You should know the market value of land for various stakeholders like buyers, sellers, investors, and lenders. Whether you are purchasing land, selling land, or even availing a loan against a property, its market value is important.
Is The Market Value Of Land And How To Calculate It?. In this comprehensive tutorial, we shall be learning about what land value of money is and the glorious methods of doing so with a special emphasis on the significance of using a land value calculator. We shall also be learning why you should be calculating land value each time that you find yourself needing to acquire property loans.
Market value is therefore what any item of property would sell for in an open market under normal conditions. It’s the price acceptable and agreed to buyer and seller if they are fully informed and independent and acting in their own self-interest. Market value is determined by location, size, uses allowed, and prevailing economic conditions.
The other key determinants of the market value of the land are the location of the land in relation to amenities such as shopping malls, hospitals, and schools and how accessible it is through means of transport and roads. The environment around it, zoning, and future developments around the area also are key determinants that can play a key role in the determination of the market value of the land.
Importance of Knowing the Value of Land
It is necessary to know the market value of land for a variety of reasons. One reason is that it ensures buyers and sellers each pay their portion according to what is actually happening in the market at the time. It is also crucial when taxing property since cities charge tax based on land values that have been assessed. Also, if you are purchasing a loan against land, land valuation comes into the scene because of the quantum of the loan for which you can avail yourself.
Calculation of Land Value
Land value calculation is complex because there are methods that consider various parameters. Some of the well-known methods are discussed in the following:
1. Sales Comparison Approach
This method is a comparison of the subject property to other comparable recent sales of the same properties in the same location. You can estimate a reasonable market value of the property based on their sales. It is most effective for city and suburban markets with numerous similar sales data.
2. Cost Approach
Cost Method assigns cost of acquiring a comparable tract and cost of placing improvements thereon minus depreciation to land value. It is typically employed in situations where there is not comparable data to utilize or in situations involving newly acquired properties where improvements have already been placed.
3. Income Approach
The income approach is the most common approach to commercial land valuation and is based on a process of estimating the estimated income to be earned from the land and capitalizing at a rate equivalent to risk. It relies on the assumption of high market rents and operating costs.
4. Use of a Land Value Calculator
Land value calculator is a basic, web-based software that calculates an estimate of land value in terms of such measures as size, location, and land type. Calculators are subjected to neighborhood trends and land sales data into which they calculate an estimate. Less precise than that of an expert estimate, land value calculator can potentially produce an educated guess that one could use in later assessment or negotiating.
Taking a Loan Against Property
You own some property, and you would like to take a loan against property. That more or less means that you will have to liquidate the value of your property. Here’s what is happening:
Loan amount determination
The amount of loan would be determined by the banks as per the market value of the land. The lenders would wish to lend a fraction of the market value, and that would be normally 60-70% of the market value.
Terms and Interest Rate
Loan terms and interest rates also rely on the credit of the borrower and land value. Desirable terms are sometimes possible at negotiable higher land price.
Approval Process
Loan application process includes a professional appraisal to verify the value of the land. This is due to the fact that variations in perceived values can make changing or rejecting the loan unavoidable.
Post
Your collateral is being mortgaged to the loan in a manner that in default, you can repossess your collateral. Proper valuing of your collateral is to allow you to lend at comfortable margins and not over-leverage on poor valuations.
Conclusion
Land value is a dynamic figure that is a very essential part of selling property, taxability, and mortgage eligibility. Land valuation is relevant if you are purchasing, selling, or need to utilize a loan against property. With the usage of tools such as the sales comparison method, cost method, income method, and utilizing a land value calculator tool, you can accurately calculate your land value.
While use of internet calculators will give you an approximation, working with a professional appraiser will give you the true value, particularly for bigger loans. Keep in mind that the more precise and well-researched your valuation is, the easier and more profitable your real estate business will be, and you will have the ability to make good and well-considered decisions on the property front.
