Trying to understand the appraisal process can feel like trying to find the Loch Ness Monster – impossible! An appraisal is an educated opinion based on dozens of different factors that are always changing. Since there is very little data available about most plots of land, most appraisals rely heavily on educated guesses and predictions of the market. This uncertainty makes some people uncomfortable. However, as a land professional, it’s important to know what goes into the appraisal process and what impacts value. Let’s take a look into the ever-changing and often infuriating world of appraising land real estate.
What exactly is an appraisal? According to the Appraisal Institute, an appraisal is a professional opinion on the value of a property. The word ‘opinion’ here is very important. Since land values, market condition, and demand for land types and uses is always changing, it is hard to find solid data to base an appraisal on.
Not only are the factors of an appraisal difficult to track, there are also so many of them! Here are just a few that impact land value:
- Current market conditions
- Income potential
- Current land use
- Soil type
- Environmental hazards
- Surrounding area/neighborhood
- Local and national land laws
- Water/lack of water on a property
- Access to mineral rights
We need a nap just after typing that list!
With all this in mind, what is the best way to go about getting an appraisal? There are dozens of methods out there, ranging from the income approach to the sales comparison approach. There are many blogs that suggest ‘do-it-yourself’ equations to figure out your land’s worth. We STRONGLY recommend against this. As you’ve seen in this article, appraisals are extremely complex and require the help of a professional (such as an ALC). While it is impossible to find an exact value, here are three tried-and-true ways you and a land professional can use to get the most accurate value of your land possible.
Get The Tax-Assessed Value of Your Property
You can access these in the public tax records. Tax-Assessed Values (or TAVs) are determined so that counties can figure out how much to tax different plots of land. They are done every few years. Since these numbers are used for taxes, TAVs are a great resource for appraisals. Remember that the TAV is used for tax reasons, so you still need to factor in current market conditions.
Best For: All land.
Done by a professional, this will help you know what parts of the land you own. This is great for lands where the boarders are unclear or deeds have gotten blurred over time. A land survey will also show you the buildable land and topography of a plot. Knowing what land uses are possible, and what the land’s highest and best use is, are key for determining value.
Best For: Large parcels of land and land with unclear boundaries
Land Value Estimation
Raw land is the hardest land type to value. It’s a blank canvas. The value will change based on what the buyer/owner does with the land. The land use and structures built on the land can wildly change the value. For example, imagine a plot of land that has the perfect location, soil type, and structures to be a vineyard. If the buyer uses it as a vineyard, the value of the land could be much higher than if the buyer decides to use the land for a completely different use, such as hunting. This method can give you a base price of the land.
Best For: Vacant Land/Transitional Land
There’s a reason appraisals should be left to the professionals. It takes years of experience and a solid understanding of market trends to even begin to understand land value. While we don’t recommend you trying to appraise your own land without the help of a professional, we hope this glance into appraisals makes you appreciate all the work that goes into it. Make sure to to help with your next land transaction.