The value of real estate is determined by a complex set of factors that will vary based on the specific property and the overall market conditions.
Some of the most Important Elements of any Residential, Commercial, Income, Investment, Land Real Estate Valuation include:
- Location: Location is one of the most important factors in determining the value of a piece of real estate. Properties in desirable locations, such as near good schools, public transportation, or amenities, are typically worth more than those in less desirable locations.
- Condition: The condition of a property is another important factor in determining its value. Properties that are well-maintained and in good condition are typically worth more than those that are in poor condition.
- Size: The size of a property is also a factor in its value. Larger properties are typically worth more than smaller properties, but this is not always the case. For example, a small condo in a desirable location may be worth more than a large house in a less desirable location.
- Features: The features of a property can also affect its value. Properties with desirable features, such as swimming pools, updated kitchens, or finished basements, are typically worth more than those without these features.
- Market demand: The demand for real estate in a particular area can also affect its value. If there is a lot of demand for real estate in a particular area, prices will be higher.
- Scarcity: How much is there of it? Relative scarcity is an economic characteristic of a property that recognizes that real estate will be more valuable in areas where land is in short supply. Improvements, permanence of investment, and area preference are also economic characteristics of land.
- Transferability: Can it be sold?
- Utility: Can it be used?
- Economic conditions: The overall state of the economy can affect the value of real estate. When the economy is strong, people are more likely to buy and sell real estate, which can drive up prices.
- Interest rates: Interest rates can also affect the value of real estate. When interest rates are low, it is cheaper to borrow money to buy a home, which can lead to higher demand and higher prices.
- Government policies: Government policies, such as tax breaks for first-time homebuyers, can also affect the value of real estate.
- Sales comps: Your Real Estate Agent should look for recently sold properties similar in size and type to yours to use as a starting point. After running comps, the Realtor will then make adjustments based on the characteristics of your specific property.
Additional elements to consider when valuing undeveloped land.
Rural vs. residential
Both land appraisal and valuing an existing house can be a complex process but there is a difference between rural and residential property values. There are a multitude of factors that your Real Estate Agent must evaluate and give weight to when valuing undeveloped land. Below are some of the main factors that impact Austin-Round Rock land values:
Many landowners possess vacant lots that will someday become the site of a house or building. Real Estate Agents should treat rural tracts of land or farmland used for agricultural purposes differently than they do residential or commercial land. Rural appraisals can be more challenging due to the lack of sales data, which is naturally the result of having many fewer homes than suburban or urban markets,
The Real Estate Agent should consider some of the same factors as residential valuations, but the size of rural land is often much larger, adding extra time and cost to the valuation process. The value will also hinge on things like access, topography, configuration, the farm economy, the quality of the soil, irrigation and drainage, the local climate and rainfall, and any current farming regulations that might limit usage of the land.
To determine whether the owner’s use of land qualifies as “highest and best use,” Real Estate Agents should ask the following questions:
- Is the use legally permissible? Are there any zoning requirements that would limit how the land can be used? For example, if the buyer wants to put in a nursing home or a department store, would those uses be allowed?
- Is the use physically possible? Are the size, shape, topography, and accessibility of the land in line with how the buyer or owner wants to use it? Someone buying the land to put in a waterpark or a racetrack, for example, would have trouble using a hilly, narrow parcel of land without much road access.
- Is the use financially feasible? Is the intended use in line with the properties surrounding it, or would an over-improved property run the risk of being the most expensive on the block? Building a large house with a bunch of expensive upgrades on a street of modest ranch homes might not make fiscal sense.
- Is the use most profitable? For commercial properties, what type of use would generate the most income, based on the buildings surrounding it and the demand among the local population? For example, adding a second movie theater to a community would likely not be as profitable as adding a shopping mall where retail stores are highly in demand.
What factors influence undeveloped land property values?
Accessibility
One of the biggest drivers of a piece of land’s value is the amount of frontage — that is, how much of it is accessible by road. Particularly if you’re selling a larger tract of land that will be subdivided, each municipality may have specific zoning rules that dictate how much road frontage each lot must have..
The more road frontage and the more acres the road touches, the higher the land value will be. For example, if there are 500 feet of road frontage and the land is very narrow and deep and hard to build on, the back acres won’t be worth nearly as much. But a large corner lot with lots of frontage will have much more value.
Usability
The portion of usable space is one of the key factors in farmland values. If you have 100 acres of land, and 50 of it is usable and the other 50 is comprised of gullies and trees that can’t be plowed or cultivated or grazed, the value of the usable acres will be much higher than the rest.
Utilities
A Real Estate Agent should take into account the availability of water, sewer, and electrical hookups for the land. If these elements aren’t available, the buyer would need to bring them in. That project can cost anywhere from $10,000 up to $30,000 or more, depending on the scope and size of the land. Plus, it can take months to obtain all of the permits and complete all of the work.
A land developer may have the option to use a septic system or water wells, but these solutions also cost thousands of dollars. Generally speaking, having power, water, and sewer access at the property line will drive the value of the land way up.
Topography
The topography, or geographical makeup, of a piece of land can have a big impact on its value. For example, swampy land won’t be suitable for building a home, but a buyer might want it for recreational purposes. A Real Estate Agent should examine the land’s physical features — including the presence of mountains, steep grades, rivers, lakes, and valleys — as a means of determining its use potential.
Amenities
Just as a built home comes with certain selling points like a pool or location on a quiet street, a parcel of land can offer certain aesthetic or functional features that make it more valuable. For example, a Real Estate Agent could attribute value to lake access, a fishing pond, a spectacular view, hiking or walking trails, or other desirable elements, as long as they don’t impede on the land’s usability.
Zoning
Most land has been zoned, which means it’s been classified for a certain type of use. The current zoning requirements may limit how a buyer can use or develop a parcel of land, which has a direct impact on its value.
Some of the most common types of land zoning include:
- Single-family residential
- Multi-unit residential industrial
- Light industrial
- Commercial
- Light commercial
- Agricultural
- Schools
Beyond what type of building can be constructed, zoning laws can also control specific construction details, like the height of structures. The Real Estate Agent should consider the zoning when determining the valuation. If the laws are restrictive, they could potentially deter would-be buyers.
Flood risk
Some studies have found that more than 13% of the U.S. population lives in a 100-year flood zone, and that is expected to rise to 15.5% by 2050. If your land is located in a floodplain, the Real Estate Agent should look into how often floods occur and which areas are most prone to flooding. High flood risk can sink the value of vacant land — by as much as 8%, according to some studies.
Environmental factors
A buyer should often order an environmental study prior to closing, as the results have to be disclosed at appraisal. Any hazardous substances or contaminants found in the soil — such as pesticides, radon, lead, or asbestos — can cause land value to plummet. Any wetlands, wildlife, or endangered species will also come into play, as they could impact the ability to develop the land.
Imagining Future Property Values
A vacant piece of land represents a blank slate to build a house, start a farm, put in a sports field, or park a tiny home. How a person could potentially transform or preserve a particular slice of the earth is a lovely, idyllic exercise in dreaming big. That sheer possibility also has everything to do with land value and what the Real Estate Agents takes into account when they make their assessment. Unlike a house appraisal that evaluates what’s already there, a land appraisal imagines what could be.
Demand will affect land value
Sometimes a Buyer may see income potential that the Real Estate Agent might not recognize, particularly if it’s a unique property or if its purpose drives it above the normal land value. An property valuation is nothing more than an expert’s opinion, based on experience, sound data, and thoughtful analysis. Some buyers may have the need, desire, and resources to pay more, and the seller would likely be quite happy to sell for more.
Property Values can be tough to get it right
Property valuation requires unique training and expertise and not all Real Estate Agents have the experience and expertise to value a property. Find a licensed and qualified Real Estate Agent with experience in the Austin-Round Rock area to help meet your future expectations of property value.
Rock Properties Realtors® live, work and office in the Austin-Round Rock MSA, near Cedar Park, Georgetown, Hutto, Leander, Liberty Hill, Pflugerville and Taylor. If you are buying or selling real estate, including residential, commercial property or land, Rock Properties will provide you excellent service based on 20 years of real estate experience in and around Williamson County Texas. Call us at 512-850-4510.