Author Topic: Raw Land Purchase Price Rubric?  (Read 1269 times)

Askel

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Raw Land Purchase Price Rubric?
« on: February 17, 2019, 05:41:16 PM »
My wife and I are considering building a home sometime in the near future and I'm shopping land right now.  Since we're looking for something with some acreage and yet fairly close to town, I find the prices vary wildly beyond the $x/acre+timber value that gets applied further out from town. Many of these parcels are FSBO and I suspect the prices are chosen somewhat arbitrarily. 

Being an ex-college teacher, I'm keen to apply a rubric for assigning a consistent value from my perspective to parcels that I see for sale.

Anybody done this before? 

Besides the outright financial considerations of taxes, building site prep, etc- there are also things that I'd like to try and include in a valuation such as recreational opportunities included outright or nearby, proximity to neighbors, etc.  Since we intend to live in this house until we die- we're primarily interested in considering a property in absolute terms of it's value to us, not relative to any future resale value.

If you have a rubric you'd be willing to share or any of the factors you considered in such, I'd appreciate it. 

Michael in ABQ

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Re: Raw Land Purchase Price Rubric?
« Reply #1 on: February 18, 2019, 06:27:53 AM »
As you've seen, asking prices are all over the place. Raw land is about the most volatile type of property. Something with an asking price of $100k may sell for $50k, that's not going to happen with a typical residential or commercial property. The value of land is typically a residual of what will be built on it. That gets much harder to apply in a situation like yours. Don't feel constrained by the asking prices. Find some closed sales to compare too. I was a commercial real estate appraiser and I've valued raw land at $1-2/SF where the lowest priced listing was maybe $4/SF. People often have unrealistic ideas about how much land will sell for. The holding costs are typically low (unless it was purchased with debt) so many sellers are content to wait years for a buyer to come along who is willing to pay close to the asking price. If you look in public records and see that the ownership hasn't changed for a few decades then the seller will probably not be as motived because they probably own it free and clear and their only holding costs are some property taxes.

One rule of thumb is that the typical lot is about 20-30% of the value of the house on it. So a $50k lot would generally have a $200k house, a $75k lot say a $300k house. Or if you're in San Francisco you might have a $1.5 million houses on a $1 million lot.
« Last Edit: February 18, 2019, 01:21:49 PM by Michael in ABQ »

Fishindude

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Re: Raw Land Purchase Price Rubric?
« Reply #2 on: February 18, 2019, 10:59:43 AM »
Hard to give much feedback as you really didn't share much about what you are looking for; your location, just a single home building lot, a vast acreage, waterfront, etc., etc.
I've bought a bunch of raw ground over the years and always offer way less than asking price, they'll either accept, come back with a counter, or just give you flat NO.  Better to start low and go up if you need to.   If you do find the ideal piece that you are in love with and it falls within your budget range, act fast and buy it, because you likely won't get another chance in your lifetime.

Askel

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Re: Raw Land Purchase Price Rubric?
« Reply #3 on: February 19, 2019, 06:55:12 AM »
Hard to give much feedback as you really didn't share much about what you are looking for; your location, just a single home building lot, a vast acreage, waterfront, etc., etc.

This is the crux of the problem I'm trying to solve. The most basic requirement is at least some land to keep from being right on top of the neighbors- 1+ acre, but there are lots of things we'd consider paying more for; more acreage, adjacency to public land and recreational opportunities, how close it is to our places of employment, unique features like waterfalls, etc.  Thus, I've got lots of options to consider. We're in a rather rural location in northern michigan, so lots of land and few buyers.   

The intention of the rubric is to assign a value to a property such that I can compare vastly different properties more easily and see if one provides better value for us than another. 

Thanks for the info so far though.  We're in no rush on this, so I might consider making some lowball offers soon and see what happens. 

Fishindude

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Re: Raw Land Purchase Price Rubric?
« Reply #4 on: February 19, 2019, 07:31:22 AM »
Since you are talking about a small parcel (one to several acres), I would be more concerned with finding exactly what I wanted, then haggle and do the best you can on it, rather than creating some crazy spreadsheet and make your decision based on "best value".

My kids are in the Traverse City, Kalkaska area and we own waterfront property up there too.   I find the prices for raw land, farms, etc. in that particular area to be pretty ridiculous.   Seems like everyone is trying to be a developer, and there really aren't that many good jobs in the area to support the prices they ask.   Get a little more rural towards the interior and you can pick up ground and houses dirt cheap.   The ground isn't good for much, but it's cheap.

Askel

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Re: Raw Land Purchase Price Rubric?
« Reply #5 on: February 19, 2019, 03:52:13 PM »
In high school, I used to work for a pool construction company south of Traverse City. That area was going bonkers even in the nineties. It's crazy to see how much it's grown.   

Thankfully, the Traverse City area is more "South Central" than "Northern" MI from my geographic perspective in the state now. ;) 

Thanks again for the advice. I tend not to get too excited or passionate about any particular chunk of land, but I do seriously geek out on crazy spreadsheets.  My wife is the opposite however, so I'm sure your tactics will come in handy.