Wednesday, May 1, 2013

How Do You Price Large Tracts of Land?

I am glad you ask! I specialize in ‘land brokerage’ and as a result look at large tracts of land. Landowners ask me to give the owner an opinion of value, in other words ‘What is my property worth’?  It can be difficult at times. I have several friends who are appraisers and we bounce ideas off each other. With the downturn in the market, beginning in 2007, sales have become less frequent, so it can be difficult.

There are two processes at work when dealing with large tracts of land.

1.    There is an inverse relationship between tract size and price per acre. I look at it as an ‘economies of scale’. The buyer is rewarded for his ability to purchase large tracts. The number of potential buyers decreases  as the total purchase price increase. In other words, there are more people who can afford an acre lot verses the number of people who can afford a hundred acre tract of land. The pool of buyers shrink. For example... an acre lot might cost $25,000 per acre, a 25 acre tract might cost $4,000 per acre and a 100 acre tract might cost $2,500 per acre!

2.    Contribution of improvements diminishes as tract size increases. Intuitively you would think you could simply add all the components together i.e. house, barn, pond, fences and acres and establish an asking price. It does not work that way. A house on 5 acres may be worth $200,000. That house on a 100 acre tract might be worth $125,000 and that house on a 1,000 acre tract might have very little contribution value.

For Information on Buying or Selling Land contact G. Kent Morris, ALC, RF at      (706) 457-0090