how to price land
by Solomon poretsky | november 22, 2010
- Survey the land to get a clear understanding of its dimensions and size. A full survey is preferable to a simple measurement because it should also indicate the location of any areas of the parcel that a third party can use, which may limit the ability to develop the land.
- Complete hydrological, geological and environmental surveys of the property. These help you understand whether the land is buildable and what it will support. Since any astute buyer will do these tests, and will use them to reduce the price if a problem is found, it makes more sense to just do them up front so that you know exactly what you have to work with.
- Meet with your local government entity's planning or zoning commission. They can give you a sense of what your property's zoning will allow as well as of specifically what they would like to see on the parcel. They can also let you know what kind of setback requirements your parcel has, as well as any other limitations that may impact how much of the land is actually usable for building.
- Research recent comparable sales in your area for land. Rather than looking at the total selling price, look at the price per square foot or price per acre. This will help you to adjust the comparable sales to the exact size of your property. You will also need to adjust the comparable sales for your property's value based on the unique characteristics that you have uncovered in your research.
- Complete a residual value analysis if you are unable to find useful comparable sales for your property. To do a residual value analysis, you will need to work backward from the eventual value of the building that will be completed on the property. For example, if you know that your property can support a building that is worth $3,000,000 that will cost $1,800,000 to build, there is $1,200,000 left over for the developer to pay you for your land, and to take some as profit. Deciding how to allocate the $1,200,000 "residual value" between developer profit and land value varies wildly from market to market.