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negotiate a price for the combination of the land and buildings. The combination of land and
buildings, therefore, comprises the appraisal unit, and the appraisal of this type of property must
reflect the value for this unit.
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In some cases though, the identification of the appraisal unit may not be as easily discernible as
with single family homes. For example, unimproved residential subdivision lots may be sold
individually or in groups. Also, a farm property may consist of several parcels that could be sold
separately or as a single farm unit. In these cases, the appraiser must use judgment to determine
the proper unit. Decisions should be based on consideration of ownership, use, location, and,
most importantly, highest and best use. These decisions must reflect, as faithfully as possible, the
unit most likely to be sold if the property were exposed to the open market.
The necessity of defining the appraisal unit is common to all appraisals. The definition is more
problematic, however, with property tax appraisals. When an appraisal is made to obtain a loan,
for example, the appraisal unit is usually well defined by the lending institution ordering the
appraisal. The property tax appraisal, on the other hand, does not have the benefit of such a prior
definition. Also, property tax law imposes some requirements, limitations, and exceptions to the
general principles relating to the appraisal unit.
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PRINCIPLE OF UNIT VALUATION
The principle of unit valuation is also based on the concept that the appraisal unit should be the
unit most likely to be bought and sold in the market. The market may value certain properties
according to the benefits that will be generated by the entire operating unit rather than the sum of
the values of the individual parts. This principle presumes that value accrues to the assets
because of their ability to generate benefits as a team rather than as a sum of the parts.
When using the principle of unit valuation, the appraiser segregates the operations (revenues and
expenses) and the assets of the owner that operate as a team or as an aggregate from unrelated
operations and assets. The team assets are called "unitary" property and are appraised as a whole,
while unrelated assets are called "nonunitary" and are appraised as separate appraisal units.
This principle does not create any substitute for the fair market value standard discussed
throughout this manual and is consistent with the discussion above. Appraisers usually refer to
the unit concept when appraising a multi-parcel ranch but refer to the principle of unit valuation
when appraising properties of a type that are geographically extensive or operationally integrated,
such as railroads, gas and electric, and telephone companies that cross county lines, or large
industrial or mineral operations.
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California property tax law requires separate assessments of land and improvements but does not require separate
appraisals of these different components of a property. The separate assessment of land and improvements is usually
an allocation of the total value of the appraisal unit, which, in the case of a single family residence, is the
combination of the land and buildings (improvements).
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For example, under section 51(b) and rule 461(e), when considering declines in value caused by a calamity, land,
improvements, and fixtures are separate appraisal units. Similarly, the Legislature declared leach pads, tailing
facilities, and settling ponds on mining property to be separate appraisal units for valuation purposes, pursuant to
section 53.5.