How to calculate land value
The most recent, true market sales of land reflect, most accurately, the current and actual sales prices that willing owners or sellers of land are getting for their land from willing buyers.
Listing prices are the asking prices of buyers, and listing prices do not always reflect the true final sales prices. A key to the true value of land is to possess current and complete information on reasonable numbers of similar properties sold recently, typically within the last few months.
Obtain all similar and recent comparable land sales to the land of interest. Recent sales records filed in the county or land district are very important. Comparable land property sales are helpful from adjacent or surrounding property districts. Both sales and tax data provide the latest and most recent information land sales. Realtors, in many cases, use only current sales in a particular neighbourhood, subdivision, county, or land district, for determinations of the fair market value. Land district tax assessments may not reflect actual sales market conditions, as they may be as much as 20 per cent above or below actual current market sales prices.
Gather information on comparable land and properties in the area. Gather data and records on a minimum of 5 properties up to as many as 10 or more for comparison. Determine the dollar cost per square foot, meter, or acre of these properties. Determine if the land of interest that is intended for sale or purchase is over, under, or within the price range of comparable sold properties. It is very important to note and remember that similar-sized properties may differ significantly in their attributes such as: topology, water and road features, timber and water resources, scenic aspects and restrictions related to zoning or covenants. Similar-sized properties may be quite dissimilar values. Comparable property values are best obtained from properties that are most similar. Contributing, important and additional factors for determination of actual land values include: potential and proposed developments of highways, subdivisions, malls, or the possible land purchase by local, state or federal governments for building schools, hospitals, administrative offices, etc.
Choose the "market approach" for determination of land values that are most valid, important and critical. Determine comparable or "comp" sales within a narrow, reasonable window of 2 to 6 months. If sales are few or lacking in this window choose a 6- to 12-month sales period. Dramatic market shifts may occur within a period of a few months. Therefore, the most recent sales data available are the best. Remember that the FMVs of county and land districts properties may range from 80 to 120 per cent of actual sales values. Real estate brokers and lawyers are both valuable assets in dealing with land and property which are almost always high-valued investments. The offices of real estate brokers and lawyers often have the most recent computerised records for all land and property transactions, and are therefore valuable resources.
Determine that there is clear deed and title information regarding any land. This should be available and clear within the county or land districts records. Any "clouds" on the title, encumbrances, claims, are problems that require strict attention to all details. The value of land decreases proportionately, and dramatically, when there are liens, encumbrances and clouds involved.
Determination of true or actual land value is possible, but diligence, hard work and scrutiny of all details are required. Since the amounts of money involved in these transactions are usually large, great care should be exercised as recommended here. Determining the value of land is an important first step in potential sales or purchase agreements. Accurate and reliable land value determinations are helpful to both buyers and sellers. Anyone selling land, or buying land, needs clear title, and buyers should always purchase title insurance to protect their land investments.
Pay attention to details, ask questions and get clear answers. If anything seems doubtful, wrong, or unclear, resolve that issue.
Experienced real estate people are important in land and property transactions. Novices need to exercise every caution in the purchase of land or properties. Enlisting the part-time or full-time help of a real estate agent or broker is probably worthwhile for almost everyone. A lawyer is always a necessity for the fine legal details of contracts, deeds, filings, and recordings.
- Internet access
- Access to current sales FMVs in the property and tax assessment registries of county or land district
- Real estate brochures with land listings
- Newspapers and ads with property offerings