How Much Is My Land Worth?
In my experience with land valuation, I have learned that once you have reliable data to build your land value estimate, then calculating how much your land is worth is basic math. Where things turn into more of an art is in pricing your land for sale. To do this accurately, you must have access to current and reliable data and understand market influences as well as human psychology. In this article, I will show you how to calculate the value of your land, how to price it accurately for as quick and lucrative a sale as possible, and help you answer the question… “How much is my land worth?”
- Land Value Estimator Tool – Land Values by Zip Code
- How To Find Out The Land Value Of A Property
- What Is My Estimated Land Value Via The Cost Approach?
- How To Price Land For Sale – How Listing Too High Is Costing You Money
- So, How Much Should I Sell My Land For?
- Sometimes You Just Have To Be Patient
- Land Valuation FAQs
- How To Value Land In 2023
- Free Land Value Calculator
Land Value Estimator Tool – Land Values by Zip Code
How To Find Out The Land Value Of A Property
It is important to understand that, “Land is worth what someone is willing to pay for it”, meaning, the best indicator of what a piece of land will sell for is what similar properties have sold for recently. In this comparison approach to determining the market value of land, it is important that you have two sets of data, comparable sales and area sales. Comparable sales are properties like yours that have sold in your specific area. Area sales are those of properties in your specific area that are not comparable in every way.
What Data Do I Need For A Land Value Estimate?
To be sure you are pricing accurately, you must have recent, reliable comparables and know how to decipher them. I invest a significant amount of money every year to give me access to the most reliable nationwide land sales data you can get your hands on. Once you have the data, you must dig deeper to determine what the difference is between the highest per-acre sales and the lowest. How recent was the sale? Were these arm’s length transactions? Meaning, was this a property sold retail or was this something sold to a family member or sold partly in trade, etc? Many variables can influence the sales data, so understanding how to decipher a large volume of sales data and find a median price is important.
Because land is often remote and almost no two pieces are exactly alike, even with the best sales data there are still times when we are unable to find many true comparable or even area sales. In these situations, another option for determining the market value of land is the cost approach.
What Is My Estimated Land Value Via The Cost Approach?
In the cost approach to land valuation, I like to envision the components of value like a 4 layered cake. The first layer of value is comprised of natural resources below the dirt such as minerals, oil, gas, hydrocarbons, gravel, etc. The second layer is the actual soil or the underlying acreage itself. The third layer is made up of the natural resources above the dirt such as water, timber, orchards, etc. The 4th layer is the man-made improvements such as homes, outbuildings, fences, utilities, roads, ponds and lakes, wells, hunting stands, and irrigation pivots.
Sometimes you must use a hybrid approach to determine the value of an individual component. When I begin determining how to find out the land value of a property (the dirt) it is helpful to understand how to take an area sale and decipher the land’s contribution to its sale price. For example, you may own 200 acres of recently clearcut timberland without any improvements. Your neighbor recently sold his 200 acres, but this land is comprised of various ages of merchantable timber, a cabin, and a barn.
As you can see, your neighbor’s property is an area sale, but not a comparable sale. His property will skew to a higher cost per acre due to the resources (timber) and improvements (cabin, barn) that are there. The data from his sale is important to consider, however, because the underlying dirt between your land and his are very similar. If you know what his resources and improvements are worth, you can subtract these from the sales price to help you determine what your land (dirt) value is.
Once you know your dirt value, creating a land value estimate is as simple as valuing each “layer in the cake”. It can be very time-consuming, but you must research the going rate for the individual components of value at their given age. Once you have all of this data, add them up to answer the question “how much is my land worth?”
How To Price Land For Sale – How Listing Too High Is Costing You Money
The last thing anyone wants to do is sell their land for less than what someone would pay for it. While this is understandable, if you price a property too high there are many negatives that can cause you to do just that. Let’s dive into some of the issues with listing your property too high.
Time On Market
The time your property spends on the market for sale can affect its sales price. If 2022 trends continue, it is likely that we will see rising interest rates throughout the year 2023. Every interest rate increase means an individual buyer using financing can spend less. By not selling your property as quickly as possible, time on the market can erode your market value.
Another way that time on the market can affect your sales price is through negative buyer perception. In my land sales experience, one of the most frequently asked questions I get is, “how long have you had this on the market?” The longer that property stays on the market, the more doubts it raises in each buyer. Many assume that is priced too high, or something is wrong with it, and it makes them much more apprehensive to fall in love with the property.
Imagine if you saw a property hit the market, set up a showing, and when you arrived there were two other parties looking at it. How would that make you feel? I would be apt to think and move faster and wouldn’t even consider trying to negotiate on price for fear of losing out to the other interested parties.
Now imagine you find a property, and see that it has been listed for sale for over a year. How would that make you feel? In addition to being more skeptical, you might also assume that you have more negotiating room because the buyer might be ready to get this over with, or that it is priced well over the market.
The Time Value Of Money
What you are going to do with your money is another way pricing your property too high can cause you to lose. It’s not always about how much money you make on this transaction, it’s about what that money would be doing somewhere else. Trying to squeak every dollar out of the land sales transaction can cost you valuable time with that money deployed into another endeavour. This is especially true in a declining economy. Consider what you’ll do with the money once the sale is complete when considering your pricing and you may find that a quick sale will benefit you more financially than a longer sale that may or may not net you more cash at closing.
Lack of Interest
A big part of why land professionals exist in real estate is because we are passionate about the land itself. We love the natural resources on the land and enjoy seeing a piece of land responsibly managed and improved for the next generation. This is an important quality to look for in a realtor, especially in land, because for those of us who live the land owner lifestyle, we can better articulate to buyers the value each property has.
When a property is priced accurately, even if it is above the average price per acre in an area, I can confidently show why it is priced that way by showing potential buyers the value of each component. When a property is priced above its actual value, the issue becomes that the buyers don’t even reach out to me. If people like your property but feel it is priced too high, they aren’t going to make you an offer well below that number. They are going to move on and look at other properties rather than potentially insult you with what you might consider a lowball offer. In my career, I’ve sold 93% of the properties that I have listed for sale, and I can tie every one of the 7% I have not sold back to improper pricing and lack of motivation to correct this problem.
So, How Much Should I Sell My Land For?
My advice to landowners is to price their property accurately and negotiate very little. In general, most land sells for 3-5% of its asking price when priced accurately. It is rare, but in instances where I am unable to find reliable or recent comparable sales or area sales to help me build a land value estimate I am confident in, we may inadvertently price a property above what the market says it is willing to pay. In these instances, it is important to watch your data on the number of interested buyers you have over the first 30-60 days. If you have a lot of shoppers but no queries on the property, it is likely a price issue. This doesn’t always hold true however, that is why it is important to work with a land sales professional who is tracking this data for you and helping you interpret it if you are unfamiliar with the metrics. Ask any prospective land sales professionals you are considering to provide you with examples of the data that they will report to you and at what intervals. Have them show you what this data means and how they will advise you make changes based on this data.
Sometimes You Just Have To Be Patient
The velocity of land sales in recent years has many landowners thinking that their property should sell very quickly. Recently, the average time on the market for accurately priced properties has been much lower than historical averages. That being said, in our current environment, you will likely see properties spending more time on the market. So let’s learn when you don’t need to drop the price and just be patient for the right buyer.
If your property is being effectively marketed and advertised online, there will be more than enough interested buyers. You should have your property marketed and advertised globally, as many buyers are purchasing land in the United States from all around the country and even abroad. Buyers from areas of the country where land prices are much higher may see your property as a bargain whereas locals, “just can’t believe land is selling for that” because they remember when it could be had for less.
In addition to aggressive marketing and advertising online, you should be sending direct mail to all of the neighboring landowners announcing your sale. This doesn’t just mean bordering landowners. You need GIS professionals to help you determine all of the landowners in your area and their addresses and you need to make a compelling postcard to send to them.
Along with these pieces of promotion, working with a land sales professional should tap into not only his or her network of buyers but also a network of other land sales professionals who also are currently working with buyers. I aggressively advertise my listings to other brokerages just as much as retail buyers. Lastly, you should have professional photography, interactive drone land touring technology, and well-written property descriptions that can intimately communicate your land’s worth to potential buyers. If you have all of these things in order and the data suggests it, you may just need to be more patient and wait on the person who sees your property for what it really is.
Land Valuation FAQs
How Much Is My Land Worth To A Developer?
Another question I get a lot from landowners is, “How Much is my land worth to a developer?” An example of this is tillable farmland turned into residential lots. Tillable acreage in your area may sell at a given price per acre, but residential acreage on that same dirt will sell for way more! The common mistake I see is that many landowners see residential acreage prices in their area and assume they can multiply that number by how many acres they own.
They forget that how much a developer is willing to pay for the property is very dependent on current market conditions, how much infrastructure they need to put in, how many lots they will be able to subdivide from your parcel, etc. Every piece of land is unique so it must be determined on a case-by-case basis. A developer needs to be able to buy your land, develop it, and sell it to someone at a profit.
Should I Include My Equipment In The Sales Price?
Many landowners are selling properties where they have acquired a significant amount of equipment that they use to manage the property. I’ve been a part of sales where tractors, implements, UTVs, treestands, tools, portable corrals, skid steers, and many other items have been negotiated into the sale. Many landowners want to value and include these items in the cost of the property. This is a bad idea for several reasons.
One, buyers may already have either their own stuff or just not want yours. Two, by including the cost of these items in the list price of your property, you are raising the price per acre in comparison to properties that did not sell equipment. This can push your listing into being listed too high for the market. The bottom line is to get the buyer on the property first with accurate pricing, then mention that all of the equipment is for sale separately if they wish to buy it.
How To Value Land In 2023
In my opinion, land valuation is the most challenging and critical step in getting your property sold. Done properly, it can result in what may seem to be an effortless sale. Done improperly, it may result in what might seem like an arduous process or worse, may cause your property not to sell at all. I take each land value estimate very seriously and while I wish it were easy, the reality is that it is not. I am confident that if you follow the advice above, you will be well on your way to pricing your property accurately and selling it quickly if you wish. If you would like to know “how much is my land worth,” take a moment to use the free land value estimator I have created below and I will happily get back to you with a price opinion.