How to Figure Out How Much Land is Worth
If you’re in the process of buying land, or you want to buy land, land value is important to determine when making an offer. This can be one of the hardest things to figure out. I’m going to go over a few things that will make this process simple. I will also share some tips that we do when helping a client evaluate the land.
The first step of the process is to look at house comparables, not land comps. Let’s say a neighbor’s home sold for one million dollars. Well, we backtrack the cost to reproduce and build that home on the piece of land that we’re looking to purchase. Let’s say those costs to build the one-million-dollar home were $700,000. We consider the lot and what it will take to improve this lot to build a one-million-dollar home.
These costs include but are not limited to the landscaping, installing roads, drilling a well or hooking up to city water, installing septic or connecting to city sewer, erosion control, potential bioretention basins, grading, there are many things that may be required. Let’s say all of these site costs amount to $100,000 dollars. If we have a one-million-dollar sales price on our property, $700,000 in build costs plus $100,000 dollars in site costs equals $800,000, which leaves us with $200,000 to purchase the lot. The question we must ask is, “can we pay for the land and still end up at market value with our home when we’re all said and done with the build?”
We help clients walk through this process, which is often labeled as “Due Diligence”, or the time and effort put into figuring out those site costs for evaluation purposes. This includes visiting the local building department, gathering information from the local water and sewer district, corresponding with all the involved contractors to calculate pricing, among other things. We work with clients on all this on the front end before they purchase land.
If you want more information on how to go through that process and evaluate land, please visit our website at www.tfgonline.com. We have a ton of resources and a huge FAQ section to look at. We have many different downloads available on our site for cost to build a home, cost to build an ADU, and remodeling costs as well. Thanks for your time today, it was great talking to you.
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