Land investors who wish to invest, either to "develop" the land (as defined in this Land Development Values Series) or to build and sell an entire package on that lot (e.g. new homes on their lot) must sift though many parcels. Everyone wants to try to convince them to purchase a property. The process of identifying the parcels that are worth pursuing, therefore, is very time consuming, and land buyers need tools to enable them to quickly weed out the junk and identify those parcels that warrant further consideration. For their preliminary screening, buyers usually use formulas or rules of thumb.
These guidelines are meant to give rough estimates of the site's yield and the different cost factors, because they are key elements in determining the "right" amount to pay for the property. By defining the price at which the numbers work, land buyers can see within minutes if the seller's asking price is realistic. If the price of the land parcel is significantly overpriced then the buyer can discard it and look for better opportunities.
Commercial Land Developments
The method used to estimate site yields and improvements costs for non-residential and residential land development is different. For retail and office parcels the yield is defined as the potential amount of construction space. The yield is a function of how many parking spaces can be built on the parcel, and the development limitations imposed by impervious cover and green space requirements as set forth by the zoning regulations. To estimate the amount of land needed to park each car on the office property, a rule of thumb can be used (e.g. the square footage of the parking area plus the drive aisle). Another rule of thumb is to approximate the land area occupied by sidewalks, walkways, and parking spaces. Another rule of thumb would assume that $100/sq.ft. is the cost to improve vertically or horizontally. The square footage of an office.
Residential Land Developments
The rules of thumb applied to residential land developments would be designed to estimate the number of building lots that the parcel could produce once the subdivision had been completed, and the cost for horizontal improvements. The value of a "raw" lot of land would be based on both the expected sale price of the Dirt Work near me final product (the house built on it) and the costs of improvement.
A site yield rule-of-thumb might subtract from the gross parcel area the square footage that is wasted or cannot be used, and divide this by the minimum lot size set by the zoning. This would give the number of sites. Rule of thumb calculations for a 15 acre parcel zoned as 20,000 square feet might look similar to this. ft. lots:
Step 1: 43,560 sq. ft. x 15 acres = 653,400 sq. ft.
Step 2: 653,400 sq. ft. x 70% = 457,380 sq. ft.
Step 3: 457,380 sq. ft. divided by 20,000 sq. ft. = 22.87 building lots
The final result is always rounded down, so there would be roughly 22 building lots for this parcel. The second step involved subtracting 30% of the total site area to account for waste, lost square footage due to natural constraints (e.g. slopes, floodplains, irregular shapes) and the land area taken up by the new roads within the community.
Be aware that local rules of thumb will vary. Since these are rough estimate, you may need to adjust them according to the circumstances. In this case, if the site is a 15-acre parcel with a significant portion in floodplains, it would be illogical to only deduct 30% of its gross area. If you're not sure what rule of thumb to use, be conservative.