Land valuation is accomplished through six generally accepted procedures:
Direct Sales: Recent sales of similar vacant parcels are compared with the
subject property. Adjustments are made for differences among the properties and
are used to create indicators of value for the land under appraisal. The sales comparison
approach is the most reliable method of land valuation.
Reliable sales data is not always available. The assessor must then rely on other
methods of land valuation.
Allocation: This method is based on the principle of balance, which states
that there is a sense of proportion in the four agents of production. Land, as one
of the agents of production, has a logical value relationship to total property
value. Sales of improved properties are analyzed and the values are allocated between
land and improvements.
Abstraction: In this method the cost approach is used in the analysis of
the improved property sales data. The depreciated replacement cost of the improvements
are subtracted from the sale price. The remainder is the indication of land value.
Anticipated Use or Development: Primarily used to value land in transition
from agricultural to other uses, this method subtracts total development costs from
projected sales prices to derive a value for the land.
Capitalization of Ground Rent: This method uses the income approach to value
to establish a current value for land through its future income potential. Agricultural
land in Arizona is valued using this method.
Land Residual Procedure: Calculates land value by first estimating net income
earned by a property and then subtracting income that can be attributed to the improvements,
leaving a residual value attributable to the land.