< Back to JVM's Blog

How Much Is a Huge Lot Worth? Probably Less Than You Think

How Much Is a Huge Lot Worth? Probably Less Than You Think

In response to this blog about the value of in-law units, I received numerous other appraisal-related inquiries including a few questions about lot-size.

Agents are often frustrated b/c they think appraisers ignore or underestimate the value of larger lots. But, there is much more to the story.

NEED COMPS IN SAME OR SIMILAR NEIGHBORHOOD TO SUPPORT VALUE ADJUSTMENTS

As always, appraisers have to corroborate their lot-size adjustments with comparable sales that have similar-sized lots.

They can’t simply extrapolate or estimate the value of a large lot, and the lack of comps with large lots often prevents appraisers from making the type of adjustments that agents expect to see.

EFFECTIVE SIZE

There are many other factors too such as “lot utility.”

A steeply sloped 2 acre lot may have an effective lot-size of as little as a 1/4 acre, something we see often in the Oakland Hills for example.

B/c of this appraisers often attribute no additional value to large lots with steep slopes.

DEMAND

For years, I lived in a Walnut Creek, CA neighborhood that was comprised almost entirely of families with kids.

B/c of this neighborhood make-up, there was a very strong demand for larger lots, justifying large adjustments.

In contrast are the Oakland Hills once again, where the demand for larger flat lots is not as robust b/c there is a much larger proportion of homeowners with no kids.

DENSITY, VIEWS, SCHOOLS, LOCATION

There are many other factors that influence property values that homeowners and agents sometimes mistakenly attribute to lot-size.

Neighborhood density is a great example. Our Appraisal Manager lives in a neighborhood with mostly 8,000 square foot lots.

She is, however, right next to another neighborhood where 12,000 square foot lots predominate. The same house in the larger lot neighborhood is worth about $150,000 more than it would be in the smaller lot neighborhood.

This is b/c the larger lot neighborhood has larger lots (obviously) but also b/c the larger lot neighborhood has a much lower density overall and more overall “appeal.”

Other factors that influence values include views, schools and location, e.g. a large lot at the end of a court will be worth more than a similar lot on a busy through street.

ADJUSTMENTS – $3 TO $5 PER SF; UP TO $9

Appraisers typically make no adjustments for lot-size if the comp’s lot-size is within 1,000 square feet of the subject’s lot-size.

The typical lot-size adjustment in most neighborhoods is only $3 to $5 per square foot (much less than most people expect).

In rare cases, appraisers might adjust up to $9 to $10 per square foot.

LAND TO VALUE RATIOS

Appraisers are also sometimes hesitant to make very large adjustments for lot-size b/c they don’t want to tilt the land-to-value ratio too heavily in favor of the land.

Mortgage lenders do not like to make loans that are primarily supported by land as opposed to the home on the land, as “land-loans” are notoriously risky.

Hence, if there is too much value attributed to a lot, lenders might either call for a review or pull back on their lending commitment altogether.

 

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 310167