Land Development Values: General Rules

People who want to invest in 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 home on their lot ) they have to examine a lot of parcels because everyone wants to try to sell them a property. The process of identifying parcels worth pursuing 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 selection.

These rules of thumb are designed to provide rough estimates related to a site’s yield 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 if the seller’s asking price is realistic. If the parcel of land is substantially overpriced, buyers may simply write off 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 parcels, yield is the amount of potential building space that can be built. This is typically a function of the number of parking spaces that will fit on the parcel and taking into account the general development limits imposed by impervious cover and green space requirements set 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 (eg, square feet for the parking space plus driveway). Another would approximate the amount of land area occupied by sidewalks and sidewalks. A third rule of thumb might assume that the cost of vertical and horizontal improvements would be $100/m2. foot of office space.

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

A general rule of thumb for site yield might take from the gross parcel area the number of square feet that would be wasted or unusable for any reason and then divide the result by the amount of the minimum lot size required by zoning to reach to the number of lots. For example, the rule of thumb calculations might look like this for a vacant 15-acre parcel zoned for 20,000 square feet. foot bundles:

Step 1: 43,560 square feet x 15 acres = 653,400 square feet
Step 2: 653,400 square feet x 70% = 457,380 m2 feet
Step 3: 457,380 square feet divided by 20,000 m2. ft = 22.87 building lots

The end result is always rounded. below, so there would be approximately 22 building 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 (eg, slopes, floodplains, irregular shapes), and land area that would be occupied by the site. construction of new roads in the community. .

Remember that the general rules may vary depending on the geographic area. they 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 were in floodplain, it would make no sense to deduct just 30% of the total gross area of ​​the site. If you’re not sure which rule of thumb to use, be conservative.