You go to the store looking to buy a toaster. You find a basic toaster with two slots and no frills that’s priced at $12.99. A second toaster has four slots and some special features and is priced at $15.99. You can’t make up your mind; which toaster is the better value?
What Contributes To Land Value?
The question of value is something that people buying and selling land struggle with, as well. What makes one piece of land more valuable than another? In the analogy above, consider this question: is the second toaster a better value because it has more features, or is the first toaster a better value because it’s cheaper? You can ask similar questions about land value; is this parcel more valuable because it’s closer to a city, or is this other property better because it has a beautiful view? What if a third piece of land has neither of these things, but it is close to land your family already owns?
Adding another wrinkle; what if the store purchased too many of the second toaster and decided to have a sale. They reduce the price to $9.99. Does this make that toaster less valuable because it now has a dollar value that is less than the first toaster?
The simplest explanation of the market value of a piece of land is that it is worth whatever people are willing to pay. If someone is willing to pay $10,000 for a piece of property, that property is worth $10,000, and it is assumed that all properties around the first parcel are also worth around $10,000. A few months later, a property several miles away may sell for $5,000. The parcels between these properties are re-valued at $7,500, between the two prices. This system of basing land values on nearby, comparable sales is something that real estate agents frequently use to place a value on a piece of land. But this is really little more than an educated guess.
Assessed Value vs. Land Value
Local governments also involve themselves with property values. They look at the market value of the property based on the last time it sold or on comparable sales in the area. They then use that market value to come up with an assessed value. The assessed value is often a percentage of the full market value. This assessed value is what the county uses to determine how much they will charge in property taxes on that piece of property. Sometimes the county looks at the market values every year and adjusts the assessed value accordingly, and sometimes they will only re-evaluate a property when it sells. The assessed value might lag far behind rapidly changing market values an area.
When you are looking to buy a piece of property, it is good to look at all these types of value: market value, assessed value and comparable sales. They can all be important tools for figuring out what a piece of land is worth. But it is even more important to look at what the land will be worth to you, personally. Finding a piece of land that you will use and enjoy is much more important than looking at a particular price range.