Real Estate

Increase or decrease in land value?

Tea only The truth in the expression “the land will always appreciate because it is no longer being used” is found in the last 7 words! The finite supply of land does not even come close to guaranteeing that its value will increase over time. Supply is only one factor to consider when estimating how much any parcel of real estate is worth, and is not as important as other aspects when it comes to determining the value of land for development.

The urban valuation process begins with several questions. These questions focus on the most profitable use of the parcel, taking into account current zoning and other legal restrictions and any physical limitations of the site. Value is tied to the “highest and best use” of a parcel of land, which is the most profitable use that is legally, physically possible, and economically feasible. Tea utility (utility) of a parcel of land is the key.

Suppose there is only one vacant parcel of land, consisting of 20 acres, that is available in an area. It has a great location and the utility lines are down the street. The seller is asking $2 million for it. How much is it really worth? You can’t answer that question until you know some additional facts, such as what uses and development densities are allowed under zoning, how much of the land area can be developed, and whether utility permits are available. In other words, you need to know how the package can be used and the intensity of use that is possible.

Future Lower $$$

Time can work for or against the developmental values ​​of the land. It can bring changes that limit how a parcel can be used or affect its economic or physical viability for development. State, county, and local governments may enact laws that prohibit or suspend development for a specified period of time to allow a condition to be corrected or a change to take effect. These “moratoriums” can last for weeks, months, or even years.

Let’s assume that the 20-acre parcel is in an area that has been exploding with development. Builders have purchased virtually all available sewer permits. The local government imposes a moratorium and stops issuing further sewer and construction permits until the existing wastewater treatment plant is expanded or a new plant is designed, built and commissioned. Development could be put on hold for years because only properties that have sewer permits can be built on. The seller would have a hard time finding buyers once the moratorium went into effect because builders would not be interested in tying up resources in a property that they would not be able to use for the foreseeable future.

Just because this parcel is the only undeveloped property left in the entire area doesn’t mean it’s worth a lot of money now or even 10 years from now. If it is zoned for agriculture, for example, the property likely will not appreciate significantly over time without a change that allows profitable development use. Alternatively, the parcel could contain significant areas of natural resources that could not be altered or would increase the cost to the point that any development would not be economically feasible. Time is not going to make these limitations magically disappear. The value will not increase substantially over time.

Future Superior $$$

The 20 acre property could it will be worth a lot of money if it is in an area that has been targeted for growth. A cross-county highway may be in the works as a result of years of planning at the state and county level, and the value of this property would increase if located in the corridor of the proposed highway. The parcel could be worth a lot in five years, when the local government updates its master plan and decides that properties in this area should be zoned to allow for more intensive development than agriculture. This change would promote plans for housing developments and major commercial and retail facilities (a regional mall, malls, theme parks, and office campuses), and utilities would be extended or expanded to handle the growth expected to occur in this area. area. A substantial appreciation would occur, not because of the passage of time, but because the highest and best use of the parcel had changed drastically.

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