How raw land is valued
Raw land has no rent roll and no two tracts are alike, so it is easy to overpay, or to lose a deal by underbidding. The two methods the market uses, and what moves the number.
Method 1: comparable sales
Recent sales of similar land nearby, adjusted for the differences, are how the market prices land and how an appraiser will look at your deal. The hard part is not the idea; it is finding sales that are truly comparable and putting them on the same footing.
Not every recorded sale is a market sale. Transfers between relatives, into a family company, out of foreclosure or for a nominal amount say nothing about value.
What moves land value most
- Usable acres. Wetlands and other unbuildable ground (see upland acres).
- Utilities. Sewer and water at the property line, or a long and costly extension.
- Zoning and entitlements. Land already zoned for the use, or one that needs a rezoning.
- Access and frontage. Road frontage and where a driveway can go.
- Shape, topography and flood zone. A long, narrow or wet tract yields fewer lots.
- Size and timing. Larger tracts usually sell for less per acre, and markets move.
Method 2: residual land value
Residual land value is the most a developer can pay for land and still earn a normal return: the value of the finished project, minus every cost of building and selling it, minus a reasonable profit.
Residual land value = value of the finished project − development costs − financing and selling costs − developer profit
Comparable sales tell you what the market is paying; the residual tells you what your project can pay. When the residual is above the comparables, you can compete. When it is below, the deal only works with a better plan, a longer timeline or a lower price.
Common mistakes
- Pricing on gross acres when a large share of the tract is wetland.
- Comparing to sales with different zoning or utilities without adjusting.
- Leaving out the time and cost of a rezoning (see the rezoning process).
- Forgetting the developer profit, which makes every residual look rich.
This guide is general information, not an appraisal or valuation. Use a qualified appraiser for any value you rely on.
How Land Shark helps
Finding clean comparable sales and putting them on the same footing is most of the work. Land Shark does it on the map.
- Nearby sales on the map, priced per upland acre, so wet ground does not skew the comparison.
- Flood, wetland and zoning on every parcel, the factors that move value most.
- Every offer and every LOI version on the deal, so your team prices from one record.