Is this plot for sale a good deal? This is the big question that most people will find themselves pondering when examining a prospective parcel of land.
Granted, there’s nothing quite like the thrill of walking your land, breathing in fresh air and planning for the future. Moreover, developing the parcel of land you own is one of the most challenging yet gratifying experiences a person can have.
Buying a piece of property is a give and take process. The seller quotes a price and the buyer counters with a lesser price or seeks certain concessions.
Negotiations take place until both parties see eye-to-eye and agree on the terms. If both the buyer and seller believe a good deal was made, then negotiations were successful.
Investing in land is a big step. Careful consideration of the points below will help you make the best possible property purchase, so you can start the land ownership journey with confidence.
Notably so, while price matters, finding a property that can be overhauled with minimal effort and time may not be that easy. Therefore, being able to discern at first glance if a property is worth its investment takes a keen eye.
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A successful negotiation takes place when both the buyer and seller believe they have received a good price.
Make a fair offer
There may be some back and forth with the seller. You may offer a lower amount than the asking price and the seller in turn will counter with an offer higher than yours. The key is to head to the negotiations table with your well conducted research in hand.
Don’t waste time playing games or questioning the seller’s integrity. If you educate yourself about the market, you can determine if an offer is a good deal or not. You won’t get taken for a ride.
Settle on a price that is acceptable to both parties. But don’t exceed the price you initially set as your maximum amount to pay. No property is worth paying more than you can afford. Decide what a transaction is worth to you.
A property may be worth more in value to you than the actual appraisal. Take the emotion out of it and deal with it in terms of money and sense, also, don’t be afraid to walk away from a deal, just do so with a handshake and a smile and do not burn that bridge.
Do a cost analysis
Calculate all of the costs to bring the land up to the condition you would like. What is it going to cost you to build out the property? That is the cost of acquiring the land, the entitlement, the cost of construction of the land, the cost of marketing to people to build it up if it is a retail space, plus the cost it takes to secure any money (i.e., loans)?
Calculate the most you are willing to pay the seller based on the outcome of your cost analysis. Once you have done all of the analysis and appropriate planning, he says, you still need a contingency. You can think you have it nailed down and all of a sudden something crops up, unsettling your plans.
Consider how zoning will impact the value. Local zoning laws can have a huge impact on the value of a piece of land. Land is generally more valuable when you can develop it.
However, zoning laws can restrict how the land can be developed. For example, some land can be developed for commercial purposes or for residential purposes only. Others allow mixed development.
If your comparable properties allow commercial development, then they might be more valuable. You’ll need to lower your estimate if the land is only zoned for residential development.
Create an estimate based on your comps. You are unlikely to find a property that has recently sold that matches yours exactly. Instead, they will differ in size, location, etc. Nevertheless, this is the best information you have about market conditions.
If you can’t find a comparable piece of land, then go further back in time to find something similar.
Adjust your estimate based on the details of the land. For example, you might have found a plot that is a similar size in the same area. However, the plot you want is on a steep incline and doesn’t have a great view. You should estimate that this plot will sell for much less than its comp.
Find out how much comparable land has sold for. You might need to go to the land surveyor’s office to find out the price that was paid for a comparable property. If none of your comps have sold, then at least look at the asking price. In many areas, you can look up the most recent price for which a property was sold on the local assessor’s office website.
Adjust the value based on deed restrictions. You should go to the Records Office and find the deed for the land. You want to closely analyze the deed to see if there are any of issues, which can lower the value of the property.
Easements
An easement is a legal right to use the property. For example, a neighbor might have a right-of-way over the property. This can decrease the value of the land.
Deed restrictions
There may be restrictions placed on how the land can be developed, which are in addition to zoning restrictions. The deed might have a restriction which makes development impractical.
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Analyze how desirable the land is. Imagine you are creating your property listing on a website. Take pictures of the land and assess how good it is. Is it simply a vacant lot in a rundown part of town? Or is it a gorgeous grass field with a view of the river?
The more desirable the land, the more likely you can get a higher price for it.
This is a subjective assessment, but it nevertheless is important. If your land is more desirable than your comps, then raise your estimate.
