Detailed Definition
The Four-Three-Two-One Rule is an appraisal principle utilized primarily for commercial lots with uniform depth. According to this rule, the value of such a property is not evenly distributed throughout the lot but instead follows a specific distribution percentage:
- 40% of the property’s value is attributed to the front quarter,
- 30% to the second quarter,
- 20% to the third quarter,
- and 10% to the final quarter.
This distribution reflects the higher operational and aesthetic value of land closer to the street or front edge. The rule is especially helpful in eminent domain cases where only part of the property may be condemned, thus requiring an estimate of the value of the part taken.
Example Scenarios
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Example 1: Urban Retail Lot
- Situation: A 100-foot deep urban retail lot valued at $500,000.
- Application:
- Front 25 feet: $200,000 (40%)
- Next 25 feet: $150,000 (30%)
- Next 25 feet: $100,000 (20%)
- Last 25 feet: $50,000 (10%)
-
Example 2: Commercial Office Space
- Situation: A 120-foot deep commercial office lot valued at $1,200,000.
- Application:
- Front 30 feet: $480,000 (40%)
- Next 30 feet: $360,000 (30%)
- Next 30 feet: $240,000 (20%)
- Last 30 feet: $120,000 (10%)
Frequently Asked Questions
What is the Four-Three-Two-One Rule used for?
The Four-Three-Two-One Rule is primarily used for valuing commercial properties with uniform depth, especially in cases where part of the property is seized via eminent domain.
How does the Four-Three-Two-One Rule benefit property valuation in eminent domain cases?
By breaking down the property value into specified percentages, the Four-Three-Two-One Rule provides a clearer, structured approach to determining the value of the taken land, ensuring fair compensation.
Can the Four-Three-Two-One Rule be applied to residential properties?
While it is designed for commercial lots, variations of the principle might be used for residential properties, especially large estates, although other appraisal methods like frontage ratios might be more prevalent.
Is the Four-Three-Two-One Rule applicable to properties with irregular shapes?
The effectiveness of the rule diminishes for irregular-shaped lots as the depth and overall layout might differ significantly from uniform-depth specifications.
How does the Four-Three-Two-One Rule compare with Depth Tables?
Depth Tables also break down property value but often use different percentage breakdowns specific to the type of property and location. The Four-Three-Two-One Rule is considered more specific and simplified for uniform-depth commercial properties.
Related Terms
- Eminent Domain: The power of the state to seize private property for public use, with compensation.
- Appraisal: The process of assessing the value of a property.
- Depth Tables: Calculation tables used to determine property value variations depending on depth.
- Frontage Rate: The valuation method based on the property’s street frontage.
- Uniform Depth: A term describing properties where the depth is consistent.
Online Resources
- Appraisal Institute Learning Center - Appraisal Institute
- The Appraisal Foundation - The Appraisal Foundation
- International Right of Way Association (IRWA) - IRWA
References
- “The Appraisal of Real Estate,” 14th Edition, The Appraisal Institute.
- “Eminent Domain: A Handbook of Condemnation Law,” Juris Publishing.
- “Basic Valuation Procedures,” by Jack P. Friedman, Ron P. Alamo.
Suggested Books for Further Studies
- “Real Estate Appraisal: From Valuation Research to A Brand New Commercial Property,” by David M. Geltner.
- “Estimating Construction Costs,” by Robert L. Peurifoy.
- “Handbook of Property Valuation and Appraisal,” by Bangor Mgmt.
