Land Appraisal

A land appraisal is completed by a professional appraiser to determine its market value. Market value is developed through the appraisal process. This process is used to identify the best potential use for the land and guide the future development process. Methods that can be used to determine value include the sales comparison approach, extraction, and allocation. After developing the appropriate methods of valuation, an opinion of market value is reconciled and reported typically on a land specific form or in narrative format.  

What Does The Appraiser Look At? 

Vacant land parcels have features that make them more, or less attractive to potential buyers. The appraiser will usually schedule an inspection to view the parcel and assess its features. Here are some characteristics an appraiser considers when determining the value of a piece of land. 

Location and Surrounding Properties:  The location of a land parcel factors heavily into the valuation. Location on the ocean or a golf course, in a gated community, or in desirable parts of town with easy access to jobs, schools, entertainment, and commuter routes will affect value. Appraisers may also look at surrounding properties to see how the neighborhood is changing and developing. If a rural area shows signs of population growth, for example, the appraiser will account for this in the value.   

Amenities:  Amenities such as water access, views, neighborhood pools and recreation facilities, walking trails, and entertainment can make a property more enjoyable and increase its value. These amenities can significantly improve the value when the vacant land is sold. 

Shape, Topography, and Size:  Shape and topography are both important considerations because they affect how the property can be developed. Irregular shaped parcels of land can be less desirable because they generally have less usable space than standard square parcels. A property that has mangrove forest, swamp land, or a river running through it will have less buildable area, will likely be harder to build on, and may affect value. Size has an impact on the land’s value as well. Small lots typically sell at a higher price per acre than large parcels of land. The appraiser will consider how much demand there is for a parcel of a given size and account for this in the value.  

Utilities and Improvements:  If there are any existing improvements made to the land it could impact the appraised value. Bringing utilities to a piece of land can cost thousands of dollars and potentially take months to complete. If a property already has water, sewer, or electricity, it will likely have more value than an undeveloped plot. Conversely, if there is a building that needs to be removed prior to development, this cost may decrease the value of the land parcel.    

Accessibility:  Accessibility is one of the main factors the appraiser considers. One way to look at accessibility is convenience. Some rural vacant land can be difficult or time consuming to access. Some properties may be “landlocked” making them more suitable for hunting and recreation unless an easement is granted. In Florida there are neighborhoods where the roads routinely flood leaving the residents stranded. These are examples of features that may decrease the overall value of a parcel.   

Environmental and Land Factors: Appraisers perform research to identify potential issues that could affect value. Land studies are not something you want to neglect in your appraisals. Environmental factors like soil quality, flooding, and contamination can impact a building project. A specific parcel of land might appear desirable, but if the site has a designated wetland area, receiving approval to build may not be possible. Land studies can also potentially affect insurance rates. If the land is on the beach or in a flood zone, the insurance rates will increase.  

The Analysis Of The Research 

After assessing the characteristics of comparison of a parcel of land the appraiser will analyze the highest and best use of the land. This is arguably the most important part of the land appraisal. This will tell you what the property should be used for to maximize its overall potential. An appraiser will consider four main factors to determine the highest and best use: legally permissible, physically possible, financially feasible and maximally productive.  

The appraiser determines the highest and best use based on factors such as local zoning regulations, parcel size, buildability, location, topography, and accessibility of the property. For example, zoning often restricts the type and size of building improvements allowed which can affect the development potential of a parcel of land. Or, an existing parcel of land may qualify to be split into two parcels, one parcel can be developed, and the second parcel can be sold to offset the investment cost. These are characteristics that are often overlooked and can significantly affect value. 

Once the appraiser has figured out the best way to develop the land the following methods of valuation can be utilized:  

• Sales Comparison Approach – This is when the property being appraised is compared to similar properties to develop an indication of value. This is the most common and preferred method of land valuation when adequate market data is available. 

• Extraction – A method of estimating land value in which the depreciated cost of the building improvements (house, landscaping, utilities, etc.) on the property is estimated and subtracted from the total sale price of an improved parcel to arrive at the estimated sale price for the land. This method is most effective when the building improvements contribute little to the total sale price of the property.   

• Allocation – A method of estimating land value in which sales of improved properties are analyzed to establish a typical ratio of land value to total property value. This ratio is applied to the property being appraised or the comparable sale being analyzed.   

The strengths and weaknesses of these methods of valuation are analyzed to determine their validity, and to determine the weight, if any, that is to be applied to each method in the final value reconciliation. The results are reported typically on a land-specific form or in a narrative format.  

When Should You Get A Vacant Land Appraisal?   

An appraisal is a valuable step when purchasing a parcel of land. Not only can this process reveal the best use of the land, but it can also reveal several factors about the development process. This can guide your decisions as you consider the investment and development potential and boost your bottom line in the long run. 

There are many situations when a land appraisal is recommended. Some of these include selling or buying a parcel of land, divorce settlement, inheritance, tax appeal and estate settlement. 

Pre-Listing Appraisal:  An appraisal designed specifically for sellers. Whether you are selling by owner, or with the help of a Realtor, this appraisal will help you understand the value of the land. It is crucial to have a reliable value so as not to under list, or over price your home. 

Price-Adjustment Appraisal:  If you have a parcel of land that has been on the market longer than you think it should have, this appraisal can help you understand the current market, and if any changes in pricing might be necessary. 

Price Verification Appraisal:  This appraisal will ensure you are not overpaying for a land parcel. This is a great appraisal if you are paying cash for the land since a bank appraisal will not be required. 

Consulting:  If you are not ready for a full appraisal or need some insight about a property from an appraiser’s perspective, then consulting may be for you.  Email Steve at [email protected] for rates and information. With over two decades of experience, there are many ways we can help.