What Is Land Value?

The Land value is the amount of property comprising the value of the land and any enhancements that have been added. It is not to be confused with the value of the site, which is the fair value of the land, assuming that there aren't leases, mortgages, or anything else that could alter the value of the land. Land value increases when the demand for land is greater than the available land or when a specific parcel of land is intrinsically valuable higher than adjacent areas (e.g., the oil may be discovered in the area).

Understanding Land Value

Landowners use the value of their land to decide how much they will pay other people for their use. For instance, a person who leases out a few acres of farmland for cattle grazing will decide the amount to charge based on the price of their land as compared to taxes on land and the capitalization rate.

Land value could be determined through real estate appraisals conducted by third-party appraisers. Appraising an appraiser is crucial to the lender's decision-making process when financing a potential buyer or refinancing the property owner. The appraisal of the land could comprise a comparison of the condition with similar real estate. It isn't the same as the comparative market analysis, where the costs of similar recently sold properties are assessed.

The location and position of the land could have an impact on the value. For instance, a rural piece of land could be worthless because it's not connected to utilities, amenities, transportation, and other facilities that would make the land value. The worth of the land could be increased if the property is situated near a renowned location, like the city, entertainment venues, or other highly sought-after facilities.

Why Is This Term Important?

Values for land typically rise in time, even as the value of the structures and structures on the land decline due to age and usage. As a measure of the amount a property is worth, the value of land reflects the need for physical space and the accessibility to development and the use of the space.

When calculating property taxes, the land's value and the structure's value and style are considered. Be aware that the assessors assigned the value to the land, and any structure might not reflect the property's current market value since the price of selling the property is based on market conditions.

Features

To determine the fair market value, appraisers or assessors could use the comparable-property method. Find similar pieces of property recently sold and then use the prices to determine what the appraised land will sell for. Some sales do not represent fair value. If the seller was in a hurry to sell to raise funds or if the buyer and seller reached an agreement on payment in addition to the sale price, then the sale price could be different from the real market value.

Alternatives

Appraisers may also employ the income method to determine land value, as per the IRS. The value is based on the amount of income a property, like a farm, creates, for example -- for its owner. Another option, "cost value," examines similar plots available on the market.

Potential

According to the Northern California Regional Land Trust states, landowners can use a conservation easement to lower their property tax. Conservation easements limit the property owner's rights to subdivide or develop the land and limit the rights of all future owners. Still, the amount of restriction will be different for the individual easements. The trust stipulates that owners are entitled to claim an income tax deduction due to the lower value of their property, and the estate tax on the land will be less.

Special Considerations

A property situated in a location with environmental hazards could lose some part of its value. For instance, if a property is situated in an area susceptible to mudslides, flooding, or earthquakes, these risks could deter buyers from considering the property.

The possibility of recurring destruction will make it difficult to maintain an uninvolved and secure presence at the site. Any improvements to the property might be lost in an environmental catastrophe. The threat to employees and residents at the site may outweigh any potential benefits from using the property.

Even if the property is situated in a desirable location and is near valuable resources, a variety of circumstances may prevent the development of the property to its fullest capacity. Covenants that restrict property owners from using resources like oil discovered on the land.