Dig into what affects land value
Land appraisals determine the value of undeveloped land and often take into consideration how a buyer could use the land.
Most land appraisals are based on the condition of the land, access to utilities, and comparable sales.
A land appraisal normally costs $350 or somewhere between $200 and $600, depending on the plot.
If you’re buying a plot of land to build your dream home, it’s a good idea—and, often, a necessity—to get a land appraisal done. A land appraisal is similar to a standard home appraisal but assesses the value of undeveloped land instead of land with a home or commercial structure on it. In this guide, we’ll explain what a land appraisal is, how an expert completes one, and some factors that can affect your land appraisal results.
A land appraisal is an in-depth valuation for a vacant plot of land with no home or structure on it. The appraisal itself is an expert’s opinion on what the land is worth, which is mostly based on the as-is value but also depends on how the buyer can and will use the plot once it’s developed.
Land appraisals are similar to the appraisals you could have done for a home, and the local appraiser you hire will often use one or more methods to determine value.
Sales comparison approach: The most common way to assess a home’s value is to find comparable properties in the same area that recently sold to determine what buyers might pay for the subject. This approach is more challenging with undeveloped land in most areas because there are often fewer comps available that are vacant land.
Income approach: Some appraisers may estimate the income viability of a piece of land if the buyer is considering renting out a home or office on the land after development. This is often only an option for investment properties and is more common with commercial real estate.
Cost approach: The cost approach for raw land is a bit different than for a plot with a home on it. An appraiser might estimate the cost to build a home and then subtract that from what the developed plot would sell for to determine the land value.
Combined approach: Since the income approach is highly subjective and the sales comparison approach isn’t always possible due to few comps in the area, many appraisers will use a combined approach to get an accurate value.
Hiring an appraiser is always a good idea before you purchase a plot of land to make sure you’re not overpaying. If you’re financing land, your lender will almost certainly require a land appraisal to ensure its investment is protected by the value of the land you’re using as collateral.
Land appraisal values are a bit more complicated than traditional appraisals in many cases and require a different appraisal checklist.
In most cases, the biggest determining factor when it comes to land value is the value of comparable properties, called comps. Appraisers will search for similar plots of land that sold recently in the surrounding area to figure out what buyers might be willing to pay for the subject plot.
Appraisers may take into consideration what you intend to use the plot of land for, which can affect the value. For example, land will often be worth more if it's zoned for and will serve as residential land as opposed to industrial.
Of course, the size of the land will have an impact on value, as well. Generally speaking, you’ll see a decrease in the cost per acre as the land size increases. An exception might be if a plot is subdividable, which would mean you could convert a single larger plot into multiple smaller plots, each for residential construction.
The shape of the plot can affect value, as well, as it can determine how you can build on the land. A long, narrow strip of land may hold almost no value if you can’t build on it with the appropriate setbacks. Plots shaped like a slice of pie with smaller front yards and larger backyards are often the most valuable for residential construction, as buyers tend to favor private space in the rear of a home over space in the front.
Land values vary widely based on location. You’ll see the highest prices in high-cost areas, where building a structure on the plot would yield a higher sale price. Appraisers will also consider the plot’s proximity to major roadways, airports, commercial property, railroad tracks, high-tension electrical lines, and more. The impact of the location depends on the zoning, too.
Accessibility to utilities plays a major role in land appraisal values. A plot with nearby water, electrical, and sewage hookups will almost always be worth more than a plot without easy access to utilities.
How easy it is to use the plot for the desired purpose is another significant value factor. Appraisers will consider the following to determine how usable a plot is for construction.
Topography and accessibility: Cleared, leveled land is always going to be worth more than a plot that requires clearing or grading before building.
Easements: Public or private easements will generally devalue a plot of land and could even make the land unbuildable, which could hurt your appraisal value.
Building capability: A plot that’s suitable for construction—usually meaning it has passed a perc test or has a sewer connection nearby—is worth more than a plot that needs testing or work done before construction can begin.
A land appraisal costs around $350 on average, but you could pay anywhere between $200 and $600, depending on the location, plot size, and how easy it is for your appraiser to find comparable sales. Note that the buyer normally pays for the appraisal.
A land survey gives you information about the property boundaries, easements on the plot, dimensions, and, in some cases, topographical information. A land appraisal will often take these figures into account, but the purpose of a land appraisal is to determine the value of the land rather than the physical specifications.
A property valuation, sometimes called a comparative market analysis or CMA, provides a real estate expert’s opinion on how much your property will sell for. It takes many things into consideration, like the condition and location of the home, but ultimately, all that matters for a property valuation is what a buyer might be willing to pay for the property. An appraisal is more concerned with determining the value. A valuation is to estimate what you’ll get for a property, while an appraisal helps a lender establish loan-to-value ratios and loan amounts.
