What’s it Worth? Real Estate Values Part 2

How Real Estate Values Are Created: Part 2

Determining the value of what you can get for your house, building, land, etc… is pretty much a complex formula.

For the most part, you’ll be working with your sales agent or broker and using recent comparables otherwise known as “comps.”

Comps are the recent sales in the area that are similar to your property.


For example, if you have a 3 bedroom, 2 bathroom house on an acre of land, they’ll look at comps that match your property, then factor in some other things such as location, zoning, condition, and other things like does it have a driveway, swimming pool, guest house, etc…

Other questions you’ll have to ask yourself are:

  • Do I want to maximize the sale price?
  • Is my goal to sell the property and get to closing within 60-90 days?
  • What terms and conditions (contingencies) am I willing to give the buyer?
  • Am I a motivated seller or am I just interested in throwing a fishing line out there to see who would bite?
  • Is the highest and best use of my property something other than what it is now (one house on three acres)?
  • What is the category of buyers likeliest to purchase my property – is the target buyer a homeowner like me or is it a developer or builder?

An offer is like a set of scales with price on one side and terms and conditions on the other. Offers are not just about price because price is relative to the rest of the offer.

The terms and conditions that you’re willing to give a buyer impact what you can get for the parcel. Although this is particularly true with development property, the contingencies (or lack of them) also have an effect on the price that’s ultimately negotiated.


The sellers need a longer settlement date because they’re moving into a home that’s being built. In accommodating the sellers on the closing date, the buyers may gain some leverage in negotiating a more favorable price.

land values in the usa

Conversely, sellers who afford home buyers with mortgage, inspection and other contingencies should realize the top sale prices for their properties.

The development property’s value is greatest when the seller agrees to contingencies that give the buyer the opportunity to explore “what if” scenarios.


However, sellers should not blindly grab the offer that has the highest price without doing some investigation both about the buyer and the development scheme that’s being proposed. The buyer may want to pursue a pie-in-the-sky idea or one that’s only remotely possible of being approved by the municipality.


It could be damaging to the sellers to take the property off the market only to have the deal fall through months or years down the road because the buyer couldn’t satisfy the “what if” contingencies in the purchase contract.


If you do make additional money using the property for whatever reason, the value of your property is obviously worth more.

Here’s a guy making an extra $350,000 a year 1.5 acres of land.


Farming on your land will require that you adhere to certain agricultural laws and regulations so be sure the you’re in compliance with them


If you want to maximize the sale price but don’t want to wait months or years to get to closing or a lot of risk, you may be looking at selling only to home buyers. Undoubtedly, if you have to sell fast, then your ideal buyer is someone interested in living on the property.


On the other hand, if you didn’t care how long it took to get to closing or what contingencies you gave the buyer because it was more important to you to get the highest price, then you should probably explore the developer or builder market.


Before you go running off in search of a builder to purchase your property, however, you should hire a real estate attorney who’s experienced in representing owners or buyers of real estate for development.
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Real Estate Investing Article Land Values

You own a property that has “prime development potential” written all over it. It’s got everything – great location, public utilities nearby, and zoning for a use that’s in demand. The market’s really hot and developers are contacting you every day to ask if you’re interested in selling. So you ask yourself “why sell now?” If you wait, you’ll get much more for the land – right?

Maybe and maybe not. How much you can get for the property 3 or 4 years from now could hinge on issues that have nothing to do with interest rates and market conditions. The second most important rule in real estate (and especially with development property) is that value is relative to use.

The future value of your property can dramatically increase if events occur to make it more desirable to potential buyers. Conversely, your land could be worth much less in the future if things happen to decrease its utility to buyers. Simply put, time can either work for you or against you.

Higher Future $$$

With a little luck, your parcel could be in just the right place at the right time – like an area that’s been targeted for growth. A cross-county expressway is in the works as the result of years of planning at the state and county levels, and your property is along the corridor of the proposed highway. The local government is updating its master or comprehensive plan and decides that properties in this area should be zoned to permit more intensive development.

Perception becomes reality. Residential and commercial developers zero in on the area. Soon plans emerge for housing developments and major retail and commercial facilities (a regional mall, shopping centers, theme parks and office campuses), and public utilities will be extended or expanded to handle the growth that’s expected to occur in this area.

Sit back and enjoy the ride. You could see a substantial rise in the value of your property because of these anticipated changes. But stay on top of events to make sure that you sell before the area reaches its peak.

Lower Future $$$

On the other hand, the passage of time can bring changes that either limit how your property can be used or impact its economic or physical feasibility for development. Local, county and state governments have the power to enact laws that prohibit or suspend a particular activity such as development or review for a specified period of time to allow a condition to be corrected or a change to be put into effect. These “moratoria” can last weeks, months or even years.

Suppose your property is in an area that has been exploding with development. Builders have bought up virtually all of the available sewer permits. The local government imposes a moratorium and stops issuing any more sewer and building permits until the existing sewage treatment plant is expanded or a new plant is designed, built and put on line.

Either way, development could be put on hold for years because only the properties that have sewer permits can be built out. You’d have a hard time finding buyers after the moratorium went into effect because builders wouldn’t be interested in tying up resources on a property they couldn’t develop for the foreseeable future. If you couldn’t wait to sell, you might have to cut your price by 30-50%.

Next week, your local government might decide that it wants to change the zoning classification of your property and it would set the wheels in motion to make the change official in a matter of months. Or it could adopt amendments to the ordinance that would increase the minimum lot size or reduce the allowable density of development for properties in a particular zoning district. Once these changes went into effect, the inherent value of the affected properties would drop to correspond with the decrease in their projected yield.

Changes to the subdivision and land development ordinance could have the effect of increasing the cost of site improvements and decreasing value. Development potential of properties that don’t have access to public sewer would be severely impacted by passage of tougher approval standards by state or county governments for on-site sewage disposal systems. These regulations determine not only the type of disposal system permitted, but ultimately the number of lots.

Land development approvals and permits don’t remain effective forever. Laws of individual state, county and local governments dictate the life of these approvals. You decide you want to subdivide and sell your property, and you get final approval from your town government of a plan for 10 lots. A couple of years go by before you get an acceptable purchase contract from a buyer.

During the due diligence period, the buyer finds out that time has run out on the subdivision plan that was approved. It’s no longer valid so the buyer is going to have to start from scratch and submit a new subdivision plan. The worst of it, however, is that over the past few years, the town has enacted changes in the subdivision or zoning ordinances. These changes now apply to your property and they adversely impact the economic feasibility of developing it. Your buyer wants out of the deal unless you’re willing to renegotiate price and terms.

Events don’t happen overnight. There’s a time lag between when ideas, proposals or plans are formulated and when they’re finalized and ready to be put into effect. So you need to project into the future and then work back from that to determine the timing and length of your window of opportunity to sell your property. In short, know when to hold and when to take the money and run.