How do you place value on a property that can be subdivided?

Question

Hi everyone,

There is a parcel of land that is pretty much in between a bunch of other subdivisions.  The parcel is 5 acres and has a small house on it and most likely a few trees that would need to be cleared.  The house has been vacant for 2-3 years now.

XXOOOXXX
XXXXXXXXX
XXXXXXXXX

Each X represents a subdivision. The second 2 O's represent 2 parcels of land that haven't been developed yet. (well they have 1 small house on each one) The first O is a very large, very nice house, that is on the market for $1.3 M.  Most if not all of the X's have house values, that are already sold, for 250k-425k.  Most of them are in the $300k range.  Each x represents 6-8 houses.

Here is how the parcel I am looking at is described.

Short plat approved for 8 9000+ sq. ft. lots. Already vested under prior storm water regulations.

How do I place a value on this lot?

Ned Carey · Answer

You value land by what it's highest and best use is. That takes into consideration Zoning, environmental issues and demand for that type of property.

Once you now what is the most valuable thing it can be, you need to figure the value after that is build and fully stabilized. Once you have the full end value, you work backwards. What would it take to get this property there?

Subtract the cost to develop from the end value. What is left is profit and land value. Subtract from that number what kind of profit a developer would want. What is left is the land value.

This can be a complex calculation. If you know that it will be homes built there, that will short cut the process somewhat. I believe typically land is worth about 20-25% of the value of the home.

I don't touch land becuase of the complexities. If I was to do a deal I would negotiate an option contract and then take it to auction.