Knowing the value of land is important for owners of property, those thinking of buying property, and real estate investors. Whatever may be your thoughts to sell, buy or develop a land, knowing its worth is essential for arriving at sound understandings. Thus, in this guide you will find out what determines land value, and how to right appraise it.
Understanding Land Value
It is the land value that is determined from various things that change depending on market conditions, location, and property characteristics of an area. Contrary to residential or commercial property, where land value is connected to structure, but not to the inherent qualities of the land itself.
1. The Factors of Influence on Land Value
Several factors contribute to the overall value of a parcel of land:
- Location: Land value is greatly influenced by proximity to urban centers, amenities, schools and transportation. Property that sells in desirable areas is more expensive.
- Zoning Regulations: Land use restriction based on its essential function (e.g., residential, commercial, agricultural). The properties that have greater flexibility in the zoning rule or in the development of higher density also have greater value.
- Land Characteristics: Size, topography, soil quality and proximity to utilities can determine the value of the land. Typically the better land for cultivation or building is flat, well drained and has good soil.
- Market Trends: Real estate areas are dynamic and its land values are yield based on the needs of a market and where the economies stand. Learning about how the local market is incrementing or decrementing can tell you a lot about the value of land.
Preparing to determine the value of a tract of land
Relevant information is an important aspect in preparing for a land appraisal that will help in determining a real value for property. Here are steps to take:
1. Research Competitor’s Property
Now you can search for properties that you sold recently, properties very similar to yours, known as comparables or “comps.” Think about location, size, zoning and how it will be used. If you have no sales or comps recorded by the assessor, or if your appraisals need to be updated, this data will help you set a baseline value for your land.
2. Gather Documentation
Collect all relevant documentation related to the property, including:
- Title Deed: Check for and verify ownership, encumbrances or liens.
- Zoning Information: Know the zoning regs pertaining to your property.
- Surveyor’s Map: You can learn about boundaries and encroachments by a recent survey.
3. Assess Property Features
Evaluate the physical characteristics of your land, such as:
- Size and Shape: They often value larger and more usable parcels as such.
- Topography: Generally speaking, flat buildable land is more valuable than hilly or uneven terrain.
- Access: Properties near public transportation tend to, or have road access, or adjacent to surface roadway and street, can have higher values.
Finding a Qualified Appraiser
Having collected all needed information, a qualified appraiser must then be sought. They will give you an unbiased determination of your land’s value through established methods of evaluation, along with local market conditions.
1. Look for Credentials
Select an appraiser that possesses the right credentials, e.g. a Certified General Appraiser or Licensed Appraiser. In other words, these designations mean that they have taken all the necessary classes and training in order to accurately appraise.
2. Experience Matters
Choose an appraiser who has experience in the exact type of property you own. For example, if your land is zoned agricultural, you’ll want to select an appraiser with experience valuing agricultural land.
3. Ask for References
Ask friends, family, or real estate professionals for suggestions (names of former appraisers they’ve used). Other information you can get from appraisers that will add credibility to your decision includes reviews, testimonials and previous appraisal details.
Methods of Land Appraisal
There are several ways that appraisers assess land value. If you understand these methods, you’ll understand the appraisal report and what it means.
1. Sales Comparison Approach
This method compares the subject property against recent transactions of comparables. “I analyse the sale price of similar properties, the size differences, they’re located differently, they have different features.” One of the most common ways for calculating the value of the residential and commercial land is this.
2. Cost Approach
The cost approach estimates land value by subtracting depreciation from the cost needed to replace the land. This is a common technique for a special purpose property or where there are no comparable sales. Secondly, it estimates the existing cost on land to build improvements similar to them.
3. Income Approach
This type of method is used for income producing properties such as rental land and agricultural land. The appraiser looks at the potential income the land and capitalized that income to determine its value.
The Appraisal Report is interpreted
After completion, you’ll receive a detailed report of the appraiser’s findings. This report is critical for informed decision making of your land.
1. Appraisal Value
The appraised value of your land, or its final determined worth, will be included in the report. The value is determined by the method used and data obtained in the appraisal process.
2. Supporting Data
Typically an appraisal report would include a comparison chart showing the sale prices of comparable properties. The appraised value is offered here with some context as to how the appraiser got there.
3. Property Characteristics
It will also identify characteristics of your property considered in the appraisal. All these are important in knowing how particular factors affected the value of the land.
Rehabilitation Factors to Consider Following Appraisal
After receiving your appraisal report, consider the following:
1. Market Conditions
You need to keep an eye on current market conditions. In other words, if there is a lot of fluctuation in the market, we can wait to sell until the values have stabilized or rose.
2. Property Improvements
If your appraisal value is lower than this, don’t worry about it, just make some improvements to the land. It could be as little as removing debris or adding utilities or landscaping to enhance appeal and consequent value.
3. Timing the Sale
There is the possibility your land sale price will be affected by timing. In a seller’s market, where there are more buyers than sellers, you can expect higher offers (which gives you more negotiating room). However, during a buyer’s market, selling may result into offers that are lower than the amount you want.
Knowing the true value of your land is the first step to becoming an informed real estate buyer or seller. Understand what determines land value, prepare for an appraisal, and choose a qualified appraiser to assure yourself of a fair and objective assessment of your property. Whether you want to buy, sell or develop land, it’s important to be aware of the process in which land is appraised to ensure you get the most out of your investment.
Land values are not set in stone, they can be different than their original value they can change over time due to market trends, property improvements, and economics. Keep yourself informed and take proactive action to ensure that you get the best outcomes from your land investment.
