The best way to evaluate Land?

Question

I’ve came across some lots and have been looking to possibly wholesale some land or even quite frankly if low enough to accept offer just buy and hold for myself. My question is possibly what’s the most effective way to price out land? I’m familiar with the county’s appraisals office and where I reside it’s not quite expensive to even hold but wanting to make sure I’m appraising it correctly. There are two empty lots off to the side on a known intersection in a city.

The owner has many lots/properties in this area and I have an appointment with in a couple of hours and is willing to let a few go so just wanting to get some ideas on how to price land. Thank you and I appreciate the responses.

Don Konipol · Answer

Many people believe they just have to find some comps and they will be able to estimate a pretty accurate value.  While this works for experienced and knowledgeable investors in cookie cutter residential SFR, not so much in land and commercial property.  Which is why commercial property appraisers spend 2 years of training, attend a minimum of 6 classes (24 credit hours) and have continuing education requirements.

Greg Dickerson · Answer

@Rickey Miller Jr you can look on Zillow and. Realtor.com for comps and property currently for sale to gage the prices.

Chase Vance · Answer

Residential and Smal Commercial Builders and Developers are only looking for lots and vacant land in around downtown city locations.

Don't waste your time with land outside of the city limits and in rural areas right now. Unless you know agricultural or other types of buyers.

Also, for Land, get it as low as possible. In my city, land will sell max for 30k/35k. Depends on how many new builds have been developed too. Check values around the lot you have under contract and see if there is any rehabs or new builds occuring near the lot.

Will Barnard · Answer

Don laid it out for you. Land is not easy to gauge value on and certainly not going to be accurate from looking at comps of of sites like zillow, the chances of finding sold lots in the same neighborhood, similar size and shape and in same condition will be very tough at best.

The best way to calculate a value of land is to work the numbers backwards and the starting point is the key as one piece of land can have different values depending on what use and what improvements are made.

As an example, lets say you find an infill lit in a residential neighborhood where the subject lot is zoned for same. You will need to know what the average size of all the other homes are on that street (typically) and you should likely (not always) be improving said lot to that. Having the largest home on the street is often a mistake as it is considered over built for the area. This is why it is so very important to know what the highest and best use is.

So for example purposes, lets say the average home on this street is a 3 bed, 2 bath 2000 SF home. With that, you can look up comps for sold homes in that neighborhood and see what they sold for. Lets say the average 2,000 SF home sold for $350k. Now you need to know how much it would cost to build that 2,000 SF home. Lets also assume that it would cost $200,000 to build this home new ($100 per SF for example purposes only). You now know the comps value it at $350k but a new construction should typically get about 10% more in your area (as an example) so your end value is $385k. It cost $200k to build leaving $185k. Taking out holding costs, purchase costs, resale costs, and a profit amount for the work involved would lead you to a net value of the lot. This would be the most accurate way to determine what you should pay for a lot in this example. It can get even more complicated if the improvements had multiple options (i.e. the area and lot could support a 2,000 SF home, a 1500 sf home, a 3,000 SF duplex, etc.)

Moral of story, valuating unimproved lots is no simple task which is why Don above stated how much training is involved for appraisers to do this.

Rickey Miller Jr · Answer

@Greg Dickerson You are an all star Greg thank you for that information, I wasn’t able to get the land under contract but I was able to add him to my contacts as a cash buyer. Learned a lot today from just a simple appointment and I appreciate your response!

The best way to evaluate Land?

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