Have you ever heard someone describe a particular land parcel could be purchased inexpensively? There is usually a good reason for that. You get what you pay for. Cheap land usually requires exorbitant cost to prepare it for vertical construction.
Trying to compare land costs is like trying to compare watermelons and kiwi. They are not closely comparable! Some sites are flat and some are severely sloped. Some are triangular and some are square. Some have utilities on-site and some don’t have a sewer connection for miles!
Land is complex. Valuing land is even more complex. But the bottom line is that the value of a land parcel is directly related to the vertical development that can occur on it. Land suitable for Walgreens drugstore will obviously cost more than land for a FedEx warehouse.
The only way to compare land is to first estimate the costs to prepare the land for vertical development. This is called “horizontal” infrastructure, costs, improvements or development. Horizontal development costs can include both off-site and on-site costs. Such off-site costs can include extending utilities, constructing the access road to the property, government imposed acceleration/deceleration lanes, traffic signals, etc. Typical on-site costs include tap fees, permit fees; installation of curb, gutter, sidewalk; storm water detention facilities, and balancing / compacting the dirt. One municipality might require a brick façade while another might permit a metal building. Secondly, one needs to understand how much square footage (called “density”) a municipality will allow (“entitlement”) on the land. Land that allows a 10-story building is worth more than land that only allows a single family residence.
So, to accurately compare the “price” of two different land parcels, you need know the entitlements by the municipality and then compare the finished costs of preparing the land to go vertical. So ask the listing agent to give you this specific information or go research it yourself along with your civil engineer, general contractor and the municipality where you plan to pull a permit.
Scott McLean is a Principal with Development Advisors, LLC and has invested his lifelong career assisting organizations desiring to expand their facilities in order to grow their organization’s revenue and positively impact our community.
