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Practical Way To Determine How A Residential Lot Is Priced - Valuing Residential Lots


Just as with every other asset, supply and demand will determine what buyers are willing to pay in any given market.

In this real estate graph, the green vertical columns show the one-year trend of the average number of lots selling each month (measured on the left vertical axis), while the brown line shows the one-year trend of the average lot price each month (measured on the right vertical axis).

Currently, the average lot price has risen to $47,000 and Tallahassee has averaged 78 lot sales per month over the past year.

Lots and Land Real Estate Report of the Tallahassee Real Estate Newsletter, shows the relationship between lot sales and new construction sales over time.

Lot Valuation Rule Of Thumb

While this is a rule of thumb that might or might not be practical in every area, I know that it will serve most people well in the Tallahassee real estate market. The only times that it won't be useful is when you are looking at large acreage (meaning the land holds more value than the house built upon it).

The rule of thumb: Land is typically 25% to 33% of the property value.

Let's say you own a lot in a Tallahassee neighborhood where recent home sales have been from $350,000 to $400,000. Applying the rule of thumb, you could conclude that your lot would sell in a range from (25% of $350,000 to 33% of $400,000), meaning a range in value from $87,500 to $132,000.

Then you would look at current market conditions, and in Tallahassee, it is still a buyer's market. That means you should expect to sell your lot nearer the lower end of the range. You would then look at supply and demand for lots in the $80,000 to $100,000 range to see the depth of your competition.

Why The Lot Valuation Rule Of Thumb Works

The majority of lot buyers are likely to finance the construction of their home. When it comes time to put a house on the property, the valuation for the new construction will not appraise if the buyer "over-pays" for the land.

In our scenario above, assuming a new construction price of $150 per square foot, the buyer paying $132,000 for the land could only build a 1,787 square foot home (very small for a $400,000 home), while the buyer who paid $87,500 could build a 2,083 square foot  house (still relatively small for a $400,000 home).

The buyer paying the lower price would end up with 17% more house than the one who paid the top price. Since there are plenty of lots available at this price range, prudent buyers are going to shop for bargains so they can build more house.

Building A House - Start With The Lot

If you are thinking about building a house, it is recommended you start by meeting with a well-trained real estate buyer's agent.

If you are still wanting to build, start by choosing where you want to live and select a lot that will allow you to build the home of your dreams. If you'd like to know more about lots and land in the Naples Real Estate area, you can reach out to your Naples Real Estate Agent.

Source Article: http://www.manausa.com/blog/how-a-residential-lot-is-priced.html

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