than 30%.  I have a loan  processor that tells me her training involves adding the site value of  $20,500 and the site improvement value together with totals $33,500.  Therefore by her method the land value exceeds 30%.  Which is the  correct way in your opinion?  If my original way is correct, which by the way I have been using for over 20 years, where can I locate a written explanation?   I really appreciate your input into this situation.

 

Answer:  There is no 30% rule for site value.  Somebody made up the 30% rule years ago and it is still floating around.  Apparently, your loan processor fell for the 30% myth hook, line, and sinker.  The value opinion of the site is developed by the sales comparison method, the market extraction method, or the allocation method.  The sale comparison method is by far the best but lot sales are rarely available.

 

Loan processors have no business trying to appraise.

 

Updated:  11/2/2008

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