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appreciation in and around the neighborhood of the subject
property due to the expectation of, and opportunities for,
residential development is one empirical fact on which both
experts agreed, and it plays a central role in their assessment
of the market. As Cobb in his report observes:
This vacant land is in the likely path of
development and would be appealing to a potential
developer as demand is increased. This investor would
be interested in holding the property in anticipation
of a future reward for the investment as utilities are
extended toward the subject.
The subject’s proximity to employment centers,
surrounding land development and extended utility
development supports the speculative attitude toward
the subject tracts, especially tract A. It is obvious
that the subject has the potential for becoming
speculative land.
It is clear that an analysis of an investor’s total return
from the land should take into account the rent plus actual or,
more appropriately, expected appreciation. The difficulty is to
estimate the rate of appreciation. Lady used a figure of 4
percent per year to correct for time differences in the four
comparable sales transactions that he identified in the
neighborhood of the subject property between 1990 and 1992 as the
basis of his fair market value appraisal. If we used 4 percent
as a measure of the return received by an investor in the form of
land appreciation, and limited the soil depletion factor to
1.05 percent, we would adjust Cobb’s equation as follows:
Required rent + 4% = ($871,000) (8.77% + 2% + 1.05%)
Required rent = $68,112
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