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|Land Value - Land Prices|
How do you define land value?|
The total and complete value of your land, this includes any improvements and/or upgrades to the land itself.
Land Value is typically used for the sale of the land and to calculate capital gain taxes.
Three Popular Ways to Estimate Land Value
The value of the land involves first determining the highest and best use of the site, estimating the value by current appraisal theory, and only then estimating a finalized value for the lot.
The first step in the valuation of land is determining the highest and best use of the site.
The four criteria that highest and best use must meet are: physically possible, legally permissible, financially feasible, and maximally productive. Two types of analyzes are made in determining the highest and best use. The first is the highest and best use of the site, if vacant; the second is the highest and best use of the site as improved, or if undeveloped as proposed to be improved.
There are three standard approaches to estimating market value that form the foundation for current appraisal theory: the cost approach, the sales comparison approach and the income approach.
The cost approach is based upon the principle that the informed purchaser would pay no more than the cost to produce a substitute property with the same utility as the subject property. It is particularly applicable when the property being appraised involves relatively new improvements which represent the highest and best use of the land or when relatively unique or specialized improvements are located on the site and for which there exists no comparable properties on the market.
The sales comparison approach utilizes prices paid in actual market transactions of similar properties to estimate the value of the site. This appraisal technique is dependent upon utilizing truly comparable market or sales data which have occurred near enough in time to reflect market conditions relative to the time period of the appraisal.
The income capitalization approach is widely applied in appraising income-producing properties. Anticipated present and future net operating income, as well as any future reversions, are discounted to a present worth figure through the capitalization process. This approach also relies upon market data to establish current market values and expense levels to arrive at an expected net operating income.
By combining the three approaches you can estimate a finalized value for the lot in question. It is not always possible or practicable to use all three approaches to value the land.
What are land contracts?
A land contract is a contract between the buyer and a private seller of a property, wherein the seller holds the title or deed to the property until all agreed upon payments have been made in full.
The laws that govern land contracts vary from state to state. It is important that the governing laws be consulted to understand the particular rules that control a specific scenario. You may want to consult a real estate attorney just to be sure, before entering any form of land contract.
The property within a land contract may be improved or unimproved, vacant, or a home or a commercial building. A down payment is generally made upfront. Then a series of equal monthly installments are paid until the property is paid for or until a balloon payment is required.
A balloon payment is a lump sum of money that is due on a specific date. Most commonly when the series of monthly payments are due to end.