Once a general use overview of the property has been conducted,  focus specifically on valuation. Some or all of these points will have been touched upon in your general review, but the valuation process requires more in-depth analysis with a specific focus on monetary value. Valuing vacant property can be difficult, even for professionals. You’ll want to deternine:

Accessibility Value

• Accessibility is a major factor considered by appraisers when evaluating vacant land. In general, the more ‘frontage,’ a property has, the higher it will appraise. Being visible from the road is especially important to commercial businesses who want their enterprise to be visible to passersby. A landlocked property may only be suitable for limited uses, which decreases its overall value.

Value of Location And Surrounding Properties

• The location of a plot of land factors heavily into its valuation. Land in urban and suburban areas is worth significantly more than rural vacant land. Properties in desirable locations with easy access to jobs, schools, shopping and entertainment appraise for more than similar properties surrounded by fewer amenities.Appraisers may also look at surrounding properties to see how the neighborhood is changing and developing. If a rural area shows signs of population growth, for example, they’d take that into account in their calculations.

Utilities And Improvements Values and Costs

• Running utilities from the nearest public connection to a piece of land can cost thousands–even tens of thousands–of dollars and take months to complete. If a property already has water, sewer, a septic system, gas and/or electric power or rough-ins, it will appraise for a higher amount than a raw, undeveloped plot and cost much less to develop. Be sure that the connections are placed in locations that will benefit your building plan.If the parcel is cleared, has an existing road or driveway, is fenced, landscaped, or has other improvements, it will be more valuable.

Mineral Rights

‘Mineral rights’ are a set of legal rights to explore, extract, and profit from minerals found beneath the surface of a property. They are often separate from surface rights, which grant ownership and control over the land above the surface. 

Mineral rights provisions should be detailed in purchase agreements, in a manner similar to contingencies in home sales. You’ll want to review:

• What Conveys: Mineral types, price, net profit, interests and royalty interests produced from the property, if any.
• Diligence Clause: A ‘stay’ on sale of these rights by the seller during a specified period of time for the  buyer to conduct research. Diligence clauses often include a provision for purchase price adjustment, if necessary, and no-penalty withdrawal from the transaction if title or rights issues are identified.

The combination of the mineral rights and the surface rights is referred to as ‘an estate.’ The way in which estates are held can vary by location, so you’ll want to determine yours.  Types of estates are:

• Unified Estate: Mineral and surface rights are tied together.
• Severed Estate: Ownership of mineral and surface rights can be separate.
• Fractional Estate: One estate owns a portion of the mineral rights.

Important considerations

• Land without mineral rights may have limited investment potential and property use.  Apply your overview research and make adjustments for value, if any are required.
• The owner of a property’s mineral rights has the right explore and exploit minerals below the surface, or grant those rights to others, without having ownership interest in the property. If mineral rights are included, which ones? Some examples are  oil and natural gases, precious metals, sem-precious and non-precious metals, and rare earth elements (Lanthanide series).

Air Rights

Air right lots control parties’ right to construct an improvement(s) in the empty space above an existing property or area of land the constructing entity does not own. Air rights can affect the value and future use of a property, so it’s important to know whether or not they convey and what restrictions, if any, apply.

In the District of Columbia:

• Air rights tax lot numbers start at ‘7000.’ There are approximately 704 air rights lots in DC.
• Non-contiguous Air Rights Lots numbered in the ‘8000’ series are either District-owned multifamily rental units, or EDM (Existing Development Mixed – residential and commercial).
• Multifamily ‘8000’ series lots can be proposed development projects that include the Mayor’s Office Affordable/Public Housing Initiatives. They can be District-owned development sites leased to a developer. Due to financing and legal requirements, each set of government-funded units are required to have separate parcel ID’s (SSL’s). All the units are rentals, none of the units will be for sale.
• Existing Development Mixed Use ‘8000’ series lots are residential owner(s) with ownership of both residential and commercial portions. The Lot split ensures that each party pays the appropriate real estate taxes assessed to each specific use. A master covenant lease outlines property access-rights-use between residential and commercial owner(s) and lease holders. There is also a master lease related to the commercial space where the residential owner is the lease holder. See DC Air Right Lots

Septic, Well And Power

If the property doesn’t have public power, sewer and water connections or capabilities, a feasibility assessment must be made for these systems and costs must be factored into valuation.

• Water: If a public water connection is not available, evaluate the existing well, if one exists, and make valuation adjustments for condition, longevity, etc. If no well exists, the cost of drilling and installation will need to be estimated.  Investigate the depth of wells on neighboring properties as well as the depth of the water table beneath the property. What useage applies to the proposed well? If it is intended for household use, estimate the household size. If usage includes crops and/or livestock, multiple wells may be needed.
• Septic systems: These are the alternatives to public sewer service. There are a number of options, and often the choice of systems is made in conjunction with decisions on water and power. Proximity to roads and building areas must be considered, and drainfields must be rated for capacity and use. Septic systems must include a buffer area separating other lines such as well and water.
• If the property does offer access to public sewer and water, costs to connect will need to be considered.
• Power: Depending on location, access and the process involved, a typical minimum for power installation is $10,000. Consult the associated utility company for proximity to existing power lines, as this will be a primary factor in determining the per foot ccost of a line extension. The utility company should be able to provide a cost estimate for the work. If the lines are only accessible from a neighboring property, you will need to confirm that an easement exists, or obtain formal, recordable permission from the property owner for access.

Special Attributes and Amenities

• Does the property have special attributes like amazing views, or amenities like river or lake access, hiking trails or other recreational potential? These may enhance a property’s value.

Size, Frontage, Shape, Topography and Zones

• These attributes directly affect value since they determine how the property can be developed. Road frontage is key for property with a planned commercial use. Irregular-shaped lots may have less usable acreage than standard square parcels. A hilly property or one with a stream or river that running through it may be more difficult to build on, and more expensive to insure if its in a flood zone, and therefore appraise for less. Properties located in high-risk wildfire zones will also see higher insurance rates and lower appraisal values.
• Of course, size has a major impact on land value. Small lots typically sell at a higher price per acre than large parcels of land, and an appraiser will consider demand for parcels of that size.

Environmental Elements

• These are factors like soil quality, flooding potential, and contamination, which can make a plot unusable for many building projects. Appraisers will research these issues and consult with experts to identify potential issues that could impact construction.
• Environmental studies will determine how safe the land is, and clarify its building options and requirements.

GENERAL

• Is the lot buildable? Restrictions?
• Do any existing liens, rights-of-way, easements, deed restrictions, covenants (including protective covenants), or encroachments apply to the property?
• Any construction is planned on the surrounding land? What are the buildable limits on surrounding land?
• Are there any common attributes shared by neighboring properties?
• Is there a homeowners association with fees and restrictions?
• Are any portions of the parcel designated as wetlands or floodplain?
• Does the site have access to public utilities?
• Is there potable water on the site? What flow rate and water quality?
• Has as a perc test been completed?
• Are the boundaries clearly and accurately marked?

GOVERNMENT AGENCIES

Building Department

• Is the lot buildable? (confirmation)
• Lot lines, easments and surveys
• Trash collection and other services available?
• How many bedrooms are allowed?
• What are setback requirements for houses, porches, decks, outbuildings, etc?
• Where can buildings be located on the lot? Are variances required for my use?
• Restrictions pertaining to outbuildings?
• Is there adequate road frontage or a suitable right-of-way for building?
• Is the road publicly maintained?
• What permits and fees are required for my project, and what are the associated costs?
• Are there impact fees or special assessments?

Zoning and Planning

• What is the property’s zoning district? Does the zone allow your desired use?
• Are there minimum and maximum restrictions on house size, height, lot coverage, etc. in this zone?
• Is the lot in a historic district or similarly protected zone?
• Are you in a Special Zoning District? Are there wetlands or floodplain on the property?
• Was the lot legally subdivided?
• Is it permissable to subdivide the lot?
• What lot coverage is allowed, and how is it calculated? (determines lot coverage for  structures and other improvements)
• Are there any restrictions due to wetlands, flood plains, water frontage,  steep slopes, endangered species, historical or cultural sites, or other issues?
• Any tree-cutting or land clearing restrictions?
• Any other restrictions you should be aware of?

Health Services

• If public water and sewer service is available, what is the total connection cost, including fees?
• Is there a valid, non-expired perc test on record? What type of septic system is permitted? Number of bedrooms Has a septic design been completed?
• If the land is not perc tested, which companies are authorized to perform testing?
• What tests are required (deep hole, perc) and what time of year can a perc test be done in this jurisdiction?
• Does the area have high water tables or poor soils for septic systems? If so, what types of alternative systems are available?
• Are there any known problems in the area with well yield or water quality? How deep are typical wells in the area?

Utility Companies

• Which companies provide electrical power, natural gas, and other utilities to the building site?
• Provide a site map showing the planned location of dwellings, and other structures, whether or not they require connection.

Private Utility Contractors

• Consult an area electrician and plumber to determine if work can be contracted privately at a lower cost.

Telecommunications

• What are the options for Internet and cellular services?
• Costs for setup and monthly services?

Development costs vary significantly by location. Create a detailed estimate, first deciding on methodology;

• Price per square foot (less accurate)
• Line item (requires a comprehensive list of line items)

The estimate should determine total soft and hard development costs for the project:

• Hard cost: Contributes directly to construction of the structure(s).
• Soft costs: Costs that are not hard costs. These can include utility costs, demolition, clearing/grading, other site improvements, broker, evaluation and appraisal fees, and financing costs, among others.

You can download a free spreadsheet from buildingadvisor.com here:

Download Typical Site Development Costs (.xls)

This is very important. Include an appraisal contingency in your offer to purchase.

If the lot or parcel is being financed, the lender will order an appraisal, but if you’re paying cash, or the lender doesn’t require an appraisal, it’s still smart to order one yourself.

The appraiser will visually inspect the  property, assess its location, size and features to determine the property’s ‘highest and best use’ of the land.

‘Highest and best use’ is the most profitable and feasible way to develop a piece of land. Appraisers base this on location, topography, accessibility, and local zoning regulations.

The appraiser will then determine residual land values, potential income if the property is slated for business use, and value of improvements, if any.

Using the Sales Comparison approach, an appraiser will search sold land with the same highest and best use, applying value adjustments for variances in size, location, and any improvements such as grading, access road, utility rough-ins, etc.

Lacking sold comparables, the appraiser will need to evaluate the property survey and residual land value to help determine worth. A land survey defines boundaries and topography of the property, marks road and water frontage, flood plains, and additional features.

The appraiser can take developed comparables that mimic as closely as possible the highest and best use planned by the buyer to arrive at a developed value estimate for the property. From there, the appraiser can arrive at residual land value.

Residual land value is determined by assessing the costs for development based on highest and best use.

For investors, the equation factors in Net Operating Income (NOI) + value of improvements for feasibility analysis and highest and best use. The Dictionary of Real Estate Terms on allbusiness. com uses this example:

“A property generates $10,000 net operating income ($15,000 rent less $5,000 operating expenses). The improvements cost $70,000 to construct and claim a 12% rate of return (10% interest plus 2% depreciation), which is $8,400. The remaining $1,600 income is capitalized at a 10% rate (divided by .10) to result in a $16,000 land value using the land residual technique.”

In short, the residual land value equals the value of the developed property minus the cost of development minus the developer’s profit.

If the property’s HBU is owner-occupied residential, the equation would include the costs associated with developing the land for residential use + the cost of building the dwelling.

Unlike the quick turnaround for residential home appraisals, a vacant land appraisal can take up to a few weeks to complete, longer if an environmental study or other specialized research is required.

The information on this page is compiled for educational purposes and is deemed reliable, but not guaranteed. We are real estate consultants, not appraisers, contractors, developers or experts in land evaluation and valuation. Seek the expertise of licensed, qualified professionals when evaluating vaccant land.