Land appraisals are an essential part of the real estate due diligence process.
As most land buyers do not understand how to value land, a land appraisal can help give you an idea of how much a property is worth and how much should be paid for it.
In this article, we’ll take a look at the top things you should know about land appraisals.
Understanding these factors as a land buyer will help you evaluate whether a property is fairly priced and whether you should move forward with the process.
1. What exactly is a land appraisal and why does it matter to me?
A land appraisal – also known as a real estate appraisal, property valuation, or land valuation – is the process of developing an opinion of value.
An appraisal is especially important if you are going to take out a loan to buy your property since your lender will require that one be commissioned.
On the other hand, if you are purchasing with cash, it is up to you whether you want an appraisal done.
What you need to know as a cash buyer is that you can benefit by understanding all of the aspects of the land and whether or not you’re being charged a fair price.
This may be especially beneficial if you are buying a very high-value parcel of land or a unique land type that sells infrequently.
2. What are the advantages of getting a land appraisal done?
Appraisals have numerous benefits.
Here are just some of the advantages you can expect if you invest in one for your property.
When you purchase property, you’re investing in an asset.
If you don’t know how much it’s really worth, you won’t be able to make smart decisions.
A land appraisal gives you an objective sense of what you’re working with, so you know how to proceed from the time you buy it to when you choose to rent it out, use it for commercial purposes, sell it, etc.
Getting a Loan:
Knowing the value of a property can help you secure a loan.
In fact, lenders often require that an appraisal be completed before providing you with a loan.
Insurance companies often require an updated appraisal to insure the property.
Estate settlements can be difficult for survivors, but updated assessments can simplify the process.
If you have a land appraisal, you’ll have established the fair market value for the property that you’re trying to sell.
3. How much will a land appraisal cost me?
While you’re probably looking for a neat number that you can budget for, unfortunately, you won’t find it until you’re quoted by a land appraiser.
The cost of a land appraisal depends on factors like location, type of property, square footage, and type of report.
For your specific parcel of land, you’re best served by finding the land appraiser you want to work with and asking for a quote.
4. How does an appraiser determine my property’s value?
Generally speaking, there are three acceptable processes that appraisers can use to value your property:
the sales comparison approach
the cost approach
the income approach.
Of these three, the sales comparison approach is the most common method used for vacant land.
This means that the appraiser will start by looking at recent comparable sales and then make adjustments based on the property’s unique characteristics.
The following are a number of items that may be considered when making adjustments to the average price per acre (or square foot) generated by recent sales.
5. Appraisal Adjustments: How access factors into marketability
This is one of the factors that land appraisers look at to evaluate the marketability of your property.
Regardless of how great the property is otherwise if it is difficult to reach, no one will want it.
Access ultimately impacts value.
Keep these factors in mind in terms of access…
Is a property landlocked?
Is there legal access? (Even if you can access it, are you doing it legally?)
Is the access private or public?
Is the access graded or paved?
Is the access one-sided or multi-sided?
Is the road maintained by the owner or the local municipality?
Is there internal access within the property?
All of these factors influence the property’s value as it makes it more or less appealing to potential buyers.
It’s also important to note that lenders may sometimes decline to lend to properties accessed via private roads without a maintenance agreement.
6. Appraisal Adjustments: How topography impacts use
Topography becomes important for land appraisals because certain types of land have proven to have more potential.
Land appraisers will visit your land and evaluate its topography to determine how it impacts the value.
7. Appraisal Adjustments: Amenities that the property has
When you’re house hunting, what do you notice?
Do you see the brand-new appliance, the granite countertops, the upgraded bathrooms, the luxury bathtub?
The answer is likely yes.
These special amenities make the home more appealing to you.
They catch your eye because they’re more aesthetically pleasing and also give you additional benefits.
Land works the same way.
When you have a beautiful view, a lake, a waterfall, or some other element that boosts that land’s appearance or use, then it’s typically a value booster as well.
The only exception to this is when these features limit the land’s potential use.
For example, if you have a large river that cuts through the majority of the property or eliminates access to an entire section, then it may not add value.
8. Appraisal Adjustments: Configuration of a parcel of land
Land appraisals can highlight limitations of the land like configuration.
If your land is irregularly shaped or narrowly laid out, then you may not be able to use it or manage it in the way that you would like.
For example, if you’re looking to install a septic tank, you typically need room for large equipment to come in and clear trees.
Narrow or oddly shaped land may not allow that.
This issue abounds in other situations as well.
The layout may impact hunting, development, timber management, or make it more vulnerable to trespassers.
While you may not immediately notice this when you’re selecting a parcel, the layout is something that a land appraisal takes into consideration.
9. Appraisal Adjustments: Land and wildlife
Your appraiser may not see wildlife while visiting your property, but that doesn’t mean they haven’t become skilled at understanding what the signs of wildlife are.
For example, there are variations in vegetation and topography that support a diverse array of wildlife.
Your appraiser may look at these factors to understand what animals the land may be supporting.
They may also look at tracks, rubs, shreds, droppings, etc.
10. Appraisal Adjustments: Location, location, location
When it comes to real estate, location can beat out just about any other factor.
Location can determine whether a property can be developed or whether it will remain vacant.
The best properties are convenient for their users’ purposes.
For example, if you intend to develop the land and have a home built on it, then you would want it to be close to jobs, schools, stores, etc.
If the intended purpose was farmland, a rural location may not be as big of a factor.
11. Appraisal Adjustments: Land size
Think about buying land like buying products in bulk.
When acreage is sold in larger amounts, it is typically worth less per acre.
Land appraisers will consider the overall number of acres while appraising land.
They may also consider the demand for that tract of size.
The market for 5-acre, 10-acre, 100-acre, or 1000-acre properties may impact your appraisal.
Keep in mind that this can also vary from region to region.
12. Appraisal Adjustments: Enhancements made to the property
Sometimes previous buyers will make improvements to parcels of land with intended resale value.
In that case, the land’s value will increase (depending on the market, of course).
Keep in mind that not all improvements are physical.
Work done that makes the buyer’s life easier (such as commissioning a survey) will be considered as well.
Any enhancements that are made to the property that improves its potential will be taken into account during a land appraisal.
In many cases, you’ll see a stark increase in its value.
13. Appraisal Adjustments: Historical management practices
Historical management practices often come into play with land that is used for hunting, timber, agriculture, recreation, etc.
Land appraisers will look at a parcel of land and evaluate how long the management practices were in place.
Depending on what they were and how long they were in effect, they can significantly increase the value of the property.
Conversely, if they weren’t positive practices, they can also impact the land negatively.
Think about it this way.
If you’re looking to purchase timberland that has been under the stewardship of foresters for decades, then the fact that it’s groomed will be more valuable than the alternative.
Imagine land that is left to grow without management or maintenance.
That’s unlikely to be land you’re jumping to invest in.
The land appraisals will indicate just this in their reports.
14. Appraisal Adjustments: The soil characteristics of a piece of land
Good soil can be hard to find.
If you want to use the land for farmland, then you’ll need to make sure that the property has optimal soil.
This also applies to any other land purpose you may decide on.
During a land appraisal, the appraiser will look at the property’s soil to see if it’s suited for the use of the property.
Will it grow certain crops?
Will it foster development?
Will it require extensive excavation before it can be used?
These are all factors that impact valuation.
You can also pull up a very preliminary soil report using MapRight.
If you are interested in a Mapright subscription, you can use our referral link.
15. Appraisal Adjustments: Land use and zoning requirements
What type of uses are allowed for your land?
An appraiser will consider whether the property’s current zoning limits its use or potential or how it could otherwise be developed.
In its simplest sense, land use and zoning requirements tell you what the land can and cannot be used for.
While zoning doesn’t create value alone, you could have an incredibly valuable piece of land in entirely the wrong spot due to zoning restrictions.
Because it’s hard to get the zoning changed, appraisers often note how this is an obstacle if the land could otherwise be used for something productive in the market.
16. Appraisal Adjustments: Easements and encumbrances
Easements and encumbrances can make the land unusable.
Certain areas of the property may have an easement for a power line, a walking trail, water, sewer utilities, drainage, flowage, or conservation.
Your appraiser will ask questions like, “How does this easement detract from the property’s value?”
They may also include how much a landowner deserves in exchange for the easement on their land, which can be complex in itself.
17. Appraisal Adjustments: The surrounding land uses
The surrounding neighborhood is important for the value of a property as well.
This is why the appraiser will come to see your property.
When a particular property market has a downturn, you may see this reflected in the value assigned to your property.
Likewise, what is being done with other land in the area may be an indication of where the market is headed.
Sometimes areas as a whole transition from rural farmland to residential properties.
A land appraiser may highlight how these changes factor into the land’s potential uses.
18. Appraisal Adjustments: Timber characteristics
If you have trees on your land, you may opt to harvest and sell timber.
A land appraisal would take the following questions into consideration.
Are the trees on your land the kind that can be sold as timber?
Do they have timber value?
Do they need to be removed?
Do they have an aesthetic appeal that they add to your property?
If they’re pine trees, did they grow naturally? Is it a planted pine plantation?
So many questions arise when trees come into the picture.
In most cases, the appraiser will consider the current and future value of the trees and what type of marketability they have.
19. Appraisal Adjustments: Floodplain issues
Is your land prone to flooding?
A land appraisal will evaluate this by using flood maps and by observing the property during the site visit.
The land appraiser may also want to know where floods occur on the property, how often they happen, if there are velocity and wave action, and what impact they may have on the property.
All of these factors can impact the potential of the property and how it can be used – thus affecting its value.
20. Appraisal Adjustments: Utility hookup and sewer options
Utility hookups and sewer options can impact the value of the land because they influence land development.
If a property does not already have power, water, or sewer, then any buyer hoping to develop the land would need to put them in.
If there aren’t existing utility hookups and sewer options, it will be difficult to bring in public utilities and you will likely need to rely on alternative systems.
Simply put, bringing utilities to an underdeveloped plot of land is both expensive and time-consuming.
Many times being told there are public utilities “nearby” is misleading since the cost to extend the utilities out to the lot itself may be prohibitively high.
Not having utility hookups and sewer options can be negatively reflected in a land appraisal.
However, this doesn’t mean the land is worthless.
There are many places in the US where landowners rely on private wells and septic systems.
21. Appraisal Adjustments: Sales history of the property
Your lender has likely investigated the sales history of the property.
Multiple sales of the property in the past several years or significant price increases that aren’t justified with physical improvements to the property can be red flags.
If the lender feels that the price has been artificially inflated, then they may offer a lower loan amount.
22. Your lender may use a different appraisal method as a backstop
As you can see, there are many things an appraiser may consider when using the sales comparison approach to value land.
Given all of these potential adjustments, your lender may request an alternative valuation method be used as a backstop, especially when there are few sales comps.
It’s important to know this because an alternate method may result in a lower appraised value.
Below are some examples of appraisal methods a lender may request:
The appraiser will determine how much it would cost to build a structure that represents the highest and best use of the land according to zoning.
For example, if the lot is zoned residential, this could be a single-family home.
The appraiser will then determine how much that structure could sell for.
The difference between the sales price and the cost to build is the land’s value.
If the land has the ability to generate income, the appraiser will take the estimated net cash flow and determine how much a typical investor would pay for that cash flow.
This would become the land’s value.
23. Finding a skilled property appraiser is critical
Whether you’re buying or selling land, a good appraisal will be essential to your safety as a property owner.
What’s one key factor in getting a solid appraisal?
Select the right appraiser.
Here are a few items you should add to your checklist when looking.
An individual must be licensed or certified to work as an appraiser.
Minimum education and experience qualifications are set at the federal level.
Licenses are handled by each state.
You can do independent research for your state to ensure that your chosen appraiser has the proper licensing.
Failure to ensure this can lead to an invalid appraisal and legal trouble for the appraiser.
Appraisers must be competent to appraise a property before taking an assignment.
However, just because they may be legally qualified to appraise a certain property type does not mean that they’ll be capable of appraising your land.
Get a feel for the types of properties that they have appraised previously.
For example, have they appraised real estate in your region?
What about real estate with trees?
Are they familiar with local laws and regulations that may impact the value of certain elements of your land?
Do they know the market that your property is located in?
Why do you need your appraisal done?
This is an important factor when selecting an appraiser because appraisers often specialize in doing appraisals for particular purposes.
For example, they may do them to establish a property’s value for estate planning.
If that is their specialty, then it may not be wise to hire them because you need to get a loan.
Choosing the wrong appraiser has the potential to cost you time and money.
It can also bring on a host of legal complications.
Ensuring that you’ve found the right appraiser will make your land appraisal smooth sailing!
If you need help, you can always ask your real estate agent or real estate broker for recommendations.
Did you know that much went into a land appraisal?
Land appraisals are no joke, but they are valuable in ensuring you’re getting a fair market price.
Just make sure you find the right appraiser because they can make or break the entire process.
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Disclaimer: we are not lawyers, accountants or financial advisors and the information in this article is for informational purposes only. This article is based on our own research and experience and we do our best to keep it accurate and up-to-date, but it may contain errors. Please be sure to consult a legal or financial professional before making any investment decisions.