First off, I don’t trust looking at assessed value. I find that does not reflect FMV of land.
Houses are cookie cutter. Small lot, set number of beds & baths so that one can look at comps in the area and get a pretty good idea of what a specific house should sell for. With land there are a lot more variables such as road access, utility access, trees, water, slope, &c. Comps don’t give a fair idea of the land value since $50,000 for 5 ac. Lot A does not translate as $30,000 for 3 ac. Lot B.
So how do people set a FMV for raw land that they are buying or selling?
If you have a database of recent transactions in land with the sale price and the characteristics of the land, then there are statistical processes you can use to determine which features contribute to the price, and you can create a formula that gives a predicted price for a given piece of land with a given set of characteristics. The formula won’t be perfect - it can’t account for things like someone’s sentimental attachment to a place because their grandfather used to own it, or having a haunted forest - but it gives you a starting point.
The most basic such technique is referred to Ordinary Least Squares, which you can search if you want to learn more.
Ultimately, the price is whatever the buyer and seller agree to, of course.
It still comes down to comps and what the market is willing to bear. You’re right that assessed value (if you mean legally assessed, like for tax purposes) can be a very poor metric. For rural and relatively unique plots, there will be a lot of uncertainty in what a buyer might be willing to pay, so a seller might aim extra high to start and work down. For suburban sprawl, reliable comps aren’t so hard to come by.
(An “experiment” has played out in real time recently in the burned city of Altadena. There were zero comps of note for empty land with full city road access and (eventually) full utilities, and then overnight there were suddenly many thousands of unimproved parcels. For those that wanted to sell, initial valuations were quite unclear, but today – after many sales – valuations are stable (at like $3M/acre . The parcels are much smaller than an acre, though.))
I ran some numbers based on assess values and what the selling prices on the property (he is subdividing the property) and I came up with a FMV of $8000. He bought it back in September for 3X the value and is asking $27,000 Considering that is a little more than 3X my calculation I think I have it right.
It’s been surveyed but according to county records the parcel hasn’t been split off yet from the main property. And it’s been on the market for 270 days. Also, I’m not sure what the law is about clearing trees off your own land because is is 3 acres of forest.
Mods, I’m happy if you decide the FQ has been answered and the thread moved into the “Hey I’m Looking at Land to Buy” forum.
That’s my experience. The empty lot adjacent to my home was assessed for around $20,000. We offered that to the owner. They laughed us off and never made a counter. A few years later we inquired again, and they eventually set a price based on what they perceived our desire to own it was. The land had no value to anyone but us, (inaccessible and can’t be built on). Nonetheless, we paid 5x what the county said it was worth because we really wanted to own it.
The thing people often forget is the county tax assessor is producing a fake number designed especially for tax purposes. It has all but zero relation to FMV.
Now in general within a single county two similar parcels (plus improvements if any) with similar tax assessments should have similar FMVs as well. But the ratio between FMV and tax assessor value could be 0.5:1, 1:1, 3:1, or 10:1
Unless there’s a homestead or something like CA’s proposition 13 rigmarole involved. In which case nearly identical parcels (plus improvements) can have radically different tax assessor valuations.
IMO/IME best to simply ignore tax assessor valuations as a meaningless red herring.
I don’t know if that county is better at it or a coincidence, but the few sales of the house matched the assessed value pretty closely. The big issue will be the owner bought it for 3X what it sold for 8 months early and at a price that had no basis in previous sales. Even by going by his valuation of $27K, the real value would be $9K and my valuation is $8K looking at the actual numbers so I take that as confirmation that I am close to FMV.
Wow. Having a published multiplier is real interesting. Not something I’ve seen before.
IME it’s more like inflation, where the values were officially 1:1 back in e.g. 1937, but ever since then the assessor just applies their formulas to last year’s number (net of improvements) and meanwhile real estate prices do whatever they do and so nowadays the multiple is whatever it happens to be.
And each county in each state has their own unique history of how they got the number they’re currently using and the de facto multiplier that’s unofficially out there as local knowledge.
Sounds like you are close to FMV. The problem of course is that if some dumbass paid 3x FMV, in their mind they’ve reset FMV to whatever they paid. And will want the same from you for another similar sub-parcel.
Did I mention this land has been on the market for 270 days? LOL
It is the sort of land that is usually on the market for less than a week. I’m going to hesitate on negotiation until I find out why the parcel hasn’t been divided yet.
Land is like Beanie Babies and Picassos’s (and Bitcoin), it is worth what someone else will pay for it.
Property assessments can be confusing for a variety of reasons - in the good old days, they did not allow for inflation or price increasing, so taxes tended to be frozen at whatever the last sale was. There was the joke that in some cities, the prime downtown department store paid significantly less taxes that a far smaller recently built suburban store.That has changed, but absent a sales history of similar sales it’s guesswork. At least with a house, construction costs can be estimated fairly well and it’s something insurance companies and builders do all the time - the rest would be the land cost.
If there’s no local history, they the obvious ploy is to find other areas with similar characteristics. how much do people pay to be close to the river? A school? A freeway access? What does land about the same size, same amenities, go for? Or, make an offer and find out.
Trying to piece together the sorta disjointed explanation. Somebody bought a subdividable raw land property for 24K and is now trying to flip it for 27K. At the same time it’s been surveyed to be subdivided, but the subdivision has not taken place. Your intent is to buy the entire subdividable property before the division occurs. And hoping to pay 8K for it since per your calcs, 8K is an honest FMV. If I understand your situation accurately, looks like Mission: Impossible to me.
The current owner is playing a double game: hoping to flip the whole thing, and if that doesn’t happen soon enough, he’ll go ahead and subdivide, then try to sell those smaller lots for something more like the 27K in aggregate. and ideally 2x that much or 56K.
Maybe he knows something about the value of that land you don’t. Maybe he’s a dipshit that paid 3x because he doesn’t know anything about rural land values and just assumed suburban prices applied. And so the local Mr. Haney sold him a whopper.
The one thing you can count on is that he’s locked into that 24K+ price range. He’ll hold out for that until he can’t afford to hold the land any longer. Depending on his situation, $20-something K may be more or less pocket change, there is no debt on the land, and he can wait decades to “get his price”. Which is really just inflation eroding the value of the dollars used to pay for it, but he won’t see it that way.
Any rural area that is slowly being turned into exurb then suburb goes through this process. Some landowners sell smart, some landowners dump their land unwittingly, and there’s always some rubes that overpay for bare land hoping to flip and instead of being one of the first to cash out on development in that area, become one of the last.
Looks like your time to buy the parcel was before the rube overpaid 3x.
No. He paid $300K for property that I believe is only worth $100K. He is splitting off 3 undeveloped acres from the 7 developed acres he has. It has been surveyed but according to the county that parcel has not been created yet. Looking at the way the assessed value is broken down, I think that 3 acres is worth $8000. If we use his paying triple the value for the whole thing and 3X my estimation of the FMV of that parcel, it would be worth $24K and he is asking $27K
The as-of-yet-not-subdivided parcel has been on the market 270 days so one question is why has it not been officially subdivided by the county?
I don’t think so. He’s only selling that 3 acres his house does not sit on.
It was a housing company that sold it to him. Actually I think that housing company were flippers since they bought it for $100K then sold it to him 8 months later for $300K.
I’m not even going to start negotiating until the parcel is legally split off. Signing a contract with the expectation it will be done (and hasn’t already after 9 mos?) is asking for trouble. In all honesty, the land would be a good buy at $20K but why pay it if I don’t have to. And I hold the ultimate power as I can walk away from the deal. I don’t need the land.
Oh and before I start serious negotiation, I will get a realtor out there. They would hopefully have a good idea of what FMV is.
That is not the issue here. Urban creep to that parcel will take decades but now you have me wondering - does the fact this is county property literally next door to the city limits play a role here. Not that that section of the city is developed except for scattered houses.
Sorry all for me keep bumping this thread. After more research, timber land in that area is at most $3K per acre which works out to $9K total for the plot. The more and more I research this, $8K looks like the FMV.
You might want to check with the city for any moves afoot to annex more county land near or including your desired parcel. That could have significant future price implications. Both for good or for ill depending on a host of local factors.
I think anticipating what it’s going to be worth to the buyer and understanding the real estate dynamics of the area helps a lot in determining what you are willing to accept.
There used to be a driving range with 2 practice greens fairly close to where my uncle lives in the greater Dallas area. Because that area has been growing steadily, houses and even actual new communities have appeared at a steady rate. The owner was wise to refuse initial offers and waited until more and more land in his area was used up for construction. The offers increased steadily until he finally sold his land for 3 times as much as he was offered initially.
- but it gives you a starting point.
. The parcels are much smaller than an acre, though.))