Understanding Excess Land vs. Surplus Land

Excess land and surplus land are two of the most commonly misunderstood topics in real estate appraisal. While both refer to land not essential for the current improvements, the distinction is critical because it directly impacts valuation. Let’s break down the definitions and how appraisers treat each case.

What Is Excess Land?

According to The Appraisal of Real Estate, 15th Edition:

"Excess land is land not needed to support the existing improvements and which may be sold off separately at its own highest and best use" (Appraisal Institute, 2020, p. 205).

Key features:

• Can be subdivided and sold separately.

• May have a different highest and best use than the main site.

• Must be analyzed independently with its own set of comparable sales.

Examples:

• A retail center with extra land large enough to support a separate fast-food restaurant pad.

• A house on a lot big enough to subdivide into an additional buildable parcel.

What Is Surplus Land?

According to The Appraisal of Real Estate, 15th Edition:"Surplus land is also not needed to support the existing improvements, but it cannot be sold off separately. It does not have its own independent highest and best use and therefore does not get valued separately" (Appraisal Institute, 2020, p. 205).

Key features:

• Not independently marketable.

• May or may not add contributory value to the overall property.

• Often carries a different (usually lower) per-unit value than the rest of the site.

Example:

• A large lawn or extra parking area that cannot be subdivided due to zoning or access restrictions.

Quick Comparison

Feature	Excess Land	Surplus Land
Can be sold separately?	✔️ Yes	❌ No
Has independent highest and best use?	✔️ Yes	❌ No
Adds value	Independent value	Marginal / incremental
Example	Extra parcel that meets zoning requirements	Large lawn, buffer, or extra parking lot

How Does It Impact Valuation?

Excess Land

• Typically appraised as a standalone parcel, with its own sales comparables.

• Because it is marketable, buyers and sellers generally recognize its separate value.

Surplus Land

• Appraisers must determine whether the surplus land adds contributory value to the property.

• Key questions include:  

– Would a buyer pay more for this property compared to a similar one without the larger site?  

– Does the additional land add utility (e.g., more parking, expansion potential, or landscaping benefits)?

• Market-based considerations:  

– Appraisers look for sales of similar properties with extra land to gauge how buyers react.  

– If the market indicates reduced utility, a discounted unit rate may be applied.  

– In some cases, surplus land contributes no measurable value if it cannot be put to functional use.

Final Thoughts

The distinction between excess land and surplus land is subtle but critical. Excess land creates independent value and development opportunities, while surplus land generally supports the current use or provides limited flexibility for expansion. Recognizing this difference ensures more accurate valuation and better-informed property decisions.

Source: Appraisal Institute. (2020). The Appraisal of Real Estate (15th ed.). Chicago, IL: Appraisal Institute.