Owning a piece of land is one of the most lucrative real estate assets that one have. When it comes to buying and selling of land, it’s important for one to understand how land valuation is done and the factors which affect the value of a particular land. In this post, we are going to focus on land value and related subjects to help you get a better understanding.
Let’s get started!
What Is Land Value?
The term land value refers to the value of a piece of property that combines the land itself and any developments such as buildings and drainage that have been made to it. The value of land is not the same as the site value which refers tothe value of a bear land which has no developments, mortgages or lease to alter the original site value.
The value of land is shaped by different factors which we will focus on in details later.
How to Know the Market Value of Land
It’s important to note that land value does not depreciate overtime and it can only increase in value.A fair market value of land is the estimate arrived at when a knowledgeable and interested buyer and a land seller agrees on.
A neutral real estate property appraiser picked by the lender can also carry out an assessment of the land to determine its fair market value before making a decision to finance the prospective land buyers.
The land valuation process can also involve making a comparison of your land condition and improvements compared to other similar real estate properties in your area. The appraiser uses the comparable property approach method by assessing other similar lands that have been sold recently to determine the estimated value.
In some instances, the actual market value of land may differ from the estimated value. This is usually true especially when a land owner is in a hurry to sell so as to raise money for an emergency or when both the buyer and the seller agree on some other form of compensation.
Factors that Affect the Value of Land
Have you ever come across identical pieces of land on sale and you realize that they are being priced differently? What determines the value of land?The value of land is influenced by several factors as outlined below;
The location of land usually have a direct impact on its value. If a piece of land is located in a remote area where there are minimal amenities, it will fetch less value compared to another similar piece of land that is located in a prime area. Good amenities, utilities and ease of transportation are some of the factors that can positively influence the increased value of land.
On the other hand, if a piece of land is located in an area which is prone to environmental risks such as flooding, earthquakes or mudslides, it will have a less value as there will be less interested buyers.
2) Land Size
The size of land has a direct impact on its value. For instance, if your piece of land is slightly smaller than your neighbor, it will not fetch the same market value as that of your neighbor if they all have the same amenities and improvements. The bigger the size of your land, the higher the value of land.
3) Shape and Topography
If a land has irregular shape or it’s not flat, it will have a direct impact on the type of development that can take place. This will also affect the overall cost since developments done on an uneven land will require more capital investmentscompared to a flat ground. In addition, a land with an irregular shape will affect the buyer’s future growth and developments thus, attracting a decreased value of such pieces of lands.
Infrastructure such as good roads and other amenities also have a direct influence on the value of land. If a piece of land is located in an urban center where there are modern roads and it’s easily accessible using different routes and highways, it’s will have a higher value compared to another similar piece of land which have the same features but is located in an area which is not accessible.
5) Land Use
The purpose of land use also influence land valuation. If you are buying an agricultural land to do farming, it will have a different value to a similar land which is bought in the same area for real estate purposes.
In most states, the local authority zone different areas and outline the kind of development or economic activity which is allowed to take place. Ensure that you have checked the existing development controls and building by-laws.
Therefore, you might come across identical pieces of land which have different valuation quotes because they have different uses.
6) The intrinsic value
If a given piece of land is endowed with natural resources such as minerals, ground water or oil, it will have a higher value compared to similar lands in the same area. There will be more interested land buyers who will express their interest in owning such a home thus, attracting higher valuation.
How to Calculate the Market Value of Land
There are various methods and tools that you can use to know the current market value of land. The three most popular methods are;
a) The assessed method- It’s mostly conducted by the government to determine the amount of tax that you are supposed to pay for your land. Assessed value is based on approximation guided by the current market condition to determine a fair value of your land.
b) The appraisal method- The property appraisers are professionals who conduct the land valuation either on behalf of a lender to determine the value of your land before you can secure any form of financing when you are using your land as collateral.
c) Replacement value method-This method is mostly used by insurers who help land owners mitigate potential risks through financial planning.
In addition, there are online land value calculator tools that you can use to get a rough estimate of your land before you can even list it for sale.
Although the land value does not depreciate, the actual selling price of a particular piece of land is usually determined by the buyer financial muscles. Although all the factors that we have stated above influence the value of land, the final amount that the buyer pays for the land becomes the correct vale of that land as opposed to the already evaluated value estimate.