People who want to invest in a piece of land to “develop” it (as that term is defined in the articles in this Land Development Values ​​series) or to build on it and sell a complete package (for example, a new house on your lot)! I have to examine a lot of plots because everyone wants to try to sell you a property! The process of identifying parcels worth looking for is therefore time consuming, and land buyers need tools that allow them to quickly remove trash and identify those parcels that deserve further consideration. Therefore, buyers often use rules of thumb and formulas for their preliminary evaluation.

These rules of thumb are designed to provide rough estimates related to a site’s performance and different cost factors because these are the key things in calculating the “right” price to pay for land. By defining the price at which the numbers work, land buyers can see within minutes whether the seller’s asking price is realistic. If the parcel of land is substantially overpriced, buyers can simply scrap the property and move on to better prospects.

Commercial land developments
Not surprisingly, the methodology for roughly estimating site performance and improvement costs is not the same for residential and non-residential land developments. For commercial or office plots, the yield is the amount of potential building space that can be built. Typically, this is a function of the number of parking spaces that will fit on the lot and taking into account the general development limits imposed by waterproof coverage and green space requirements established by the zoning ordinance. A rule of thumb could be used to estimate the total amount of land area needed for each car that would be parked on the office property (for example, square footage for parking space plus vehicle aisle). Another would approximate the amount of land occupied by sidewalks and walkways. A third rule of thumb could assume that the cost of vertical and horizontal improvements would be $ 100 per square meter. standing office space.

Residential land developments
The general rules applied to residential land developments would be designed to estimate the number of building lots that the parcel could produce once the subdivision is complete and the cost of horizontal improvements. The value of each “raw” building lot would be calculated based on the projected sales value of the finished product (house on your lot) and improvement costs.

A site performance rule of thumb could deduct from the gross land area of ​​the parcel the number of square feet that would be wasted or could not be used for any reason and then divide the result by the amount of the minimum lot size required by zoning to reach the quantity of lots. For example, the rule of thumb calculations might look like this for a 15-acre vacant parcel zoned for 20,000 square feet. foot a lot:

Step 1: 43,560 square feet x 15 acres = 653,400 square feet feet
Step 2: 653,400 sq ft x 70% = 457,380 sq ft
Step 3: 457,380 sq. Ft. Divided by 20,000 sq. Ft. ft = 22.87 building lots

The final result is always rounded down, so there would be approximately 22 construction lots for this parcel. In the second step, 30% of the gross site area was deducted to account for waste, square footage lost due to natural constraints (e.g., slopes, floodplains, irregular shape), and the area of ​​land that it would be occupied by new roads in the community. .

Remember that the general rules may vary depending on the geographic area. Are rough estimates, so you should modify them as circumstances warrant and not just apply them blindly. If a substantial portion of the 15-acre parcel was in a floodplain, it would make no sense to deduct only 30% of the total gross area of ​​the site. If you’re not sure which rule of thumb to use, be conservative.