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ABSTRACT
This article discusses the criteria to identify excess land and formulates a framework for examining the potential discount or premium of the market value of excess land and remainder tract relative to its sum of the parts. a number of scenarios that an appraiser may encounter are discussed in the article, such as a highest and best use analysis for identifying surplus versus excess land, and cases where land should be analyzed as a separate tract despite its absence resulting in a diminution in value to the remainder tract.
The principle of excess land is a fundamental concept in appraisal practice, but surprisingly few articles have been devoted to this topic. According to The Dictionary of Real Estate Appraisal, fifth edition, excess land may be defined as,
Land that is not needed to serve or support the existing improvement. The highest and best use of the excess land may or may not be the same as the highest and best use of the improved parcel. Excess land may have the potential to be sold separately and is valued separately.1
As indicated by the definition above, excess land may have a different highest and best use than the remainder improved parcel as a result of its potential to be sold separately. This differs from surplus land, which lacks potential of severability, and therefore, has the same highest and best use as the remainder tract. It should be noted that the use of the words "parcel," "tract," and "site" are employed interchangeably throughout this article.
The valuation of excess land may require a different set of comparable sales from the remainder tract, and the group of potential purchasers may vary as well. A different level of emphasis may be given to certain elements of comparison in the valuation, and the numerical adjustments for the differences between the subject property and the comparable sales may not be the same as that used in the valuation of the remainder.2 For example, an appraiser may determine the highest and best use of the excess land to be for office development, with the remainder of the site having a highest and best use of retail development. In this case, the appraiser would likely use a different set of comparable...