How Is the Value of Land Calculated?

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Property appraisers determine the value of land from a cost approach, income approach and a sales comparison approach. Appraisers utilize features of each method and apply a standard rate to similar lots of land to develop a mass appraisal method.

Before applying these methods to determine a land's value, the lot must be formerly surveyed to identify its precise location and size. After surveying the land, the investor or owner must determine the best use of the land, which requires a thorough review of the area's zoning laws. Once the precise location, size and best use are determined, an appraiser can apply the aforementioned approaches to determine the land's value.

The sales comparison approach compares the underlying lot to recently sold lots in close proximity and under similar market conditions. The cost approach is used when the land contains a structure, such as a house or facility. This approach analyzes the age of the structure and the value of the underlying land to determine the expected cost to build an identical structure on the lot.

The income method is used when evaluating commercial property or income-producing lots. This approach determines the land's expected return of investment, which is the amount of revenue the land can conceivably generate divided by the expected operating, tax, insurance and maintenance costs.

The value of land is calculated from a variety of factors, including recent sale values in close proximity, the land's replacement cost, its operating costs and the potential income earned from the land. These factors are closely analyzed by property appraiser to determine property values.