As brokers, landowners engage us to provide an opinion of value on development land.
At the same time, those landowners often offer, what is believed to be, comparable land sales within close proximity to the subject property.
What they may not realize is that there could be a whole back story to that supposed comparable land sale that render it incompatible as a sale comp.
Building blocks to value
It’s wise to either engage a commercial real estate professional who is experienced in the particular asset class or to do your own research before too quickly jumping to conclusions on value.
So what influences value of land?
Size of parcel: The price per acre of a 160-acre parcel can vary significantly when compared to the value of a 10-acre parcel due to the considerable difference in prospective buyer profiles for each size.
Current Zoning: The specific asset class that is likely to be permitted and the density of the development will play a huge part in how the construction proforma pencils.
The Planning District : In Saskatoon this is referred to as the P4G and includes the greater trading area of Warman, Martensville, and the RM of Corman Park.
What is the current zoning? You’ll need to research the municipality (sector plan), neighborhood (OCP) and potential new zoning (FUD) plans.
A jurisdiction’s prediction of land absorption: Is the subject parcel likely to be absorbed within 5, 10 or 20 years?
This can be difficult to determine and may require some historical research to determine the past pace of new development.
Servicing: Is the site expected to have full services?
When are the services expected to be available for the site?
Who is controlling the surrounding lands? It’s not uncommon for a major developer to have considerable political influence over the timing of development and can sometimes interrupt extension of utility services if it’s in their best interests.
Who is the potential buyer? How many prospective purchasers might there be for the subject property
How long could it take to sell, and should that influence the asking price?
Does it require a sophisticated development plan: To determine the number of residential and/or commercial lots a parcel will accommodate, a full development plan will be required which include but not limited to site elevations, utility servicing plan, roadways and required green space.
Further to what I mentioned above, if you are contemplating involvement in any way in this sector, be sure to engage a professional who has a depth of experience to guide your decisions.
Posted by Barry Stuart
