Top 10 Factors Driving Land Value
November 28, 2018 in AFM News
When we list or assist in the purchase of property, there are certain attributes that affect the value of rural land in the areas where we operate. Each seller or purchaser of rural real estate should be aware of the following top ten factors list. Knowing if the property under review has some or all of the following attributes can make a difference in ensuring the property is valued correctly.
When buying real estate, it has been said that the three most important considerations are “location, location, and location.” This is just as true in rural land as with commercial or residential real estate. Proximity to urban areas can greatly influence the pool of buyers interested in purchasing a property as well as the potential for a property to appreciate over time (i.e. being located in the path of future progress). Certain locales are well known for their recreational potential, such as quality hunting or equestrian properties. Timber markets are also very location-specific and can change every 100 miles. Understanding the area around the property helps find added-value attributes and working with a land-specific agent that operates in that area ensures that value is realized in a purchase or sale.
How a property is accessed dictates how the property can be utilized now and in the future. Properties without legal access are risky because the owner may not be able to make use of the property or extract value. For example, without legal access, timber harvests may not be feasible when the time is right. Public road frontage is a large value driver—long, paved road frontage can enable subdivision of a property into smaller tracts or increase the potential for higher use of the property in the future. Internal access should also be considered as properties with woods, roads and trails can be used and enjoyed more easily.
One of the major contributors to realizing higher bare land values is the presence of water on a property either through a year-round stream, pond, or lake. Natural water is typically acquired with the initial purchase of the property, and not something added later. Water increases the appeal and possible future uses of the property for recreation or farming.
4. Usable Land
Every piece of land is unique. When purchasing property for investment, it is important to know what percentage will be productive for growing timber or producing crops. A good rule of thumb to use for timberland investing is that a tract should have at minimum 60% of acres that are in production and can be managed, in order to be considered a quality investment. In farming, this percentage is likely much higher for an ideal investment. Examples of unproductive land on a timber property may be stream buffers, wetland, or steep areas where equipment cannot be operated.
Land improvements are defined as any man-made additions or alterations to the property over time in order to improve it and add value. Examples of improvements include buildings, sheds, wells, roads, bridges, culverts, ponds, access roads and trails, food plots, irrigation, and even permanent deer stands or blinds. Each of these can add considerable value to a property and should be inventoried and quantified.
The presence of utilities on or adjacent to a property can enhance its value by expanding its future potential use. Electric power, telephone, cable, high speed internet, public water, and sewer are all items that should be examined when purchasing property. Today, land telephone lines are less popular, but the presence of a strong cell phone signal in the area of the tract can make it more marketable.
7. Timber Values
The timber component on every tract is unique, so knowing what species, forest products, and volumes of timber you have on any given property can help you to price property accurately or ensure a purchase price is justified. A common due diligence task is to have the timber component on a tract inventoried or cruised and then appraised.
8. Site Quality/Soils
The soils on any given tract will greatly affect the productivity of the property as an agricultural or timber investment. It is wise to understand the types of soil present on each tract and their potential to grow different crops. A standard measure of site quality used by a forester is called site index (SI), the height of a given tree species anticipated at a given base age of usually 25 or 50 years old. The higher the SI, the higher the quality of the soil’s and the site’s ability to grow crops. There are similar standards in agricultural land. Only certain soils are suitable for sanitary septic system as well, so if the property has residential potential but no available sewer in the area, it is wise to have the soils evaluated for septic suitability.
9. Conservation/Mitigation Value
Some tracts of land have added value because of certain natural characteristics that make them rare, or because they have benefits to not only the owner but the good of the general public or for wildlife habitat. These tracts may possess rare wildlife habitat, natural heritage, historical, or archeological sites, rare plant communities and ecosystems, or lands critical to the protection of water quality. Land that has been altered in the past may have potential for mitigation projects to return the property to a historical use and form a bank to sell credits for the offset of disturbances in other parts of the same watershed. It is wise to have a professional review any tract pursued or sold, as these values will not be obvious to the untrained professional and their presence can add significant value.
Ownership of real estate is a “bundle of rights.” Part(s) of that bundle can be severed and sold separately. This can include subsurface or mineral rights. This is common in areas where oil and gas are present or other valuable minerals may exist. Owners should understand how the presence or absence of mineral rights effect the land in question. Typically, the seller will disclose what rights they own; however, it is wise to have an attorney complete a title search prior to purchase to verify what rights the seller owns and can convey to the buyer.