Land valuation is a crucial tool that empowers various real estate stakeholders, including real estate agents and brokers, investors, developers, policymakers and the public.
The process of valuing a parcel of land involves a detailed examination of the land’s current and anticipated utility considering location, development potential, market trends, infrastructure, economic conditions and legal constraints. Generally speaking, for instance, a property currently used for agriculture would have a lower market value than the same property zoned for commercial use. Understanding the process is essential for all these stakeholders, directly impacting their decision-making and financial outcomes.
How Size and Location Factor In
The size of a land parcel has a significant impact on its valuation. For instance, in the same area, a 100-acre plot of land may be valued at $1 million, or $10,000 per acre, while a 10-acre plot is valued at $200,000—$20,000 per acre. While both small and large parcels can be valuable, smaller plots often have a higher unit value than larger parcels of equal utility due to economies of scale. This means that the cost per unit area decreases as the size of the land increases. Development costs and demand for prime locations drive up the price per unit area of smaller parcels, particularly in densely populated urban settings.
“Unit area” refers to the how the land is measured by an appraiser. The methodology varies depending on the land’s intended use and inherent characteristics. Generally speaking, appraisers value agricultural and rural land by the acre. In contrast, smaller urban plots are assessed per square foot, emphasizing zoning, development potential, and market comparable sales. Understanding these different valuation methods is crucial for comprehending the complexity of land valuation.
When valuing a larger parcel, the appraiser will consider factors such as subdivision potential, natural resource availability, and suitability for broad-scale developments. A sprawling 100-acre piece of land on the outskirts of a small town may hold considerable potential for future development or agricultural use, especially as urban expansion approaches. Despite its lower per-acre value compared to urban plots, its extensive space and development possibilities make it a significant investment opportunity. Other factors that affect the assessed value of a larger parcel include their potential for privacy, recreational opportunities and natural appeal.
In contrast, smaller parcels in high-demand urban locales are particularly valued for attributes that enhance their desirability and usability, such as panoramic views, innovative design, and convenient access. A small plot in a bustling city can command a premium price due to its strategic position and development prospects, making it a coveted asset for high-yield commercial or residential projects.
As you know, location significantly impacts market value. A plot of land in a prime location and valued at $100 per square foot might be valued at $1 per square foot in a less desirable location. Urban plots often have high per-unit values due to intense demand and the potential for lucrative developments.
Accuracy Depends on You
Compelling land valuation necessitates a comprehensive and nuanced approach, considering the parcel’s size, unique characteristics, and market dynamics. Appraisers employ sophisticated analysis and valuation strategies to achieve precise and reliable assessments that accurately capture the land’s value and potential.
When you represent a client in a land sale, you play an essential role that starts with providing the appraiser with comprehensive information on the land’s physical and legal aspects, including detailed surveys, site plans, and information on physical characteristics such as topography, soil type, and vegetation. Legal details like easements and encroachments are also crucial. By supplying the appraiser with extensive information, even beyond what is initially requested, you help ensure a precise and reliable valuation for the lender, landowner or purchaser.
To anticipate the appraiser’s needs beyond the initial request, consider including additional details such as historical land use records, environmental studies, market analysis reports, recent sales data of comparable properties, zoning changes, future development plans in the area, and any unique features or improvements on the land.
Proactively supplying this extensive information helps ensure a precise and reliable valuation for the lender, landowner, or purchaser. The more detailed the data, the better the appraiser can assess the land’s potential and value.
