Today, Josh Hall is answering the question “What is my property worth?” or “How much is my property worth?” He outlines how the worth or value of land is calculated. Click on the link below to see if you qualify to receive a free “Broker’s Opinion of Value”. Welcome to the John Hall and Company Selling Land in Alabama series. John Hall and Company has over 35 years invested in selling land in Alabama.
How Much is My Property Worth?
The first question sellers ask is, “How much is my property worth?”. The American Dream is owning a piece of land. Having your own property provides a getaway to the country for hunting, fishing, horseback/ATV riding, gardening, farming, and building family memories.
Consequently, these wonderful memories of activities on the land often make an owner think more highly of their land. Landowners “bake” these great times into the value of their land making it harder for them to set a realistic value.
Creating an accurate estimate of the value of your land is very important for buyers or sellers. John Hall and Company gives an accurate assessment of the value of a property based on objective data.
“Value is only an opinion and that opinion is only as good as the amount of market data and the detail of data available.” -Josh Hall
We have access to hard data like contracts, listings, and closing sales. As a result, our brokers utilize these key data points to arrive at a more accurate opinion of value while making sure the data is truly comparable.
Appraising land is more difficult to value as opposed to residential listings. This is due to the lack of availability of sales and listings data. 80% of all residential sales are inputted in a multiple listing service (MLS) and the data is readily available to the public. Land transactions are not usually included in the MLS. The most important sales data is scattered amongst land brokers and consultants. That is to say, it is difficult and time-consuming to collect this data.
Here are a few ways to start gathering additional data:
Step 1: Ask The Right Questions Of Your Property
The first step to understanding what your property is worth is accurately assessing all of the important economic and physical attributes of your property.
I am often asked,
What is the land going for around here?
My immediate response is,
What type of property is it? Is it crop land, pastureland, wooded land, timberland, cutover land, turnkey recreational land, etc?
Where is the land located?
What do the surrounding properties look like?
These questions help clients to see that not all rural land is the same.
Step 2: Assess Land Market Value of Your Property
The second step to assessing what a property is worth is gathering sales and listing information of a similar property. Sales of similar property should follow this definition of “market value” set by the US Federal government for Financial Institutions.
A definition of “market value” is below:
The most probable price which property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably and assuming the price is not affected by undue stimulus.
In other words, when looking for comparable sales in order to arrive at an opinion of value the comp sale should be “normal”. However, some properties are outliers. The following examples are not typically a good comparable sale:
- Forced sell due to a court order or a bank foreclosure
- Adjoining property owner paid a premium because it was a neighboring property
- Owner offering below market financing (say 0%)
- The seller accepting the first offer they received while not exposed to the open market
- Parties involved in the transaction being uninformed, such as a party did not know the true timber value, the property was contaminated, or had a WRP easement attached.
Certainly, sellers would benefit from adjoining landowners paying a premium for their land, but this is rarely the case.
Step 3: Define Characteristics of Your Property
Fourthly, to determine what property is worth we would research the transactional and property characteristics and compare them to your property.
Transactional adjustments include:
- Property rights conveyed: Do all rights go with the sale, mineral, surface, timber, etc?
- Financing terms: Were terms normal or favorable due to owner financing?
- Conditions of sale: Normal sale or not, the buyer could have paid a premium because they were on the backside of a 1031 exchange or maybe the sale was to a family member for a discount.
- Expenditures made immediately after a purchase: Did the purchaser pay a commission, or did the purchaser have to buy access or clear a title problem after the purchase?
- Market conditions (change in value over time): If the sale is a year or two old, has the market changed?
- All of the above have to be known, considered, and adjusted as it compares to your property.
Property adjustments include differences in:
- Location: Area or neighborhood differences and proximity to major cities or major interstates.
- Physical characteristics: access, topography, interior road system, flood zones/ wetlands, size, the shape of the site, improvements on the property.
- Economic characteristics: CRP rent, timber leases, hunting leases, surface or mineral royalties, or amount of timber.
- Non-realty components of value: Land transactions often include personal items such as tractors, ATVs, trailers, or furnishings to name a few
Understand each sale used as a comparison to your property is vitally important. This process draws a credible conclusion in understanding what your property is worth. The more sales and listings which are available increases the credibility of the opinion. Also, having the sales data is the first step to know what your property is worth. However, accurately analyzing the data is equally important. A business analyst once told me
“Just because you have the recipe, doesn’t make you a good cook.”
Step 4: Evaluate Market Shifts Around Your Property
Lastly, when calculating the worth of your property know that market changes are not linear. The market goes up and down. It is like a wave in which there are troughs and crests within the rise and fall of overall land market movement. If your property is listed at the same time many similar properties like yours are listed, it could a trough moment where the supply exceeds demand. Vice versa, your property could experience a crest moment where demand exceeds supply if yours is one of the few listed properties for sale at the time. In addition, the number of listings also needs to be reviewed in light of comparable sales.
How Much is My Property Worth?
Over the years, I have seen many investments not optimized and undervalued. In part, due to the seller not wanting to pay a knowledgeable broker or consultant prior to selling their land. I have been guilty of doing things myself and not hiring an expert to do the job to save a dime. In most cases, I end up wasting my time and losing money. My advice is to keep your day job and do what you do well. When selling your land, hire a professional broker or appraiser to help you with pricing your land. Hire a professional broker to show your property to a wider and more targeted market of buyers in order to maximize the return on your years of investment.
In conclusion, if the process of collecting data and researching properties concerns you, we help future clients who are serious about selling land by doing a free Broker’s Opinion of Value. Click here to learn more about our free “Broker’s Opinion of Value” we offer future clients.
– Josh Hall, MAI