Before you buy a piece of land, determining the accurate value of it is critical for financing purposes and to make sure that you do not pay more than you should. Even if you are buying a house, you may want to determine the value of the land underneath the house. Figuring out the value of the property involves comparing it with other properties and looking at the condition of the real estate market as a whole.
Decide the Land's Best Use
Determine the highest and best use for the piece of land. Before you can accurately make an estimation of the value of a property, you have to figure out what the best use of the land is. For example, if the land could be used for commercial property, it would most likely hold more value than if it was only used for residential property. You can help determine the best use of the property by looking at the zoning in the area and by looking at the other properties around it.
Compare the Comps
Look at comparable sales of land in the area, to determine an approximate value for the property. In some cases, it may be difficult to find comparable sales for a property because of a lack of properties having been sold in recent years. If you can find properties that have sold within the last six months to a year, you can figure out how much the property sold for per square foot and then use that as a way to calculate the value of your land.
Consider Planned Projects
Look at other projects that are being planned in the vicinity. For example, if a large commercial project is being built next to the subject property, you may charge more than what you would ordinarily charge for the property. If you want to sell the land as a commercial property, you may have to work with the city government to get it zoned to the appropriate use. A property with the wrong zoning is not as profitable as one that has the correct zoning.
Have an Appraisal Done
Get an appraisal on the property from a trained real estate appraiser. The real estate appraiser should be able to come up with a fairly accurate value for the property. If the property has a house on it, you can subtract the value of the house from the total value of the property that is determined by the appraisal.
- CCIM Institute: Land Valuation in the Raw
- HomeLight: What's Your Home Really Worth?
- Property Appraiser - Miami-Dade County
- Understanding Economics: Estimating Land Values
- IRS: Publication 561 Determining the Value of Donated Property
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Luke Arthur has been writing professionally since 2004 on a number of different subjects. In addition to writing informative articles, he published a book, "Modern Day Parables," in 2008. Arthur holds a Bachelor of Science in business from Missouri State University.