Understanding this process is essential for making informed decisions when selling your land. Let’s check what influences the prices of your land.
Here’s what we’ll cover:
- What Is Land Value
- What Affects Land Value
- How To Determine Your Land Value
- Land Value Based on Comparison Approach
- Land Value Based on Income Approach
- Land Value Based on Cost Approach
- Common Mistakes to Avoid When Pricing Land
- Know Your Land’s Value and Move Forward with Confidence
What Is Land Value?
Land value refers to the worth of a property based solely on the land itself, without considering any buildings or improvements. It differs from site value, which accounts for factors like road access, utilities, and legal conditions such as leases or mortgages. Understanding land value is essential for real estate transactions, tax assessments, and zoning regulations.
What Affects Land Value? Key Factors to Consider
When determining the value of your land, one of the factors that most often comes into play is the location. Land near growing cities, schools, commercial centers, and public transportation hubs tends to attract higher offers. In contrast, rural or isolated properties—especially those lacking water, electricity, or road access—often sell at reasonably lower prices.
It's important to have realistic expectations. Market demand, zoning regulations, and upcoming developments can all influence pricing. Understanding what affects land prices may help you make informed decisions.
Imagine you own two parcels of the same size:
- The first is in an up-and-coming neighborhood, close to schools, shopping centers, and major highways, with essential utilities readily available.
- The second is in a remote rural area, far from any services, infrastructure, or potential buyers.
The difference in land value between these two properties would be substantial, as accessibility, infrastructure, and proximity to economic activity may be key price drivers.
Now let us analyze a more complex scenario. Imagine two parcels, same size, same city, only block from each other:
- The first property has access to City Water and Sewer
- The second property has access to City Water, but not to City Sewer.
The difference between these two properties may be substantial as well. One must determine if the city or municipality allows for construction through a septic tank, if so the cost of the septic system must be subtracted from the value of the first property, and determine the value of the second property.
Another crucial aspect is zoning and land use regulations. Land value fluctuates based on how the property is designated for use—residential, commercial, or agricultural:
- Residential Land: Typically higher in value if zoned for apartments or high-density housing rather than single-family homes.
- Commercial Land: This may command a higher price if located in high-traffic areas or business districts.
- Agricultural Land: While may be generally lower in value, farmland in urban expansion zones is in high demand and appreciating.
According to the 2024 Land Value Summary, farmland prices have been increasing due to demand outpacing inventory, despite challenges like water regulations and fluctuating commodity prices.
Beyond location and zoning, the physical characteristics of your land also play a role in valuation.
- Size & Shape: Larger, well-proportioned parcels often fetch higher prices, while irregular-shaped lots can be harder to develop.
- Topography & Soil Quality: Flat, buildable land is worth more than rocky, sloped, or flood-prone terrain.
- Utilities & Infrastructure: Access to electricity, water, sewage, and roads significantly boost land value.
How to Determine Your Land’s Value?
When estimating land value, there is no single definitive price, but several methods may provide insights into its worth. Each approach considers different factors that influence pricing, helping property owners understand what contributes to valuation.
There are three primary land valuation methods, each offering a distinct perspective. While no method is entirely precise, they offer useful benchmarks for assessing a property’s potential value.
1. Sales Comparison Approach – A Market-Based Estimate
The Sales Comparison Approach, often referred to as "comps," evaluates recent sales of similar land parcels in the same market area. This method reviews price variations based on:
- Size
- Zoning & Land Use
- Road Access
- Surrounding Development
This approach depends on the availability of comparable sales, which may be limited for vacant land transactions.
Example Using the Sales Comparison Approach:
- A 2-acre lot recently sold for $50,000.
- A 1.5-acre lot with better road access may be estimated between $40,000-$45,000, adjusting for location advantages.
2. Income Approach – Estimating Value Based on Revenue Potential
The Income Approach assesses land value by analyzing its revenue-generating potential. This method is often considered for:
- Farms and agricultural land leased for production.
- Hunting leases, parking lots, or commercial land rentals.
- Timberland or properties with mineral extraction rights.
- Commercial use land can be assessed by the amount of leasable sqft.
- Multifamily, can be assessed based on the density allowance, calculated in # of doors, and the rent each would generate
Formula for Income-Based Valuation:
Annual Income ÷ Capitalization Rate = Estimated Land Value
Example Using the Income Comparison Approach:
- A farm generating $20,000 annually, with a 5% capitalization rate, might be valued at $400,000 using the formula:
$20,000 ÷ 0.05 = $400,000
3. Cost Approach – Assessing Land Based on Infrastructure
The Cost Approach evaluates land by considering the cost of replacing existing improvements while factoring in depreciation. It is often applied to:
- Properties with infrastructure, access to power, city water or public sewerage system, elevation conditions, types of soils, road conditions, access to the highway system, construction restrictions, bylaws, or dues to development districts.
- New developments where land improvements influence valuation.
This method may not be suitable for raw, undeveloped land, as there are no improvements to assess.
The formula for the Cost Approach:
Land Value = Cost of Improvements – Depreciation
While these methods and formulas can help you estimate the value of your land, it's important to consult with experts for a more accurate and realistic assessment based on market conditions.
Common Mistakes to Avoid When Pricing Land
Many landowners make mistakes that may delay the selling process or result in missed opportunities. Here’s what you need to watch when determining the value of your land.
One of the most common mistakes is relying too heavily on online valuation tools. While these may provide a general idea or set an expectation, they may lack accuracy, especially in areas with fewer land sales. Another frequent mistake is overpricing due to personal expectations. Many landowners assume their property is worth more than the market suggests, often because of sentimental attachment, speculative development potential, or misleading list prices from similar properties.
Instead of pricing based on emotion, it’s best to research actual sold prices of similar properties and adjust your expectations accordingly.
Landowners also tend to overlook the ongoing costs of holding onto land, which can quickly accumulate and eat into potential profits. Even if you’re not actively using the land, you are still responsible for property taxes, HOA fees (if applicable), and liability insurance, all of which may increase over time. Additionally, in some areas, counties require landowners to maintain their property to prevent overgrown vegetation or code violations, which could lead to fines if neglected.
If your land remains unsold for too long, these carrying costs can add up, making it more expensive to hold onto the property than to price it competitively for a faster sale. Factoring in these expenses when setting your price can help you make a more informed decision and avoid long-term financial strain.
By considering both economic conditions and property-specific characteristics, you can confidently assess the true worth of your land. Whether you choose to use valuation formulas yourself or seek expert guidance, having a clear understanding of these factors ensures you make informed decisions.
Know Your Land’s Value and Move Forward with Confidence
Thinking about how to sell land? UNITY makes it easy to get started with a secure and hassle-free process — and if you want a deeper understanding of how to sell land, we’ve got a complete step-by-step guide ready for you.
