As brokers, landowners engage us to provide an opinion of the value of development land.
At the same time, those landowners often offer what are believed to be comparable land sales within close proximity to the subject property.
What they may not realize is there could be a significant back story to that supposed “comparable” land sale which could render it incompatible as a sale comp.
Building blocks to value
It’s wise to either engage a commercial real estate professional who is experienced in the particular asset class, or to do your own research before too quickly jumping to conclusions about value.
So what influences value of land?
Size of parcel: The price per acre of a 160-acre parcel can vary significantly when compared to the per-acre value of a 10-acre parcel due to the considerable difference in prospective buyer profiles for two property sizes.
Current zoning: The specific asset class that is likely to be permitted and the density of the development,will play a huge role in how the construction pro forma will pencil in.
The planning district: In Saskatoon, this is referred to as the P4G and includes the greater trading area of Warman, Martensville and the RM of Corman Park.
What is the current zoning? You’ll need to research the municipality (sector plan), neighbourhood (OCP) and potential new zoning (FUD) plans.
A jurisdiction’s prediction of land absorption: Is the subject parcel likely to be absorbed within five, 10 or 20 years? This can be difficult to determine and may require some historical research to understand the past pace of new development.
Servicing: Is the site expected to have full services? When are the services expected to be available for the site?
Who is controlling the surrounding lands? It’s not uncommon for a major developer to have considerable political influence over the timing of development; they can sometimes interrupt extension of utility services if it’s in their best interests.
Who is the potential buyer? How many prospective purchasers might there be for the subject property? How long could it take to sell and should that influence the asking price?
Does it require a sophisticated development plan?: To determine the number of residential and/or commercial lots a parcel will accommodate, a full development plan will be required, including but not limited to: site elevations, utility servicing plan, roadways and required green space.
Further to what I have mentioned, if you are contemplating involvement in any way in this sector, be sure to engage a professional who has a depth of experience to guide your decisions.