Three Factors That Determine Land Value
by Laura Mueller
Determining the value of a piece of land is not the same as determining the value of a physical property. That’s because unlike in the residential market where you don’t need to know much more than square feet, number of bedrooms and bathrooms, and nearby comps to settle on a reasonable price, land value is based on a huge variety of factors, many of which aren’t even visible at first glance. And while the factors below are just the tip of the iceberg in terms of what determines land value, they give a good idea of what’s most important as you price your land to sell—or as you seek out the best deal on a property.
Here’s one thing that land values have in common with property values: the better the location, the better the price.You’d probably already expect that location plays a big role in determining how much a piece of land is worth. But there’s more to it than just location desirability or proximity to nearby amenities. Many land uses are very location-specific — for example, equestrian properties and timber properties, which are quite dependent on their exterior landscapes and zoning regulations. Likewise, if you’re looking for land for residential or commercial development, the same location features that drive values on the consumer side are likely going to be at play.
2. Usable land vs. unusable land
The more acreage the more a piece of land is worth, right? Well, not quite.Number of acres certainly factors in heavily when determining land value, but there’s a big difference in price potential between usable land and unusable land. Think of it this way: if a large piece of land is zoned for agriculture but only 40% of it can sustain crops, it’s going to be worth a lot less than a smaller piece of land where more acres are usable and productive. To make sure you get a fair price on a piece of land, always compare your intentions with the land to how much of the land is usable for those purposes.
3. Utilities and improvements
Another major value factor for land is what the property brings to the table already versus what you’re going to have to invest in after purchase. Access to water, electricity, and other utilities are big value drivers, as are improvements like fences, access roads, bridges, and on-site buildings.You get what you pay for, and with both utilities and improvements, you’re paying extra to get things that you may have had to pay for later out of your own pocket. There’s a flipside to this too however, which is that if you are interested in purely raw and undeveloped land then the sticker price that comes with these add-ons may not be worth it.
Other notable factors
As mentioned earlier, there is an incredibly wide spectrum of factors that affect land value. Additional factors to keep in mind include:
•Site and soil quality
• Ease of access
• Conservation/historical values
To get the fairest deal possible, work with an experienced real estate agent to break down the cost factors in any property you’re interested in so that you can see if the asking price is aligned with the land’s value.