Printer-Friendly
Email this Story
Post a Comment (0)
What determines “market value” when it pertains to vacant land?
Market value for any product has always been a moving target, constantly adjusting. If one where to be selling fruit the highest “value” is when the “crop” is ripe, full of taste, and vitamins. Now if the supply is low, the price is high; when the supply is greater, the push to sell increases and the “market value” lessens. Yes, there is value in the fruit before is matures, but that value is lessened because it lacks flavor. Fruit that is “old,” begins to rot.
Real estate “market value” begins with the price of the land, then adding the costs for the heated and cooled “structure,” unfinished space, and utilities. Just as the farmer must factor-in the price of his land per season, seed, fertilizer, and cropping costs, the residential homeowner must account for many of the same types of items.
To View Fauquier County Vacant Land Sold Information Click Here
To View Culpeper County Vacant Land Sold Information Click Here
“Under all is the land,” is a famous quote from history. Well, we can live in tents on the land, or live in homes. The cost of the land is the second most important factor in the finished equation when it comes to home prices or values. As an example, if Buyer A wants to live in a certain area, they scourer where they wish to live and evaluate prices. If they are going to build, and this includes all builders, they can only allow a certain value to the land; why, because they also have to allow for the “building and carrying costs,” and then keep the total “total price” attractive to the “finished user,” whether that be themselves or others.
Over the last several decades, builders and homeowners use and have used a “3 to 4 formula” to determine land value. In layman’s language, that means that if a parcel of land were to cost $100,000, the finished “product” must be attractively valued at completion between $300,000 and $400,000, thereby using a 3 or a 4 multiplier. Let us “assume” that someone has $350,000 and wants to buy or build a home in our area. (The median home sold price in Culpeper County in 2008 is $242,000 and $309,000 in Fauquier County, thru July 13, 2008). This “$350,000 buyer” decides to build and begins looking for land priced between $85,000 and $120,000. (They do not buy lower due to the fact that if you put a nice home on a cheap piece of land, you end up with an overbuilt or overpriced home for the area.) They do not view land parcels that are available at a higher price because they cannot afford to purchase and build on those types of tracts.
So, what does this mean to the perspective land buyer or land seller? Data, sales prices and the total number of land tracts sold indicates that land, in our area, is declining in “market value” from previous highs. The rate of decline in the value of vacant land prices has accelerated, but it appears to “level-out” in 2009. Of course, these are just projections, but home values have depreciated and land has not gone unscathed. Real estate taxes will increase due to county budgets, the value of “the fruit” lessens, and the money in the landowners pocket evaporates. Owning land to build upon is a great investment. Owning land for an investment will yield a great return, just not until 2020.
Oh yeah, what is the most important factor in determining the value of land…the demand. Culpeper land sales in 2008, 19. Fauquier land sales in 2008, 22. Wow, and there are 55,000 vacant land parcels in Culpeper and Fauquier Counties. Trying to figure out the demand factor…it is low. Lower the price and the demand rises; keep the prices high and the demand will remain low. It is basic economics.
Contact Don Khoury at info@realestatephd.com
You must be logged in to post a comment.