Land Assembly Valuation
In a land assembly project, values are placed on the land and not the structure, improvements or buildings. Lot size varies from property to property even within the same block, and it might not always be apparent on the face of it. (Even if the houses may look the same, there might be a difference in lot sizes.)
In a regular sale, where a home owner lists a property through the Multiple Listing Service (MLS), an appraiser or a Realtor® looks at past sales (historic sales), active, expired and cancelled listings within a three month period that is similar to the property being sold. This, along with the current residential market conditions can give an estimate of what a home could be sold for.
In a land assembly project, however, the land developer makes their valuation based on future benefits and the anticipation of future benefits-- or forecasting. An extensive in-depth analysis is needed in order to conservatively assess whether the project will be profitable after construction, sometimes years down the road.
A pro-forma is created which includes but not limited to the following: soil testing, architectural fees, financing fees, permits, site services, legal fees, management fees, project marketing fees, rezoning costs, advertising fees, special design consults, engineering fees, government registered program fees, development charges, land surveys, municipal fees and land related costs.
The developer's valuation is also based on a profitability margin or percentage. If the developer is not able to make a profit given the pro-forma, chances are the land assembly will not get an offer.
A value is placed on the entire land assembly proportion to the lot size. It is known that in some unique cases, a developer may give special considerations to one lot because of its location, type or access.
I invite you to speak to us by either attending our free land assembly seminar , town hall meeting for your neighbourhood or download my free ebook on Land Assembly.