Real Estate

Increase or decrease in land value?

Tea only The truth in the expression “land will always appreciate because it is no longer being used” is in the last 7 words! The finite supply of land does not even come close to guaranteeing that its value will increase over time. Supply is only one factor to consider when estimating how much any real estate parcel is worth, and not nearly as important as other aspects when it comes to determining the value of land for development.

The urban valuation process begins with several questions. These questions focus on the most profitable use of the parcel, taking into account current zoning and other legal restrictions and any physical limitations on the site. The value is tied to the “highest and best use” of a parcel of land, which is the most profitable use that is legally, physically possible, and economically feasible. Tea utility (utility) of a parcel of land is the key.

Suppose there is only one vacant parcel of land, consisting of 20 acres, which is available in one area. It has a great location and utility lines are down the street. The seller is asking $2 million for it. How much is it really worth? You can’t answer that question until you know some additional facts, such as what uses and development densities are allowed under zoning, how much of the land area can be developed, and whether utility permits are available. In other words, you need to know how the package can be used and the intensity of use that is possible.

Lower future $$$

Time can work for or against land development values. It may bring changes that limit the way a parcel can be used or affect its economic or physical viability for development. State, county, and local governments can enact laws that prohibit or suspend development for a specified period of time to allow a condition to be corrected or a change to take effect. These “moratoriums” can last for weeks, months, or even years.

Suppose the 20-acre parcel is in an area that has been exploding with development. Builders have purchased virtually all available sewer permits. The local government imposes a moratorium and stops issuing further sewerage and construction permits until the existing wastewater treatment plant is expanded or a new plant is designed, built, and put into operation. Development could be put on hold for years because only properties that have sewer permits can be built. The seller would have a hard time finding buyers once the moratorium went into effect because builders wouldn’t be interested in tying up resources on a property they couldn’t use for the foreseeable future.

Just because this parcel is the only undeveloped property left in the entire area doesn’t mean it’s worth a lot of money now or even 10 years from now. If it’s zoned for agriculture, for example, the property probably won’t appreciate substantially over time without a change that allows for profitable development use. Alternatively, the parcel could contain significant areas of natural resources that could not be disturbed or would increase cost to the point that any further development would not be economically feasible. Time is not going to magically make these limitations disappear. The value will not increase substantially over time.

Higher Future $$$

20 acre property could it will be worth a lot of money if it is in an area that has been targeted for growth. A cross-county highway may be in the works as a result of years of planning at the state and county level, and this property would increase in value if it is located in the corridor of the proposed highway. The parcel could be worth a lot five years from now, when the local government updates its master plan and decides that properties in this area should be zoned to allow for more intensive development than agriculture. This change would promote plans for housing developments and major commercial and retail facilities (a regional shopping mall, shopping malls, theme parks, and office campuses), and public services would be extended or expanded to handle the growth expected to occur in this area. Substantial appreciation would occur, not because of the passage of time, but because the highest and best use of the parcel had changed drastically.

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