A vacant Land / Raw Land valuation thoughts?

Question

I am trying to estimate the market value of a 2 acre, land locked parcel of land.  It is in the midst of a 20+ acre undeveloped area that is bound on two sides by nice residential developments ( 3 bedroom / 3 bath) brick homes where there is a good deal of new construction activity. I can easily get good comps for the vacant, ready to build, lots in these developments.  But there is not recent sales or listings of undeveloped raw parcels nearby.

Does anyone have thoughts on a decent factor to apply to developed parcels to estimated undeveloped land value?  For example,  if a vacant ready to build 1/4 acre lot is worth $25k or $100k per acre, is undeveloped land nearby that is prime for development worth 10% of the post-development land value? Or more, less?

The land is in the growing southwest Houston, TX area.  Any developers or others on BP with ideas of guesstimates or rules of thumb to interpolate?

Thanks,

Karl

Karl James · Answer

@Justin Tahilramani - I got the 2 acres for a very small amount of cash from an out of state owner that owed some back taxes.  The previous owner inherited the property and didn't want it so they ignored paying the taxes and never took the imitative to try to sell it.  I bought it just before it was going to a sheriffs sale for the taxes.  So, my question wasn't tied a bank loan, etc.  or even access / easement.  The immediate area where it lies is undeveloped and doesn't currently have roads; but, it does have platted, county owned street rights of way through it, including one road easement that runs right in front of my property.  It is property ripe for development.

My question was this:  If a developer were to develop an area of and, say 100 acres - what is typically the ratio of the value of the raw land pre-development compared to the cost for a developer to put in streets, utilities, etc.

In the picture below, the outlined property is mine.  See those small home site lots in the development on the East, South, and West side of that new elementary school - those are about 0.2 acres and selling for about $20k each or $100k / acre.   So, I am wanting to value my 2 acres based on those.  If the price of the developed lots reflects - for example - 50% cost to develop, 25% profit and 25% cost attributed to the raw land value, then I'd ascribe a value of $25k / acre to undeveloped land.  $25k / acre x 2.07 acres = about $50k estimated market value for my parcel.

The above ratio (50% / 255 / 25%) is just made up.  I was hoping folks lie yourself with some insight and experience in the world of residential development might be able to provide real-life ratios.

Thanks for repaying.  I apologize for not providing more details in my original post / question.

Karl

Brent Coombs · Answer

@Karl James, there is nothing stopping you from trying out the market at a high percentage of those similar-sized developed (but still vacant) lots. If the market won't bear that high a percentage, at least you will find out who is expressing any interest, and what percentage they would pay. Let the games begin?...

P.J. Reilly · Answer

With an elementary school so close this looks like a nice property to have!  I'm not sure about the actual value but as a fellow land investor I would hold onto that property.  Eventually someone will want to build and you can collect.

Mike T. · Answer

Land locked land is not worth 0.  Sell it cheap on craigslist with owner financing.  Or create access and seek top dollar.

Justin Tahilramani · Answer

@Karl James - The value of land locked land is $0. No bank is going to lend you money to buy land that you can't access. Not all is lost - you may be able to negotiate an easement by necessity, but I would recommend speaking with a Real Estate attorney in your area.

A vacant Land / Raw Land valuation thoughts?

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