Let's Talk Some Dirt- A Look at Land Values in Real Estate
Let's talk a little dirt! I'm talking about the kind of dirt in real estate that is land values. There are five different methods for determining land values in appraising: the sales comparison approach, the allocation method, the extraction method, the capitalization of ground rent and the land residual method. The sales comparison approach is the preferred when adequate sales data are available to the appraiser thus we are going to discuss the different considerations and comparisons for land in the sales comparison approach. Here are a few things to considering when looking at land:s:
Location- We all know how important location is in real estate. If your parcel of land is located in a rural unincorporated area it is essential to find sales that are also located in the same rural location. If the land is a waterfront property then naturally you would want to find sales that are also waterfront properties. Other location considerations may be if it is a corner lot, interior lot or culdesac. Is the land located along a busy street? Near an industrial area?
Size- Land sizes are often given in either square footage or acreage. When looking to know the value of land you would need to find land of similar sizes. It is also important to try to bracket the comparable sales if possible. Bracketing means that you find a sale that is a little larger and a sale a little smaller than the property being appraised. Land values can be given as price per sq.ft. or price per acre. Typically price per acre or sq.ft. will decrease as size increases due to the law of diminishing returns. If you looked at a one acre tract of land that sold for $25,000 per acre you could not compare that to a 100 acre tract of land and think that the 100 acres is worth $2,500,000. It is important to compare similar sizes of land to each other.
Zoning-You may have found the perfect piece of land to build your first set of duplexes however the zoning of the property will not allow any multi-family or duplex development. You can try to ask for a zoning change from the city and it may or may not be granted. It is also important to find out the zoning of any property you are considering. Zoning and deed restrictions are important considerations as they limit what you can construct on the land.
Shape-Land parcels come in many shapes. In planned developments and subdivisions most land parcels are rectangular shaped but this is not always the case. Some lots can be very long and thin, some are rectangular, some are flagpole lots and some are L-Shaped. The shape of the lot can limit what you can build on it.
Flagpole Lot
Irregular Lot
Frontage- The amount of road frontage a property has is important especially for commercial properties. Some properties may front more that one road which can be important for access. If you look at the flagpole lot pictured above it has very little road frontage. For some markets this may appeal to buyers as they may want to be away from roadways, in other markets the limited frontage may not be appealing.
Topography- Topography is defined as: "the relief features or surface configurations of an area, e.g., hills, valleys, slopes, lakes, rivers. Surface gradations are classified as compound slope, gently sloping land, hilly land, hogwallows, hummocks, rolling land, steep land, undulating land, and very steep land. " ** Topography must be considered when comparing land. If a parcels topography is very steep it will more complex to build on when compared to level land. Will retaining walls be necessary? Will there be issues where you want to build due to the topography?
Flood Plain- It is very important to check the flood map and see if any portion of the property is located in a flood plain. Flood plains will limit where you can build and will require flood insurance. You can look up your property in the FEMA Flood Service Center
Soil- Not all soil is the same. In the area we appraise there is a lot of land located with Sandy Loam soil. This soil is highly desired for horse ranches. The area is known as "Horse Country". There are a large number of horse ranches in the area for this reason. The soil changes very quickly to the east to what is locally called "Black Gumbo Soil" which is a clay based soil. This soil is not desirable for horse ranches and in our market has lower land values. You can look up the soil contents for your property at the USDA Web Soil Survey.
Utilities-Utilities are also a consideration for land. Does the land have the utilities already in place or is the land raw and undeveloped? Is there public water and sewer? In many of the rural properties we appraise it is very common for properties to have private water wells and septic systems.
View- The view the land offers is always a consideration. In some markets the view can be a key factor in land values. Does it have water view, hilltop view,golf course view, city skyline view? Or is the view of a land fill, railroad yard,power plant? How about this view?
This is certainly not a complete list of things to consider when looking at land values but we hope this gives you an idea of things to look for when you are looking at land in real estate. If you have any comments or questions you can contact us at: www.dwslaterco.com
**The Dictionary of Real Estate Appraisal-Fourth Edition
Disclaimer: All information deemed reliable but not guaranteed. The information is meant entirely for educational purposes and casual reading only and is NOT intended for any other use. This information is NOT intended to support an opinion of value for your appraisal needs or any sort of value conclusion for a loan, litigation, tax appeal or other potential real estate or non real estate purpose. If you’d like to obtain additional information or order an appraisal for your specific needs, please contact us at www.dwslaterco.com.
