Tips For Evaluating Vacant Land

Reader Question: I have 39.75 acres off I-40. What is it worth? Mike

Monty’s Answer:  Hello Mike. I cannot answer the question without walking the land. I-40 is a 2,559 miles long highway. It goes through 8 states; from large metro areas to very isolated rural places. The property values along the highway vary like night and day. I can offer my thoughts, which apply to all vacant land.

Your property is worth what someone is willing to pay for it. The issue is that each “someone” will have a different idea of what the price should be. The definition of market value is the price a willing buyer will pay a willing seller for property in an open market, where both parties will be fully informed, and neither party is acting under duress.

Determine for yourself what the “range of value” is on your property. The “range of value” is that amount of money between the lowest price and the highest price a buyer and seller could agree on while fully informed and under no duress. Often, property is sold “subject to” obtaining financing, or some other contingency. It is common for those sales not to close, and the property goes back on the market. When the property sells again – the second time around – it rarely sells for the same price as the first time. The price is either more, or the price is less.

I have written an article titled “Valuing a Home” and linked to it here. The process for determining the value of your land is very similar to the process to value a home. The difference is the characteristics and benefits of the land itself, because there are no buildings on it. Here, is what to do to learn the value:

1. Find comparable sales.

2. Make value adjustments in differences between your property and the comparable properties on factors that influence the price of land. Examples of some, but not all, of the factors are:

a. Zoning

b. Configuration of the parcel

c. Topography

d. Traffic counts

e. Supporting cast

f. Mineral rights

g. Ingress and egress rights (access)

h. Soil types

i. Visibility

j. Drainage and wetland issues

k. Availability of municipal water, sewer, electricity and other utilities

l. Forest land

3. Assign values to the relevant factors, factor by factor. Add value if your property is better. Subtract value if your property is lesser, then, net them out. Make the adjustments to each of the comparable sales, not the subject. This exercise will produce a different result for each comparable sale, and the result suggests a “range” of what a buyer may pay for your property. A second article titled “How To Challenge A Home Appraisal” demonstrates how to calculate the adjustments.

Who should decide which properties are comparable? Who should decide which factors are important in your location? Who should decide what the dollar value of the adjustments would be?

Assessors already have an answer, just look on your property tax bill. Local appraisers will have an answer – for a fee. Real estate agents will tell without a fee; if you are selling the property. You can also do yourself, or you can let the buyer tell you what they will pay. If choosing the latter, knowing the best answer beforehand would be very beneficial to you.

Evaluating their own property is troublesome for many owners. Obtaining good information, inexperience with the process and an inability to be impartial creates a likelihood their work may be flawed. A flaw is not something a potential seller wants in an opinion of value when they are seeking market value.

Many owners will use some combination of all of those options. In the end, going through the exercise will produce a sense of what an appropriate “range of value” should be justified by the proper interpretation of the facts.

I hope this is helpful, Mike. Please, ask me if there are additional questions.