Buyers Set Values – Not Sellers

Property Is Only Worth What Someone Is Willing To Pay

From an appraiser’s standpoint, value expresses an economic concept.  Appraisals are never a fact, but always an opinion of worth of a property at a given time in accordance with a specific definition of value.  In appraisals, there are a number of different types of value such as market value, liquidation value, investment value, tax value, and so forth.  The most often used of these is market value.  An abbreviated definition of market value is:  The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably and assuming that the price is not affected by undue stimulus.

A Broker or Appraiser can only give an opinion of value.  The one who ultimately decides value is the person that is willing to take the risk and put his money into it.  Value is affected by many factors.  Each property is unique unto itself.  There is no other property that is exactly like it.  Two properties that are side by side may be affected by different outside stimuli making the values different for each of them.

Factors That Affect Market Value:

We will list some of the factors that most often affect a property’s market value.

  • Location: Location, location, location is what we most often hear in the valuing of a property.  The property may be on the busiest city block in town or it could be the most remote rural area.  These properties may be worth the same thing, but the rural parcel may be 150 acres and the city parcel may be one-quarter of an acre.
  • Demand and Availability of Financing: As we have seen in recent years, increased demand can have a dramatic effect on value.  The lack of demand can also have a dramatic effect on value.  If nobody wants a property, what is it worth?  It is only worth what someone is willing to pay. Availability of money at a reasonable rate is also key.  As banks tighten their requirements for loans, fewer people are in the marketplace.
  • Return on Investment: This means different things to different people.  It could be the personal satisfaction of owning a parcel of land to some people and to others, a specific rate of return on money invested from timber, crops, leases on land or improvements or expected return from projected appreciation of the property.
  • Utilities: The availability of utilities to a particular property has a tremendous influence on its value.  It could influence the type and density of development that may be allowed.
  • Environmental Regulations: Such things as the Clean Water Act (better known as Wetlands Regulations), the Chesapeake Bay Act, and Hazardous Waste Regulations can all influence the value of property.  Many properties have wetlands on them which take away from an area that could be used.  The presence of hazardous waste could lead to an expensive endeavor when clean-up is necessary, thus also affecting value.
  • State and Local Regulations: Regulations by municipalities and states can affect the type of development that can be done on a particular piece of land, which in turn affects value.  Municipalities will often control density of development through their regulations.  If the municipality restricts density, the value of a parcel of land can be reduced.  Regulations specifying the amount of road frontage for a developed parcel of land will determine the cost of the roads and utilities needed to serve these parcels.  Therefore, the more road frontage required and the larger the parcel of land required, the higher the cost to develop.  The higher the cost of development, the less a developer may be able to pay for the land.
  • Road Frontage: In many cases, state road frontage is required before a land parcel can be divided.  In many municipalities, the division of land is not allowed unless a state road is built to serve those divisions that are made.  This increases cost and causes a decrease in the value of the land that is being considered for development.  Rural land properties with no road frontage usually have fewer uses, therefore less value.
  • Water Frontage: Many properties front on bodies of water, however, the type of water frontage has a significant effect on the value.  Frontage on a saltwater marsh as opposed to deep water frontage could have a significant impact on value.
  • Timber: In rural properties, timber can have a significant effect on value.  The timber can be worth more than the underlying land.  Other times the timber only adds an aesthetic value to the property.  If the timber is removed in either case, there is usually a value reduction to the remaining land.
  • Soils: Soils can have varying effects on property.  Shrink-swell soils and the compaction quality of soils can effect foundation construction of buildings.  Absorption has an effect on the suitability for septic systems on a property.  If soils are not suitable for septic systems then development is limited.  Soil types can also have an influence on crop and timber production.
  • Improvements: Improvements on property usually add value, however, in some cases because of the state of improvements, they may have a negative value.  Improvements may not be compatible with the highest and best use for the property, therefore, even though structures may exist on the land their value is minimal.

The above items are only some of the things that come into play in an evaluation of property.  The evaluation process can be very complex.  Close attention must be paid to all aspects of the property to determine their relationship to value.  The ultimate test of value, as mentioned in the beginning, is how much will the property bring in a competitive open market.  Unless you have extensive knowledge of the items listed above, you may need professional assistance in order to perform an accurate evaluation of your property to determine the market range of value.  Proper marketing is also key to obtaining the highest possible price.  Grant Massie Land Company provides these services and would be glad to speak with anyone who has an interest in marketing their land.