Legal considerations need to be part of any real estate valuation process. Some of the most significant issues that affect real estate values are zoning regulations, building codes and environmental regulations.
There are many rural areas within the United States that do not have zoning laws. This is due to their sparse populations and the low density of improved properties. They will however fall under the jurisdiction of state building codes and both federal and state environmental regulations.
Real Estate Valuation – Zoning
These regulations are promulgated by local governments. Their purpose is to regulate where and how real estate can be developed, improved upon, type of use permitted within a defined geographical area, density, property conformity, environmental and health issues and a myriad of other issues that govern the use of private property.
Different municipalities have different degrees of regulation depending upon their local character and economies. I live and work within a high-end, exclusive, second home market where the zoning regulations are exceptionally restrictive. The local government’s rationale is that they help maintain high property values and exclusivity.
General zoning classifications will define permitted uses within a defined geographical area. These can include industrial, commercial, residential, multi-family, agricultural and sub-categories of each.
These classifications will each have their own list of specific regulations. An area that is zoned residential could have restrictions on the minimum lot size, gross living area, height of structures, setbacks from front, side and rear lot lines, maximum lot coverage of principle dwelling and accessory structures, legal occupancy restrictions such as one, two or multi-family use. These are just a few examples and all municipalities will differ.
It is important for the home buyer or seller to be aware of the local zoning code when establishing a value for a property.
Real Estate Valuation – Building Codes
Building codes are promulgated by both local, state and in some cases federal governments. State governments will usually set minimum building standards which local governments will use as a base standard and add codes meaningful to their locally perceived needs.
Federal codes are usually the result of an area’s geographical location and its susceptibility to severe natural disasters. In my town new construction must conform to federal hurricane resistant standards.
Real Estate Valuation – Environmental Regulations
Once again environmental regulations start at the federal level under the authority of the Environmental Protection Agency, are augmented at the state level and expanded yet again by local municipalities.
The regulations cover endangered species, wetlands, water quality and a myriad of environmental issues that range from the reasonable to the absurd.
They are to be taken seriously as any violation can adversely affect the value of a property. The most common problem in my area is wetland encroachment. I have appraised properties that due to wetland setback regulations, over fifty percent of the property would be restricted from being built on or even disturbed.
Real Estate Valuation – Consult An Expert
During my many years in real estate sales, I witnessed numerous deals falter due to legal violations. These violations will surface after sales contracts are signed and the closing process is initiated.
Bank appraisers and insurance appraisers are the eyes on the ground for their employers and will report back to them any legal infractions after a physical inspection of the property. Surveyors will reveal on either an updated survey or new survey, zoning infractions such as illegal additions, accessory structures or encroachments that would affect a marketable title.
Too many times I have witnessed homeowners build garages, decks or other accessory structures without first obtaining a building permit and securing a subsequent Certificate of Occupancy.
These occurrences delay the closing date until they can be legally resolved. These delays can be deal killers. Depending upon the conditions stated in the sales contract, this can sometimes provide either party to the transaction with a way out.