A Complete Guide to Land Appraisal: Definition, Methods, Factors, and More.

In this article, you will learn everything you need to know about the land appraisal process such as.

And so much more let’s dive in.

What is a Land Appraisal?

A land appraisal is a professional assessment of the value of a piece of land. It involves a detailed examination of factors that add to the land’s worth. These factors include its location, size, and shape. They also include its zoning, access, and environment. They also include its potential for development or use. A licensed land appraiser conducts it. They produce a land appraisal report that finds the market value of the land.

Purpose of a Land Appraisal?

The purpose of a land appraisal can vary. A variety of reasons may need it, including:

  1. A land appraisal helps find the fair market value of a piece of land. The valuation is crucial for both buyers and sellers. It ensures a fair transaction.
  2. Financing often requires a land appraisal. Lenders need it before approving a land sale loan. The appraisal helps lenders assess the property’s value. It also helps them determine the amount of financing they are willing to provide.
  3. Land appraisals provide valuable information. They help investors or developers considering a land sale. By knowing the market value of the land, investors can make informed decisions.
  4. Estate Planning:  Land appraisals are essential for estate planning purposes. They help determine the value of land assets for inheritance and tax planning. This ensures fair distribution among heirs and compliance with tax rules.
  5. Legal matters may need land appraisals. These include property disputes, eminent domain cases, or divorce settlements. An accurate appraisal can provide impartial evidence. It shows a property’s value in legal proceedings.
  6. Local tax authorities often use land appraisals to set property taxes. The appraised value of the land helps determine the tax burden for property owners.
  7. Landowners and developers use appraisals to plan. They use them to see if projects on the land would be feasible and profitable.

How is Land Appraised? What are the Land Valuation Methods?

Land appraisal involves finding the value of a piece of land. Various methods can do this. Here are some common valuation methods used in land appraisal:

  1. This method uses the Sales Comparison Approach. It involves comparing the subject land to similar properties. These properties have recently sold in the area. This is by far the most common approach to land valuation.
  2. The appraisers use the Income Approach method for income-generating properties. This approach is often used for land that is leased (ground lease), agricultural or income-producing (outdoor storage, trucking yard, RV, and etc.).
  3. This is the Land Residual Technique. It estimates the land’s value. It does this by subtracting the cost of development from the sales value. The cost of development includes construction costs, developer’s profit, and other expenses.

What Factors Affect the Value of Land?

Many factors affect land value. These include location, accessibility, size, topography, environment, property traits, zoning, and market trends. Both buyers and sellers need to understand these factors. They are crucial in land appraisal. Here are some key factors that can affect the value of land:

  1. Location is critical. The land’s location impacts its value. Good locations are near cities, amenities, schools, transit hubs, and scenic views. They tend to command higher prices.
  2. Accessibility & Exposure: The ease of access to the land can influence its value. This includes roads, highways, public transportation, and nearby infrastructure. Land with good accessibility is more valuable than land with limited access. Further, exposure on a major atrial can influence valuation.
  3. The plot’s size and shape matter. They play a big role in determining its value. Bigger parcels of land are usually more valuable. This is especially true for development or farming. Plots with unusual shapes or dimensions may be less desirable. They thus have lower value.
  4. The land’s topography affects its value. This includes its terrain, slope, and elevation. It includes natural features like hills, valleys, and bodies of water. Flat, developable land is often more valuable than steep or rugged terrain.
  5. Environmental factors matter. These factors include soil quality, drainage, wetlands, and natural hazards. The hazards include floods and earthquakes. They also include ecological features. They can impact land value. Sites with favorable environmental conditions may command higher prices. Land in flood plains may need extra insurance for development. Or, it may be undevelopable. This affects the valuation.
  6. Zoning and Land Use Regulations:   Local authorities impose zoning rules. The rules determine the permissible uses and development of the land. Zoning restrictions, land use designations, and building codes can affect the land’s value. So, can development regulations.
  7. Market Conditions: External market conditions can affect land values. They include supply and demand, interest rates, economic trends, and investor sentiment. High demand and low supply can raise land prices. Downturns may lower them.
  8. Potential for development or land improvement can affect its value.
  9. Neighboring land use matters. It can affect land value. Closeness to tidy properties, parks, businesses, or factories can raise land value. But, nearby nuisances or bad uses can lower its value.
  10. Legal and regulatory issues are one factor. They include property rights, easements, encumbrances, title defects, and pending litigation. They can impact land’s value. A clear title and legal compliance boost the land’s value. But, unresolved legal issues may pose risks and lower its value.

How does zoning affect the value of the land?

Zoning is a legal tool. Local governments use it to regulate land use and development in their areas. Zoning ordinances divide land into different zones or districts. Each has specific rules for the types of land uses. They cover building densities, lot sizes, and other aspects of allowed development. Zoning can have several effects on the land:

  1. Zoning ordinances specify allowed land uses in each zoning district. These uses include residential, commercial, industrial, agricultural, or mixed-use. These restrictions dictate land use. They limit activities or developments that clash with the area or community goals.
  2. Zoning rules can affect property values. They do this by shaping the character and quality of the built environment. Properties in compatible zones with well-designed developments often fetch higher prices. This is due to increased demand and desirability. Also, properties in zones with bad land uses or development may have lower values.
  3. Zoning ordinances often set rules on building height. They also cover setbacks, lot coverage, and other factors. These rules set the density and intensity of allowed development. They do this for each zoning district. These rules can affect the size and style of development. They change the usable space and potential revenue from the land.
  4. Zoning rules may cover building design, landscaping, signs, and other aesthetics. They aim to make new development better the area’s looks and environment. These rules can affect how the land looks. They also affect the appeal of the surrounding neighborhoods.
  5. Zoning can affect infrastructure and public services. These include roads, utilities, parks, and schools. They support development in each zoning district. Zoning rules may require developers to provide some infrastructure improvements. Or, they may have to pay for public facilities to handle new development. This can impact how accessible and functional the land is.
  6. Zoning ordinances are often used for community planning and growth management. They let local governments guide development. They do this in line with long-term goals, land use plans, and community values. Zoning can help prevent mismatched land uses. It can also protect the environment and promote growth. It shapes the community’s character and identity.

Zoning is crucial. It shapes the land and the areas around it. It affects their physical, social, and economic traits. Zoning regulates land use and development. It helps balance competing interests and manage growth. It promotes sustainable and orderly development within communities.

How do Entitlements affect the value of the land?

In real estate and property development, “entitlements” are the rights or permissions. The government grants them. They allow a property owner to develop or use their land in a certain way. They include zoning, land use, and environmental approvals. They also include building permits and other needed regulatory permissions. Getting entitlements can be complex and slow. It involves navigating many government rules. These include zoning laws, environmental assessments, and community planning. Developers or property owners may need to submit detailed plans, studies, and applications. They do this to show that they follow local laws and regulations and to get approval for their projects. Entitlements are crucial for property development. They set the legal framework for a project to proceed. The time and money spent on entitlements must be taken into account in the land valuation. As you can see, it’s vital to use a land appraiser. They must be well-versed in dealing with entitlements.

What to Expect from Land Appraisals?

A land appraisal report has detailed information and analysis. It appraises the property. The contents may vary by the appraisal’s purpose and the client’s requirements. But, here are some common elements in such a report:

  1. This section gives an overview of the purpose and scope of the appraisal. It includes details about the property, its location, and any special challenges.
  2. Property Description: It has a detailed description of the land. This includes its size, shape, and boundaries. Also, its topography, access, zoning, and any structures on it.
  3. Market Analysis: It covers the local real estate market. It includes trends in property values and recent sales of similar properties. It also covers factors that affect the demand and supply of land in the area.
  4. Highest and Best Use Analysis assesses the best use of the land. It considers factors such as its current use and zoning rules. It also looks at market demand and potential for development or other uses.
  5. Valuation Methods: This section discusses the methods used to find the value of the land. It includes any relevant data, assumptions, and adjustments used in the appraisal process. This section may include a comparison. It will show the results from different valuation methods.
  6. Conclusion and Value Opinion: This part sums up the appraisal’s findings. It includes the appraiser’s final opinion of the value of the land.
  7. Supporting Documentation includes data, maps, photos, and other materials. Appraisers use these materials in the appraisal process.

A land appraisal report should cover the land’s value. Base it on data, market trends, and judgment. It should be clear, well-organized, and compliant with applicable appraisal standards and regulations.

Understanding Land Appraisal Values

Understanding land appraisal values is essential for buyers and sellers. A low appraisal value can hurt deals. It affects prices and financing. It underscores the importance of accurate appraisal in real estate transactions.

How to find a land appraiser near me?

You can find a land appraiser near you through several methods:

  1. Online Directories make it easy to find land appraisers. For example, you can use the Appraisal Institute’s Find an Appraiser tool. Or, you can use the American Society of Appraisers’ Find an Appraiser directory. They let you search by location and specialty. You can enter your location. You can also specify the type of appraisal you need (in this case, land appraisal). This will find qualified land appraisers near you.
  2. Contact them to find licensed appraisers. These appraisers specialize in land. These groups often have directories or referral services. They can connect you with qualified professionals.
  3. Each state has regulatory agencies. They oversee the licensing and certification of real estate appraisers. You can check with your state’s appraisal board or regulator. They can help you find licensed land appraisers in your area.
  4. Ask real estate agents, attorneys, lenders, or other pros for recommendations. They can help you find reputable land appraisers. They may give you referrals. They base the referrals on their experiences and connections.
  5. You can do a simple online search. Use terms like “land appraiser near me” or “land appraisal services in [your location]”. This can help you find appraisers in your area. Check their websites, reviews, and credentials. Confirm their qualifications and reputation.

Once you’ve made a list of potential land appraisers, you must research their qualifications. You need to look into their experience and reputation. Do this before making a decision. Search for land appraisers with licenses or certifications. They need experience in land appraisals and a record of providing accurate valuations. Also, consider scheduling consultations with many land appraisers. You can discuss your needs. You can check their expertise. You can compare their approaches and fees. Do this before making a final decision.

How much does a land appraisal cost?

This depends. The cost of a land appraisal can vary. It depends on many factors, such as the size, complexity, location, and purpose of the appraisal. It also depends on the appraiser’s experience and qualifications. Land appraisals need more analysis and documentation than residential appraisals. This can affect the total cost.

You must discuss the fee structure and pricing with the appraiser upfront. Get a written estimate or fee agreement. It should detail the scope of services, costs, and payment terms. Be sure to ask any questions about the appraisal process and fees before hiring an appraiser. This will ensure clarity and avoid misunderstandings. Also, get quotes from many appraisers. Compare their prices and services before deciding.

Difficult land appraisal examples

In my experience being a land appraiser, I find the following land appraisal assignment to be the most difficult.

  1. Ground leases with a short lease term remaining are typically a difficult land appraisal assignment. In those cases, where the ground rent is short-term with no renewal options, any building improvements (leasehold) usually revert to the land owner. As such, determining the reversion value is key.
  2. Entitled land is difficult to appraise as the amount of money spent on entitlements varies. Further, getting accurate entitlements costs of the land comparables can be difficult as well.

Conclusion

In conclusion, this article gave a complete overview of land appraisal. It covered its definition, methods, factors affecting valuation, and the appraisal process. Readers have learned the importance of accurate land valuation. They have also learned about various land appraisal methods and considerations. These insights will help them navigate land transactions well. Buyers and sellers can see the value of working with licensed land appraisers. They must also understand the intricacies of land valuation. This knowledge will help them make informed decisions. It will also help them to maximize value in their real estate endeavors.

About the Author

Matthew Reynolds, MAI is a commercial real estate appraiser with Vanguard Realty Advisors. He has been appraising commercial real estate for +20 years. He has conducted appraisal and land appraisal assignments from very simple to complex transactions. Mr. Reynolds also has extensive experience with performing compliant appraisal reviews, performing date of death appraisals, retrospective appraisals for estate planning, and divorce appraisals. He can help you navigate and understand the commercial appraisal process. Please contact him for any appraisal services or to request a quote.