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How to Figure Out How Much Land is Worth

Process for Evaluating the Value of Land

If you’re in the process of buying land or you’re wanting to buy land to build a home on, or just to hold the land, one of the biggest things you have to figure out is, what is the value of the land? What is the price that you’re going to offer on this property? That can be one of the hardest things to figure out, but I’m going to go over a few things that’ll make it a very simple process. When we’re helping a client to evaluate the land that they’re wanting to buy, just like how we would actually go out and look at the property and go, “Well, we’re going to buy that property right there and we’re going to build on it so we could sell it as a spec home.”

Step 1: Look At Home Comps in San Diego County

The first part of the process is we’re going to look at house comps, not land comps, so we will:

  1. Look at some sales of comparable properties around the area and see what that home sold for.
  2. We’re going to go back and we’re going to look and see what it actually cost to reproduce and build the home that’s on that property.

Example: Let’s say the home sold for a million dollars, but the costs to build were $700,000. What we will do is look at this lot and ask ourselves, “Okay, what is it going to take to improve this lot, to get to a point where we can build this home on it?”

Step 1: Look At Home Comps in San Diego County

The first part of the process is we’re going to look at house comps, not land comps, so we will:

  1. Look at some sales of comparable properties around the area and see what that home sold for.
  2. We’re going to go back and we’re going to look and see what it actually cost to reproduce and build the home that’s on that property.

Example: Let’s say the home sold for a million dollars, but the costs to build were $700,000. What we will do is look at this lot and ask ourselves, “Okay, what is it going to take to improve this lot, to get to a point where we can build this home on it?”

Step 2: Look At All Possible Site Costs in San Diego County

  • What’s it cost for landscaping?
  • What’s it cost to put roads in?
  • What’s it cost for grading?
  • What’s it cost to hook up to city water?
  • What’s it cost to hook up to the city sewer?
  • What’s it cost to hook up to the city sewer?
  • What’s it going to cost to borrow retention bases if they’re needed?

There’s a ton of things, but what’s it going to cost to get this lot buildable? 

Example: Let’s say that’s $100,000 dollars in addition to the $700,000 build costs for site costs. We have a total cost amount of $800,000 to improve the property and get a comparable home on that lot.

How to Figure Out Land Value Formula

Sales Value – Total Costs = What You Can Pay for the Land

That’ll leave you with what you can pay for the land at a fair market value, and allow you to still be at market value with your home when you’re all said and done.

Example: $1Million (Sales Value) – $800,000 (Total Costs) = $200,000 (What You Can Pay for the Land)

What Freeman’s Construction Inc Helps With

If you want more information on how to go through this process and evaluate land, you can go to our website. We have a ton of resources on it and a huge FAQ section that you can look at. There’s also different downloads on our site for cost to build a custom home, cost to build an ADU, you can get remodeling costs if you want them as well. Thanks for your time today!

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