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Video: I Want To Buy A Land Plot - How To Determine The Actual Cost Of A Land Plot
2024 Author: Sebastian Paterson | [email protected]. Last modified: 2023-12-16 13:47
Market value or value in use?
Why do I use quotation marks when talking about the “market value” of land plots? When determining the market price of a plot, they usually proceed from the average price of purchases similar in quality, location, area, type of use of land plots, made over a certain (not too long) period of time. Accordingly, the more such transactions are analyzed, the more accurately the price of the area of interest to us can be determined.
At the same time, it is necessary that transactions were made using similar financial schemes, without any special conditions for the transfer of ownership rights, restrictions and encumbrances.
However, in practice, the use of this technique does not always give an objective picture of the market situation. To date, the market for agricultural land has just begun to form. By and large, a serious volume of land transactions has been observed only in the last 5-6 years. Yes, in the last year or two, a fairly large number of transfers of ownership have taken place, but it seems to me a futile task to determine the real purchase and sale prices for a large number of plots.
On the one hand, a huge number of agricultural plots change owners as a result of the donation procedure, although in fact there are purchase and sale transactions. Since donation transactions are, in fact, gratuitous transactions, how, in such cases, to assess the value of the property transferred to the new owner?
Yes, and when making transactions for the sale of land plots, very often the contract indicates an underestimated value of the plot - primarily in order to pay less taxes.
On the other hand, you cannot be guided by the prices indicated in advertising offers for the sale of real estate objects. Firstly, very often, when selling a land plot, there are a lot of intermediaries, adding 20, or even 40-50% of the original price of the plot. Secondly, landowners themselves often expose objects at an inflated price on purpose - taking into account further trade for a fall. It is much more pleasant for the buyer to buy real estate with a discount of 10-15%, while feeling like a competent businessman. Third, the market situation changes frequently. One of the most typical options is when land plots are offered for sale at a price lower than those previously exhibited. For example, there are other parcels with similar characteristics near your land plot,and the owner urgently decided to sell them at a large discount due to the urgent need for funds.
There is another reason why it is difficult to assess the market value of specific land plots, the almost complete absence of a mortgage market for land plots.
As I said above, to date, the land market (especially for plots for commercial projects, i.e. large areas) has not yet formed. The volume of transactions in specific territories, and the methods of their implementation, do not allow to carry out with reliability an analysis sufficient for an accurate and objective assessment of the value of land, an analysis that could be taken as a basis when considering a land plot as a subject of pledge without attracting additional guarantees or additional financial guarantees …
I think not, especially if we do not use the vague term “market value”, but talk about the “consumer value” of this or that site. If “market value” is understood as the amount for which a plot can be sold at a given moment in time, then when assessing the consumer value, many factors are examined, including the main ones:
a) Dynamics of changes in prices for plots similar in all respects for the short-term (1-2 years) and medium-term (5 years) periods.
b) The expected dynamics of price changes for the site, taking into account such factors as long-term plans for the development of the adjacent territory, the political and economic situation in a particular district, region, subject of the federation, changes in the ecological situation, climatic processes in a given area, social and demographic processes, etc. etc.
c) Analysis of possible risks in various areas of development of this land plot, the possibility of overcoming such risks and the calculation of the associated material costs.
d) Forecast of the liquidity of a land plot at different stages of its development.
Despite the fact that the answers to each of the above points can be rather approximate, their combination, when studied within the framework of a mathematical model, gives a fairly accurate answer about the consumer value of the site, which is understood as the maximum allowable amount of money, the investment of which, when buying land, ensures the profitability of further development of the site.
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