Investors should know:
In order to value land, investor should know that appraisers will never know the true value of the property. Why? Land can’t be valued through sales comparisons, the income approach, nor the cost approach. This makes the appraisal process more difficult than appraising a building or home.
What variables drive land values?
Land values place a significant amount of weight on the property’s zoning as this decides what it will be able to be used for in the future once developed. Another heavily weighted variable is supply. As the supply of undeveloped land decreases in hot markets, the value of undeveloped land increases as the market’s supply levels are no longer matching demand levels. Another contributing factor to a land’s value is road access. The greater access a property has to a main road, freeway, or interstate, the more attractive an investment the land becomes for investors and developers. Another value driver is the land’s net rentable area as this will decide what a real estate developer will be able to do with the property in regard to size, shape, and income.
Is the land ready for development?
Real estate developers place more value in land that is ready for development. What does ready for development mean? Ready for development means the property is zoned properly, environmentally clean, approved by the city for development, surveys have been done, due diligence has been executed by the property, and any issues that would prevent development have been addressed. This saves real estate developers a lot of time and money, therefore, this raises the lands value significantly.