1.5.1.2. Subdivision Development Method. When the highest and best use of a property is for subdivision purposes and comparable sales do not exist, resorting to the subdivision development method50 to land value may be appropriate if adequate market and/or technical data are available to reliably estimate the property value. This method of estimating land value can also be used to test the appraiser’s highest and best use conclusion and to check against the indicated value of the land developed by the use of comparable sales when the sales data is limited. However, this approach to value is complex, often requires the assistance of other experts,51 and always requires substantial amounts of research, analysis, and supporting documentation. 

In applying this technique, appraisers must bear in mind that a property must be valued in its as-is condition. Therefore, consideration must be given to the time lag that is typically necessary between the date of value and the projected date when developed lots would become marketable. This time lag must provide for the time necessary to procure all land use permits and approvals, as well as the time necessary for the physical construction of the infrastructure that will be required to convert the land into marketable lots. One of the most critical factors in the application of this technique is, of course, selection of the appropriate discount rate to be applied to the income streams generated by the development. This discount rate should be derived from and supported by direct market data whenever possible.

50 For a discussion of the courts’ view of this valuation technique, see Section 4.4.5.
51 Such as marketing and feasibility consultants, land use planners, civil engineers, and contractors. See Section 4.12 (Appraisers’ Use of Supporting Experts’ Opinions); USPAP Competency Rule (acquiring competency).