Determining Fair Market Value for Land? (sales, insurance, assessor)

[Hal Jalikeakick]

I tried searching this forum but didn't come up with anything that specifically addresses my question. I'm thinking about possibly building a new home. There is a piece of land that is currently listed through MLS that is of interest to me.
I have no idea how to go about determining the fair market value though, since i can't really come up with anything that would be considered even close to a "comp".

Any input, ideas or suggestions are appreciated.

thanks.

[JG183]

first, determine what style / size of home you'd want.

then, imagine that it was there & completed, and try to arrive at a "comp" value.

last, subtract the actual cost of the construction, and you're left with what the lot is worth:

e.g. you put up a 2100 s.f. colonial...

such a house in that spot would be worth $450,000...

cost to build that house is $245,000...

= pay no more than $205,000 for the lot...

[Sergio M]

The value of the land should be one third of the finished product, considering that the finished home is on the upper end of what the neighborhood is selling for. An elderly builder gave me this rule of thumb. There needs to be a profit if builders are to continue building homes. If the new home is to be worth $600,000 then the lot should sell at $ 200,000-$ 225,000. What town were you looking to purchase in?

[NORMGLO]

My quick and easy suggestion is (1) search tax records to see the current annual tax amount and (2) have an appraisal done on the property.

[JG183]

Originally Posted by Sergio M

The value of the land should be one third of the finished product, considering that the finished home is on the upper end of what the neighborhood is selling for. An elderly builder gave me this rule of thumb. There needs to be a profit if builders are to continue building homes.

well, there's profit, and then there's gouging (what builders were doing from '01 to '05).

profit for a builder these days should be no more than 20% of what your insurance company says the replacement cost is.

e.g. if the actual cost (for materials / labor / fees) to build the house is $200K, the most you should pay a builder in this market is $220K.

[dmccauley]

Talk to the local tax assessor and see what he suggests the value may be. They have a formula they use. He may also know of some sales that were private and not posted on the internet.

[Sergio M]

Originally Posted by JG183

well, there's profit, and then there's gouging (what builders were doing from '01 to '05).

profit for a builder these days should be no more than 20% of what your insurance company says the replacement cost is.

e.g. if the actual cost (for materials / labor / fees) to build the house is $200K, the most you should pay a builder in this market is $220K.

You are 1000% wrong! I will not build your home for $20,000. [e.g. 20% of200,000 is $40,000] It can take a builder 3-6 months (or more) to build a home, Not to mention the amount of risk they lay on the line. (especially in this market) Do you expect them to work 6 mo for $20,000? Do you expect them to give you the land for what they paid? Not going to happen. The builder needs to get paid for his time and he is entitled to make a profit.

[JG183]

Originally Posted by Sergio M

You are 1000% wrong! I will not build your home for $20,000. [e.g. 20% of200,000 is $40,000] It can take a builder 3-6 months (or more) to build a home, Not to mention the amount of risk they lay on the line. (especially in this market) Do you expect them to work 6 mo for $20,000? Do you expect them to give you the land for what they paid? Not going to happen. The builder needs to get paid for his time and he is entitled to make a profit.

you're right -- I messed up on the math, it should've read $240K

what risk ? you're getting a signed contract, a down payment, and installment payments.

if you really want to work, you'll take 20% because even the "as built" cost contains plenty of fluff

if not, stick to selling houses instead of "building" them -- you sound like a GC

[Sergio M]

Originally Posted by JG183

you're right -- I messed up on the math, it should've read $240K

what risk ? you're getting a signed contract, a down payment, and installment payments.

if you really want to work, you'll take 20% because even the "as built" cost contains plenty of fluff

if not, stick to selling houses instead of "building" them -- you sound like a GC

Thanks for your advice,

The risk involved is putting out their money to build the home, that may sit on the market. They are risking their entire investment, including interest they are paying. There are costs associated besides labor and material that need to be calculated.

I know first hand because I have about 30 years experience as a GC.

The land is worth 1/3 of the the end value.

[NORMGLO]

I must be missing something with the land being 1/3 the value because:

what if I build a $500,000 house in a $300,000 neighborhood? Does my house automatically raise the value of land in the entire neighborhood?