What is the riskiest method of site valuation, and why?

The subdivision method is considered the riskiest method of site valuation primarily because it relies on the assumption of highest and best use of a property. This approach estimates the value of a site based on the premise that the land can be subdivided and developed in a particular way, which may include the potential for residential or commercial development.

This method involves projecting future values based on development plans and zoning regulations, as well as anticipated market demand for the planned use. If the actual market conditions, demand, or regulatory landscape do not align with these assumptions, the anticipated value may not be realized, leading to significant discrepancies between estimated and actual valuations. Additionally, the subdivision method assumes that all approvals will be obtained without any complications, which is not always the case, further amplifying the risk.

In contrast, other valuation methods, such as the cost, sales comparison, or income approaches, typically incorporate more concrete data like construction costs, recent sales, or actual income generated, making them generally more stable and less prone to the uncertainties associated with development assumptions.