This section is from the book "Practical Real Estate Methods For Broker, Operator & Owner", by Thirty Experts. Also available from Amazon: Practical Real Estate Methods for Broker, Operator, Owner.
The value of anything which can be reproduced indefinitely can never long exceed its cost of reproduction. The value of land, on the other hand, is a monopoly or scarcity value. It depends upon the supply and demand. The supply cannot be increased, and the demand is therefore the changing factor. If one has to consider the value of a chair or a table, he is aided by the knowledge that it can be reproduced for a certain sum, but to ascertain the value of land, he is confined to the inquiry as to what other people think it is worth and what they therefore will pay for it. Each particular sale of land is merely evidence of what certain persons think the land was worth. The price paid may have been influenced by considerations peculiar to the particular sale, and the price paid is never conclusive evidence of value. Sometimes a man is pressed for ready money, and sells a piece of land for less than it would bring if more time had been devoted to the search for a purchaser. Sometimes a man desires a particular site to enlarge a parcel he already owns or for some other reason, and because of his desire for that particular site he is compelled to pay a larger price than one would pay who merely sought a piece of land of like location and character. To determine the value of land with the greatest accuracy, it is necessary to secure as nearly as possible the opinion of value of the largest number of persons who help to make the market, either by being themselves buyers and sellers or the advisers of buyers and sellers.
In view of these conditions the greatest problem before the assessing department is as to the best way in a given time and place to secure the benefit of the community opinion of value. It is obviously necessary, in the first place, to popularize the terms used in expressing the value of land. If one man says the value of land so situated is so much per square foot and another says it is so much per front foot, and one man uses the term front foot value to express 100 feet deep, and another to express 50 feet deep, it is obvious that there is no comparison between the different statements. It is for this reason that it is so important to use a unit which never varies, such as the value per front foot 100 feet deep. Moreover, this value must have reference to an inside lot and not a corner, for it is the value per front foot 100 feet deep of an interior lot on each of the connecting streets which determines the value of a corner.
St. Paul Plan
Different methods have been employed in various cities to secure the widest expression of community opinion as to the value of land for the guidance of the assessing department and the best method must very likely be determined with reference to the conditions of the particular city at the given time. A method which will work admirably in a city of 100,000 inhabitants may be impracticable in a city of four millions. In the City of New York for the last five years the assessed value of real estate has been published by sections in convenient form. These publications have been quite generally bought by persons interested in real estate, but the extent to which this method has contributed to the expression of opinion in regard to value is not fully satisfactory. Some years ago, in the city of St. Paul, Mr. William A. Somers invited all persons interested in the assessment of the city to attend in a large room where maps of the city were exhibited. On these maps the value per front foot, 100 feet deep, was set down on each side of every block. Criticism was invited of those unit values. As a result of the criticism the values were changed until they were substantially approved by practically all those in the city who had a well-informed opinion as to values. The assessment of the land of St. Paul that year represented the consensus of opinion of those who knew what the land in St. Paul was worth.
This same method was tried in the city of Cleveland with a view to securing an accurate statement of the value of land in the city for the purpose of aiding the assessing board over which the authorities of the city had no direct control. The experiment in Cleveland aroused much interest and is said to have been a success. In cities of a larger size it might be difficult or impossible to secure the necessary co-operation to render this plan successful. I am inclined to believe that in many cities the best plan will be to publish maps of convenient size showing the unit value per front foot, 100 feet deep, of the land on all sides of every square, and wherever the unit may change on the side of any square. These maps should be bound in pamphlets, each pamphlet covering so much of the city as may be convenient. The maps or map pamphlets should then be distributed to those best informed in regard to land values with a request for criticism. One real estate broker may be exceedingly well informed as to the market value of land in a very small section of the city and may know comparatively little of values outside that section. Some brokers have records of great value covering a large section of the city, and consequently are able to give excellent advice as to value in larger sections. If sufficient interest could be aroused to secure the co-operation of those whose opinions are worth consulting, their suggestions might be very useful to the assessors.
To-day in the City of New York, the assessments, especially in certain parts of the city, are regarded by those best informed as exceedingly good evidence of value. The more generally assessments are regarded as being accurate, the more would those assessments tend in themselves to establish the values they are designed to record. If confidence is established in the work of the assessors and interest in their work is extended to a larger and larger number of people, the work of the assessors will constantly improve by more nearly reflecting the consensus of community opinion, and the assessments themselves will tend to establish and determine the opinion of the community.