My argument when a seller says the land is assessed as $X...

5 Replies

Hi, I've come across a few sellers, who when I give them an offer and it's low because their place is a wreck, they reply, "Well, the land alone is worth $X."  What is my retort?

In conversations with others, could my argument be, "The land may be assessed at that number, but assessments are almost never in sync with the current market."

OR

"The fact that your house needs so much work actually lowers the value of the land."

Is that last one accurate? Any other ideas you have on this would be great! Thanks!

The only instance I can think of where a building's presence would lower the value of the land to an investor is if the building was in such bad shape it had to be demolished.  If that's the case, the purchase price might be LandValue - DemolitionCost. 

Otherwise, I would think the presence of a structure always increases the value of the land.

Originally posted by @Brian Huber :

Hi, I've come across a few sellers, who when I give them an offer and it's low because their place is a wreck, they reply, "Well, the land alone is worth $X."  What is my retort?

In conversations with others, could my argument be, "The land may be assessed at that number, but assessments are almost never in sync with the current market."

OR

"The fact that your house needs so much work actually lowers the value of the land."

Is that last one accurate? Any other ideas you have on this would be great! Thanks!

 First one is generally true. 

Second one generally isn't true, but could be in that neighborhood for that house. 

I would use this simple example.

Picture a vacant piece of land right next to the piece of land & property you are considering.  What is the value of that vacant land?  Maybe/Possibly something close to the assessed value, as that vacant land can be used for numerous uses.  For argument's sake, let's say that the assessed value is $10k and say that a reasonable person would pay $10k for it.

Now, consider that adjacent parcel of land, which is the same size & dimension, and has a building/structure on it, and further assume that the building/structure is condemned by the city and needs to be demolished.  For simplicity, assume that it costs $10k to demolish.  How much is this second parcel worth in its "as is" condition?  Most people would say, in its "as is" condition, it is worth $0 ($10k - $10k).  That land is not usable until the building is demolished, so in its "as is" condition, it is effectively worthless as it has virtually no utlilty.

Remind them that a house is worth what someone will pay for it...not a penny more.  It doesn't matter what an appraiser thinks it's worth, what an agent thinks it's worth, what the owner thinks it's worth, etc.  Only what someone is willing to pay for it.


Technically, since Investors are suppose to be educated - more so than the seller - in most cases, you should have a presentation that expresses the answers to not-yet-asked questions like that.

When Investors valuate a deal, one usually know what in-fact the land value is in the property's current condition and has that written down somewhere in their offer presentation (of course I am assuming Investors use such a presentation in the first place). They also come prepared with the latest Tax Assessor Report that breaks down the land and building values as further evidence of justification for the offer.

Then they have the Building value in as-is condition based on supporting comps ascertained through industry Appraisal or BPO standards to present to the Seller as well as the repairs the property requires being pointed out during the walk-thru with the Seller.

The explanation of both is important to discuss so as to make the Seller aware that you are aware of the value of the land and the building based on your experience and expertise and furthermore have provided the Seller with the facts used in your determination.

So long as you're not trying to get one over on the Seller, or use the old rules of 60-65-70%, then you should be able to negotiate a fair deal for all. I assume you tell them you are an investor and this is your Business...and of course Businesses should make a profit...so once you explain that, then all usually goes well. If you forget to mention this is how you feed your kids, then a low-ball offer holds no validity to them in the first place.

Honesty is the best policy...otherwise you come off looking and sounding like a crook!

If the profit margin isn't in your wheelhouse, and you believed you offered a fair deal, then simply move on. This is an emotionless business...simply numbers, relationships and mutual respect and sometimes you have to walk away from deal in order to get the deal in the long run after the Seller talks to other unprepared, uneducated, ignorant, greedy Investors offering even lower numbers than you did. K.I.S.S.

BTW, if you were offering less than tax record land appraisal, one has to wonder why (unless it was a demo of course)..lol

Good Luck!

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