To determine land values in Virginia, an appraiser might consider residual land values, potential income from the land, and improvements to the property.
Most real estate appraisals focus on improved land that has a home or a business situated on it. However, vacant land may also be appraised before it is bought or sold. If you are financing your land purchase, then your lender will require an appraisal to ensure the land is sufficient collateral for the loan they are giving you.
The problem is, traditional methods of real estate appraisal do not always work for raw land, making it challenging to precisely estimate land values in Virginia. Therefore, land appraisals require an experienced appraiser who is well-versed in the art of land valuation.
Common methods of land valuation
With most properties, an appraiser will run a sales comparison with nearby properties that share similar features to the subject property. This is known as the sales comparison approach. While there may be differences to take into account, buyers tend to rely on nearby sales data and resist paying more than other recent buyers paid for similar properties.
An appraiser will not look at active land listings but rather properties that have actually sold. This helps to create an objective and concrete property valuation. The appraiser can take the closed sale price, add or subtract value to account for any significant features compared to the subject property, and come up with a fairly accurate and specific number quite quickly.
The problem with the sales comparison technique is that vacant lots do not sell as frequently as homes, so it may be quite difficult for the appraiser to find a sufficient number of nearby land sales on which to base his appraisal. In addition, even when there are some vacant land sales in the area, it can be difficult to account for unique features of the lots.
Another common appraisal technique is the income approach. With this method, the appraiser will consider income potential if the land can be farmed or used for commercial purposes. For example, the appraiser might consider how much income the land could generate in sales or leases once it is developed.
By considering the potential for annual income, it may be easier to accurately estimate land values in Virginia. However, the income approach is not appropriate for areas in Northern Virginia where land is sold for residential or recreational purposes instead of commercial development or farming.
The land valuation process
Land appraisals are rarely straightforward, and even the best appraiser may require a good deal of time to complete his appraisal. For the most accurate land appraisal, a good appraiser may rely on one or both of the following:
If available, the appraiser will study a survey of the land. A professional land survey will not only tell him the exact boundaries of the property, but it can also show things like road and water frontage, topography, flood plains, and other features that affect land values in Virginia. In some instances, the survey will help the appraiser understand how much of the land is actually buildable.
Residual land value
To arrive at a residual land value, the appraiser would begin by considering the value of the property if it were developed to its highest and best use. From there, he would work backwards to understand how much it would cost (hard and soft costs) to develop the land to its highest and best use. Then, he would factor in profit to the developer. The residual land value equals the value of the developed property minus the cost of development minus the developer’s profit.
Factors affecting land values in Virginia
Once the appraiser has a ballpark number in mind, there are a variety of other factors associated with the land that could bring the valuation up or down. No matter what size the parcel is, each of these factors will come into play.
Access to the land
The appraiser will consider whether the land is public or private and whether it currently has legal access to a private or municipal-owned street.
Land with water frontage, scenic views, or other unique amenities may score a higher valuation.
Layout of the land
Land with irregular borders or with very narrow frontage may lose some of its intrinsic value. It may even be difficult to build on certain configurations of land.
Location is always important when evaluating land values in Virginia. People who work in DC but who are purchasing property for a home in Northern Virginia will place a premium on land that is close to a major road leading to the city. Potential homeowners will also pay more for property that is closer to major conveniences, including groceries, schools, hospitals, and walking trails. In addition, buyers should consider real estate market trends in the surrounding area.
Improvements to the property
Improvements such as driveways, ditches, fences, and outbuildings can add to land values in Virginia. For residential sites, lots that are cleared may hold greater value than wooded lots.
The highest and best use of a property is largely controlled by its zoning district. Property zoned for residential use will be valued differently than property zoned for industrial, commercial, or some other use.
An easement is a right held by one legal entity (a person, business, or government entity, for example) to use land owned by another legal entity for a limited purpose. For example, a utilities company could hold an easement over a portion of the land to run power lines through the property.
In Northern Virginia, conservation easements are common. These easements serve to preserve natural or historic features of the land and restrict development. Therefore, they can detract from the value of the land. How much they detract from land value can be difficult to determine.
Some land may already have utility hookups in place. Whether well and septic or public water and sewer, access to utilities makes it much easier and less expensive to build a home quickly.
Need help figuring out land values in Virginia?
As you can see, there is no one-size-fits-all option for appraising land for sale in Northern Virginia. There will certainly be some deviation between properties in the same area. However, a little time and research can help an appraiser arrive at an objective valuation that should work most buyers.
If you have questions about the appraisal process or if you are unsure whether you need an appraisal, you can always consult with a local land agent. Depending on your needs, your land agent may be able to provide sufficient land market insight to make an informed land purchase decision.