Owners or investors calculate the fair market value of land using the comparable sales method, the capitalization of income method or the replacement cost method, reports the IRS. Sometimes the combination of two or three methods together is necessary for a detailed appraisal.Continue Reading
An appraiser uses the comparable sales method by comparing the property with several similar recently sold properties in the area, according to About.com. If the property has a building or structure on it, the appraiser adds or subtracts value for features such as the number of bedrooms and bathrooms, having a garage, and similar construction styles. If the land is vacant, the appraiser looks at the size of the property, its location, any restrictions on its zoning and use, water rights, and available utilities, states the IRS. Appraisers also consider access rights, mineral rights, and the state of the soil and vegetation.
An appraiser uses the capitalization of income method if the property is considered an investment for rental purposes, reports About.com. The value of the land is determined by net rental income after expenses. Appraisers use the replacement cost method when a building on the property determines the value, according to the IRS. The appraiser considers the cost of replacing the structure at current costs for labor, materials, overhead and profit. Although this method determines an upper value limit, it's not precise enough by itself to calculate fair market value.Learn more about Real Estate