How to price raw land and attract developers?

[Chad Carrodus]

Any tips on how to price raw land zoned as low-density single-family? Owner says the land would accommodate 32 single families if a developer subdivided and built a green space and retention pond. Assuming this is true, the local market could easily justify 32 single families in the $400K-$550K range. In fact, the market is craving it. Also, it's in a 100-year flood plain (any building restrictions on this?). It's in a rapidly appreciating market.

There are no true comps and I feel like the owner is asking too little, but I don't want to overpromise and underdeliver. What questions do I need to ask? I understand there are a lot of factors at play here, but as a developer (assuming everything mentioned to be true), what is a price range you would deem fair? What would make the deal enticing to you?

It's in a northern Atlanta suburb (Woodstock/Roswell/Alpharetta). 

[Andrew Newby]

Our company develops raw land in Nashville, although we typically focus on infill subdivisions converting old industrial sites, we are usually installing all new water/sewer, gas/electric, asphalt/concrete and stormwater infrastructure.  32 units by-right is a bit small, and probably why its been passed over.  The floodplain is a major issue as well.  If our company were to contract something like this, we wouldn't put any non-refundable earnest money down until a LOMR were issued, and would ask for a long investigation period.  You may want to coach your owner to start the process of getting a LOMR through a good engineering company if he's serious about selling.  If I'm paying an engineering firm for design without any certainty, I'm going to expect a discount too.

To answer your pricing question more directly, you need to hone in on the target home price for what's selling in this area.  For reference, our site costs mentioned above typically run north of $40K/unit, but you may want to assume higher because flood plains mean topo and geotechnical issues.  Project your construction costs based on what's selling the best in that local market (say a 3,000SF home), assume $100/sf in vertical construction costs (may want to talk to a local builder to confirm).  So total cost - site $50,000 plus vertical $300,000 - $350,000 to build.  We *target* 20% margins on cost, so that would mean you would need to sell it for $450,000 before paying 6% commission and closing costs.  That's at $0 land value, so if you think you can sell that unit for $475,000, then we could pay $25,000/lot.  

We don't really get into greenfield stuff, but if you run across any infill sites 4+ acres in the Atlanta market, shoot me a message.