is the opposite to overcapitalisation. The building is a much lower
land use than that for the highest and best use. That is, the
building does not capture the full potential of the site. In the
industrial example above, if the cottage was converted to flats or
left as a cottage it would be undercapitalization.
intending developer would pay nothing for the old cottage as it would
be have to be demolished to make way for the highest and best use,
the warehouse. Therefore, the existing cottage has no value or
demolition value only. In fact it is a nuisance, a detriment to the
site as the new owner will have to incur the cost of demolition. That
is, the land value is less than for an equivalent vacant site nearby.
of such properties are known as “site sales” and are good
evidence of land value in a locations where there may be few vacant
highest & best use