Land is a very valuable asset, but it can be difficult to find the right parcels to purchase. The process of identifying the parcels that are worth pursuing, therefore, is very time consuming, and land buyers need tools to enable them to quickly weed out the junk and identify those parcels that warrant further consideration. Buyers typically use formulas and rules of thumb for their initial screening.
These guidelines provide rough estimates on the yield of the site and various cost factors. These are the main aspects that determine the "right' price to pay for land. The buyer can determine in minutes if the asking price of the seller is realistic by defining the price that the formula works at. If the land parcel is substantially overpriced, the buyers can simply discard the property and move on to better prospects.
Commercial Land Developments
The method used to estimate site yields and improvements costs for non-residential and residential land development is different. For retail and office parcels the yield is defined as the potential amount of construction space. The yield is a function of how many parking spaces can be built on the parcel, and the development limitations imposed by impervious cover and green space requirements as set forth by the zoning regulations. A rule of thumb could be used to estimate how much land is needed per car parked at the office (e.g. square feet of parking plus drive aisle). A second rule would estimate the area of land taken up by the sidewalks and pathways. The third rule is to assume that improvements Land Development near me vertically and horizontally will cost $100/sq. The office space should be at least 100 sq. ft.
Residential Land Developments
To estimate the number of lots that a parcel of land could produce, once the subdivision was completed, as well as the cost for horizontal improvement. The value per "raw" building parcel would be calculated by calculating the value of the completed product (the home on its own lot) as well the cost for horizontal improvements.
Site yield rules of thumb may net the amount in square feet of land that will be wasted, or not be able to be used due to various reasons. They then divide this amount by the minimum required lot size by the zoned area and arrive at the number. For example, the rule of thumb calculations might look like this for a 15 acre vacant parcel zoned for 20,000 sq. ft. lots:
Step 1: 43,560 sq. ft. x 15 acres = 653,400 sq. ft.
Step 2: 653,400 sq. ft. x 70% = 457,380 sq. ft.
Step 3: 457,380 sq. ft. divided by 20,000 sq. ft. = 22.87 building lots
This parcel would have approximately 22 building lots. The second step involved subtracting 30% of the total site area to account for waste, lost square footage due to natural constraints (e.g. slopes, floodplains, irregular shapes) and the land area taken up by the new roads within the community.
Remember that rules of thumb can vary by geographic area. You should not apply these rough calculations blindly. They are only rough guidelines. In this case, if the site is a 15-acre parcel with a significant portion in floodplains, it would be illogical to only deduct 30% of its gross area. You should be conservative when you're not certain what rule-of thumb to use.