Valuing Plots of Land
Whilst it is comparatively easy to value a building such as a house, arriving at a valuation for plots of land for sale you are considering purchasing requires an assessment that takes account of a wider variety of different factors.
Many of the factors used to help value plots of land for sale are the same as those used to value houses, but plots of land for sale are often valued in isolation, rather than by comparison to other plots - with houses, you can compare the value of a house you are considering buying to that of other houses in the vicinity.
Many often ask whether the price of plots of land for sale are reasonable, or whether buyers should be looking at alternative areas of the country.
Area
The value of the land for sale is directly related to the local housing market. Hence the land for sale in Surrey will cost far more than the land for sale in Liverpool. Local and regional house and land price data, obtainable from building societies and HM Land Registry, provide a good indicator of the "quality" of plots of land for sale in that area.
Transport Links
Plots of land for sale in close proximity to a main railway line, A roads and motorway will usually be valued at a far higher price than the equivalent land only accessible by winding B roads in the countryside. Whilst we all have dreams of living in the countryside, the practicalities of working, shopping and schools usually dictate that it is far more convenient to live in a town or village.
Planning Permission
The price of plots of land for sale is obviously massively affected by whether any type of planning permission has been granted for that piece of land. Private individuals can make handsome profits by identifying and purchasing land that does not yet have the necessary planning consent, but which you believe will gain itshortly because of the location of the land, it's proximity to new and existing housing developments and the housing-building targetsimposed on the local authority by central government.
A plot of land, surrounded by existing housing, might be offered for sale at £30,000 if the vendor has not yet applied for planning permission. If the vendor applied and obtained planning permission the plot of land for sale might be priced in the region of £200,000.
Such opportunities are rare as large developers have teams of specialists searching for such opportunities. However PLC companies, with shareholders demanding continually rising share prices, look to the short term and are not always prepared to consider plots for sale that might require over 10 years before gaining the necessary planning consents. Private developers who are prepared to wait for these periods are now entering the market.
Gaining planning consent is somewhat of an art. Local planning officers and authorities have so many competing priorities that what seems like a straightforward application might turn out to be anything but, especially when local politics gets involved! However, by using local planning consultants to represent your case, you can dramatically increase your success of gaining approval.
Plots of land for sale in the deepest countryside in an area of outstanding natural beauty are unlikely to gain permission to be built upon, especially if they are located far from other residential buildings, miles away from local amenities and are accessed by a dirt track.
Similarly, plots of land for sale close to existing residential housing, and in an area with good transport access and high housing needs, will have a far higher chance of gaining consent.
The Plot Itself
The above factors affect the value of land for sale in the local area. The value of a particular plot is also dependent on other factors, relating to the plot itself:
- What can be built on the land? How big a house, how many bedrooms, what style of house etc?
- What are the costs of building a house? Will the house require expensive foundations on an “infill” site or if it is on a hill. If the house is remote, will the services be expensive to connect?
- What value will the finished home hold? Investigating the local estate agents and investing Internet sites such as upmystreet.co.uk will show what sale price you should expect from the construction of a new home. Remember that new houses always sell at a premium.
Developers often use a rule of thumb method of valuing a plot by working out the percentage of the value of the completed house compared to the cost of the plot. If the completed house is to have an expected market value of £200,000 and the vendors are asking £60,000 for the plot then the plot value is 30%.
Plot values vary depending on the market and location, but 30% is considered to be the "norm" for a developer.
This calculation does consider building costs. Though since developers usually look to a 30% profit margin there is plenty of scope for margin for the private self-builder or small time developer.
