4.4.5. Subdivision Valuation and the Development Method.When appropriate, aspects of the sales comparison, income capitalization, and cost approaches to valuation can be incorporated into a technique for appraising undeveloped acreage having a highest and best use for subdivision into lots. A federal court recently explained this development method634 as follows:

[O]ne first determines or projects both how the land would be subdivided and the prices at which those lots would sell. The projected gross sale proceeds for all lots in the tract are then aggregated and a deduction is made for all projected direct and indirect costs of maintenance and sale, including development [i.e., the developer’s anticipated profit] and marketing. Finally, the net amount is discounted to present value to reflect that the lots would be sold over time, i.e., an absorption period, considering projected market demand.635 

The remaining sum (the residual) is said to represent the market value of the raw land on the date of value. This highly sensitive and complex method of valuation “relies upon layers of hypothetical assumptions regarding the prospects, costs, and timing of subdivision, development, and sales of multiple lots in an uncertain future.”636 As a result, under federal law it can be used only in limited circumstances, and then only with rigorous evidentiary support.637