3. Land Values

1. 3. Land Values • In this module, we will discuss: • Factors that influence land values • Methods used to calculate values

2. Components of Value For real estate to have value it must be scarce. • Scarcity • Utility • Demand • Effective Purchasing Power Utility is the power to satisfy a need or want. Utility by itself does not imply value. Demand is the desire of individuals to want things. Purchasing power is the actual ability to buy. Unless real estate is affordable to the targeted market, it will not be successful.

3. Principles of Real Property • Anticipation • Balance • Change • Competition • Conformity • Contribution • Substitution • The underlying economic and financial considerations that provide a basis for property analysis in addressing the issue of why one parcel is better than another.

4. Factors That Affect Land Value • Market value • Rent theory • Supply and demand

5. Appraisal Methods • Market Comparison • Cost Approach • Income Approach

6. Market Comparison Advantages • Incorporating previous market participant actions • Easily explained to non-real estate professionals • Active market provides recent sales to use as a comparison. Disadvantages • Quantity and quality of sales data • Relies on historical transactions and does not look to the future, which could provide outdated information

7. Cost Approach Advantages • Useful in evaluating new or relatively new properties • Used when income data are unknown or not relevant Disadvantages • It can be difficult to estimate depreciation. • For new buildings, value indicator may be more accurate than for marked economic shifts.

8. Income Approach Estimates value by converting a string of expected future payments to a present property value, including cash flows, and reversion at the time of the sale in the future • Common ways to analyze income: • Cap rate • IRR • FMRR • GRM

9. Case Study: Sawgrass Ranch • Review the case study. • Determine an appraisal approach for this case.