Many of us know the opening to the preamble of the National Association of Realtors‘ Code of Ethics:
Under all is the land. Upon its wise utilization and widely allocated ownership depend the survival and growth of free institutions and of our civilization.
Often, we sell homes with only secondary interest in the land they are built on. In my market, and perhaps in yours, there are opportunities to sell land by itself.
This article relates to platted lots in subdivisions.
Here are some ABCs that will make selling lots less stressful, and more rewarding!
1. Size matters
Comparing lot value starts with the square footage.
The first point of clarity: What, exactly is an acre? (In days of old, it was the amount of land that could be plowed in one day with a team of oxen.)
An acre used to mean the amount of land that could be plowed in one day with a team of oxen.
For real estate purposes, the official measurement is 43,560 square feet. That’s a number worth memorizing.
You’ve heard the term, “builder’s acre.” This usually means 40,000 square feet, or a number close to this.
Sellers often have their own ideas about lot size, and in their minds count city or county right-of-way as part of their lot.
If a seller says, “It’s about an acre,” that’s a hint to do your homework.
The important measurement for any lot you are analyzing is the actual square feet as per the tax roll. Tax roll figures may not always be accurate. The best bet is a recent survey of the property. The square feet of rectangular lots is easy to compute: length multiplied by width equals square feet.
Irregular shaped parcels are a different matter, and hopefully, any survey available has the square footage noted. If not, architects and engineers have formulas used to compute square footage for these lots.
Working with buyers, there are other factors to consider. Street frontage and depth vary, and are important to buyers.
Buyers may already have house plans in hand, and they may want to put a “square peg” in a not-so-round hole. This cart-before-the-horse approach may make finding the right lot to build on a big challenge, and the buyer’s willingness to adapt their plans is worth discussing.
2. Look out below!
To improve property, the soil must be able to bear an adequate load.
No one wants to have a new structure settle. Damage from settling is extremely expensive to repair.
Soil conditions vary and can even change from lot to lot in a given area. Add a clause to contracts stipulating that the seller will permit the buyer access to have a soil boring test done by a licensed testing company.
If the land once had a structure on it that has been torn down, and the seller has had fill brought in to bring the cavities left by removal of foundations, (swimming pools, etc.) an engineering test of soil compression factors is another important step to have performed.
3. Accurate valuation
Recent land sales near a lot in question may be few and far between.
Consider reviewing properties sold for land value over a wider area, and going further back in time than 180 days to get a feel for trends in sale prices.
Become familiar with values in surrounding areas as well. For example, a certain luxury community in Miami has land values of upwards of $30 per square foot and even higher for waterfront properties.
Across the highway from this locale, land values in unincorporated Miami-Dade County are in the $12 to $18 range per square foot as of this writing.
In my experience, many sellers (and buyers) are somewhat “geographically impaired.” Seller’s perceptions may be skewed by not understanding the difference legal boundaries make to land values.
They tend to consider what homes near their land are listed for, and believe their lots are worth 50 percent to 80 percent of completed properties. The reality is — not really.
Conforming use of surrounding properties makes a big difference. Builders want to pay no more than a third of the selling price of new construction for the land — maximum. If nearby homes on similar size lots are in the $900,000 range, builders want to pay no more than $300,000 for an available lot.
Another factor influencing what builders will pay is whether existing structures need to be removed. Demolition of an average-size house costs in the $25,000 range and up in this market.
Builders also must factor in development costs including environmental impact studies, adding connections for water and sewer, removal and replacement of trees, etc. Builders may pass on lots close to schools and along through streets, particularly if those streets get busy with work and school traffic.
End users seeking land for custom builds may be willing to pay somewhat more than builders will, as always, based on the desirability of the location.
Holding listings for lots can actually build your client base. I recently sold two different lots to people who inquired about a third lot I had listed.
Becoming a local expert on lot and land sales in your market will only enhance your versatility — and your career!
Paul Krebes is a Realtor with ShowcaseMiami Realty in South Florida.