What Is Land Value?
Let me explain land value to you directly: it's the worth of a property that encompasses both the land itself and any improvements made to it, influenced by factors such as location, demand, and environmental risks. Don't confuse this with site value, which is the reasonable value of the land assuming no leases, mortgages, or other factors that could alter it. Land values rise when demand for land outstrips supply or if a specific piece has greater intrinsic value than surrounding areas, like if oil is discovered there.
Key Takeaways
- Land value is the value of the land, as well as any improvements that have been made to it.
- Always use an appraiser when assessing land value, as they are professionals at determining potential advantages or disadvantages for each individual property.
- Land value is not the same as the site value.
- Typically, land value is determined by a third-party appraiser.
Understanding Land Value
As a property owner, you use land value to figure out how much to charge others for using it. For instance, if you're renting out acres of farmland to ranchers for grazing cattle, you'll set the amount by comparing the market value of the land to taxes and the capitalization rate.
You can determine land value through real estate appraisals by third parties. An appraiser's assessment is key for lenders deciding whether to finance a buyer or refinance for a property holder.
The appraisal might involve comparing the land's condition to similar real estate, which differs from comparative market analysis that looks at prices of recently sold similar properties.
The position and location of the land directly affect its value. A remote parcel might have low value due to lack of access to amenities, utilities, transportation, or other resources. Conversely, value increases if it's near a city, entertainment venue, or in-demand services.
Important
It's always wise to hire an appraiser, as they examine any flaws or defects in the property that could impact its value.
Special Considerations
Land in areas with environmental risks can lose value. For example, if it's prone to flooding, mudslides, or earthquakes, those hazards might discourage buyers.
The potential for repeated destruction makes it hard to maintain a safe presence on the property. Any improvements could be wiped out in a disaster, and the risks to people there might outweigh any benefits.
Even in a prime location with desirable resources, issues like restrictive covenants could prevent full development or use, such as barring access to oil found on the land.
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