Does zoning increase the value of the land/property?

Question

Hope everyone is having a blessed Sunday. I have a potential deal where the owner is claiming that, because his residential property also sits on commercial zoning, that it should be worth more. Running comps, he is asking way too much for the property and is using that to justify his price. He is a highly motivated seller and needs to sell, but asked for me to see if that would affect the numbers.

Thank you!

Nathan Gesner · Answer

First off, it doesn't matter what value the property has for him. It only matters what it's worth to you. If you don't think it's worth his asking price, don't pay it.

Second, zoning does increase the value because the property has more potential uses. I'm in a small town of 9,500 and my office is a converted residential home just one block from main street and zoned commercial. If I put it on the market today, it would be worth $100,000 more than a comparable home in a residential area. Why? Because the zoning allows for a business or short-term rental and the location is ideal for both. If it were strictly a residential home in a residential area, I couldn't attract commercial buyers or investors looking for a short-term rental, both of whom tend to have more capital and are willing to spend more to get what they want.

Huy Truong · Answer

Hi Nathan, thank you very much for your reply. That makes complete sense to me.

Does zoning increase the value of the land/property?

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