'How to comp land' is a crucial skill for real estate investors, developers, and anyone looking to buy or sell vacant land. Finding the market value of land can be more challenging than you might think. Why is that? Often, there is simply a lack of good data to work with on vacant land.
However, by following a systematic approach and leveraging the right tools, you can get very close to determining the value of a property. In this step-by-step guide, I'll walk you through the essential steps to comp land effectively.
Key Steps at a Glance
- Clearly define the property type.
- Leverage online real estate platforms for comparable properties.
- Identify the most similar properties to your parcel regarding acreage, zoning, accessibility, and unique attributes.
- Dive deep into the specific features of each comp, evaluating accessibility, topography, utilities, and environmental factors.
- Assess the land's value based on its proximity to essential amenities, economic hubs, and desirable natural features.
How do you find out the land value of a property?
Before we get into the steps, let's discuss real estate valuations and why we must use different valuations for vacant land than for houses. Real estate appraisers assess real estate values using three primary methods, often employing at least two for accuracy:
- Income Approach: This method estimates potential revenue from rents or leases based on market rates for similar properties, considering factors like size, location, and amenities.
- Cost Approach: Here, the appraiser calculates the cost of reconstructing the property from scratch, considering current material costs and land value and subtracting depreciation.
- Sales Comparison Approach: This involves comparing the property with similar recently sold properties in the area to determine a competitive market price.
Challenges with Determining the Value of Vacant Land
Valuing vacant land poses unique challenges, as it typically lacks regular income and substantial improvements. This makes traditional appraisal methods like the income and cost approach unsuitable (with some exceptions, like farmland).
We'll use the sales comparison approach. Running sales comparables (comps) can be easy in some areas, like booming suburbs. However, in rural areas or with unique pieces of property, you'll often find there are only so many comps to work with. We'll have to accept some level of 'ballpark' valuation in these situations.
Ok, let's get to the steps!
Step 1: Identify the Property Type and Location
To begin the land valuation process, your first task is to clearly define the property type and assess its location.
Classify the Land
Determine whether the parcel is raw land, a site prepped for development, or a plot with existing structures. Each category has unique attributes that affect its value. Determine how the land is zoned and who owns the land. Is it farmland, commercial, or residential vacant property?
Leverage Local Resources
To determine the zoning and other relevant information, like taxes and ownership details, I recommend checking out the county's property records. If you want to get this info, search "county name" property records. Or try "county name" GIS. Often counties have very useful GIS maps that link to the property records.
Each county handles its GIS and records differently; some are very organized and useful, while others are like using a website from the 90s. Before moving onto step two, make sure you've captured:
- Assessor's Parcel Number (APN or unique identifier)
- Zoning of the property
For my example, I'm going to comp a .25 acre infill lot in Cape Coral, Florida.
Step 2: Comping Vacant Land with Redfin or Zillow
Online real estate platforms are a goldmine of information that can streamline your land valuation process.
Choose the Right Tool: Websites like Zillow and Redfin are go-to resources for detailed property data. Redfin's user-friendly interface and robust search filters make it a top choice for land comps. We'll use Redfin for our Sales Comparison Approach (running comps!).
Head over to Redfin to start your search. The parcel you're trying to determine value for may or may not have an address. Don't worry if your parcel doesn't have one. You can use the address of a neighboring house for your search. Use Google Maps to find the address of the nearest parcel.
I've added the address of a vacant infill lot to start my search (you must use an address, zip, county, or state in RedFin. Results aren't the best for trying to search APNs).
Click search, and on the next page, you’ll get the property details:
On the property details page, click the map I circled above. On the following map page, click on the nearby homes for sale.
Ok, now we're getting somewhere. We've got our area in focus and are ready to find comparables to our property. Here's how, working left to right with the filters:
- Change For Sale to Sold. Next, select the time frame. I prefer to work with the newest comps, so pick 3 months for now (in rural areas or areas that don't have much current development, you will likely need to go further out than 3 months).
- Change Home Type to Land.
Next, click all filters so we can filter for parcels similar in size to ours. Scroll down to the lot size filter. You can also adjust any other filters here, but the most useful for vacant land is sold within lot size. I'm looking for comps of about .20 acres, so I'll set my from 8,000ft to .5 acre to catch any edge cases.
Click 'see homes,' and Redfin will return results for all parcels of that size sold within the last three months for the map area.
As you can see, Redfin returned four properties sold within the last three months. Two of the comps are very similar to my property and provide the needed price information I'm looking for (provided they match up in buildability and other metrics). I would probably stop here because these are very recent and nearby comps. It doesn't get much better than this!
However, you might be in a situation where no similar comps were returned in your selected area over the last three months. No problem! Here's what you do:
- Change the 'sold within' filter to six months. Still no good comps? Change it out to one year. In very rural areas, you may need to go two years out. However, with the recent surge in land prices, be cautious about using comps that far out.
- Zoom out, one click at a time, until you get some relevant comps.
I changed my filter to one year and zoomed out two clicks:
Now, I have many comps to work with. However, the first two are still the best for my situation.
Do you want to download all these comps into a spreadsheet to average the prices and lot sizes? Or save all the links for later? Or view the price trends over time? Scroll down to the end of the listed sold properties and click on the download all:
You can apply this same comping technique to any vacant land. However, land in suburban and rural areas is more challenging to comp because each parcel is likely unique. Let's review some strategies to help you deal with those unique features.
Step 3 - Filtering for Comparable Vacant Land
With the Florida infill lot example, we didn't have to work that hard to find matching comps. If your subject parcel is a trickier one, consider the following to refine your search:
- Focus on Key Characteristics: Focus on properties that closely match your land's acreage, zoning, accessibility, and natural features. For example, if you're evaluating a 10-acre plot, limit your search to properties within an 8-12-acre range to maintain a tight comparison (expand your range as needed if comps in these specific ranges are unavailable).
- Accessibility: Take a close look at how easy it is to reach each comp. Is the property accessible via well-maintained roads, or does getting there involves a bumpy off-road adventure? Ease of access can have a big impact on a property's value.
- Account for Environmental and Developmental Factors: If your land has unique attributes like waterfront access or mineral rights, include these criteria in your search for comparable properties. Can the land be subdivided?
- Utilities and Improvements: Investigate whether the properties have access to essential utilities like water, electricity, and sewer systems. Has the land already passed a perc test? The presence or absence of these services can be a major value differentiator.
- Check for Flood Zones: Any property within a flood zone will likely be worth much less than a similar property that isn't. We tend to avoid parcels within a flood zone. Be careful with these!
- Check the topography: Use tools like Google Earth to review your property's topography. Ensure that the properties you use as comps have a similar topographic profile. While steep slopes can be great for views, they are often a real pain to build on and will add expense to any development.
Remember, the goal is to compare apples to apples. The more similar your comps are to your subject property, the more precise and defensible your valuation will be. Take the time to get this step right - it's the bedrock of successful land comping and valuation.
Step 4: Determine Land Value Based on Proximity
Location, location, location – it's the mantra of real estate for a reason. The value of a piece of land is heavily influenced by its surroundings and proximity to key amenities and developments. Here's how to assess your land's value through the lens of location:
- Amenities Matter: Consider the land's proximity to schools, hospitals, shopping centers, and major transportation routes. Being near these conveniences can boost a property's value by making it more desirable to potential buyers.
- Follow the Money: Evaluate the area's economic pulse. Due to increased demand, the proximity to thriving business districts, industrial parks, or other economic hubs can drive up land value.
- The View Factor: Consider the land's proximity to natural beauty. Being close to parks, lakes, or scenic vistas can add a premium to the price tag. On the flip side, near less desirable features like industrial zones or waste facilities can have the opposite effect.
Focusing on proximity will give you a clear picture of how location-specific factors are directly impacting your land's market value. This will ensure that your valuation is grounded in the real-world conditions that influence buyer and seller decisions.
Step 5: Check Market Activity and Adjust Comp Values Based on Insights
To set a realistic price for your vacant land, or for land you're buying from a private seller, it's essential to integrate market activity insights with your comp values. This holistic approach helps you understand what your land could sell for and how to price it within the current market context strategically. Here's how to bring these elements together:
- List-to-Sale Price Ratios: Compare the difference between what properties were listed for and what they ultimately sold for. This ratio offers valuable insight into the market's negotiation dynamics and the typical discounts buyers can secure.
- Time on Market: Pay attention to how long properties stay on the market. If similar parcels are lingering for a long time, it could indicate overpricing or undesirable features, indicating that you may need to adjust your pricing strategy to stay competitive.
- Active Listing Comparison: Don't just rely on historical sales data – compare your findings with what's currently on the market. This will give you a clear picture of the competition you're up against and help you position your land in a way that stands out to potential buyers.
By combining these market insights with your comp values, you can refine your pricing approach to align with real-time market conditions and competitor activity. This ensures your valuation isn't just based on past sales but is also responsive to the current market landscape.
Determining the value of vacant land requires a systematic approach considering various factors such as property type, location, zoning, accessibility, and unique attributes. By leveraging online real estate platforms like Redfin, identifying the most similar comparable properties, and assessing the land's proximity to key amenities and economic hubs, investors can arrive at a well-informed estimate of a property's market value.
