People who want to invest in land to either "develop" it (as that term is defined in the articles in this Land Development Values series) or to build on it and sell a total package (e.g., a new home on its lot) have to sift through many parcels because everybody wants to try to sell them 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. Buyers typically use formulas and rules of thumb for their initial screening.
These rules are designed to provide rough estimations relating to yields of a site, and different cost elements because these are the most important aspects when calculating the price that they should pay. The buyer can determine in minutes if the asking price of the seller is realistic by defining the price that the formula works at. If the land parcel is substantially overpriced, the buyers can simply discard the property and move on to better prospects.
Commercial Land Developments
The method used to estimate site yields and improvements costs for non-residential and residential land development is different. For office or retail parcels, yield is the total amount of space that can potentially be built. This is usually a function of the number of parking spaces that will fit on the parcel and taking into account the overall development limits imposed by impervious coverage and green space requirements set by the zoning ordinance. One rule of thumb might be used to estimate the total amount of land area needed for each car that would be parked on the office property (e.g., square feet for parking space plus drive aisle). A second rule would estimate the area of land taken up by the sidewalks and pathways. The third rule is to assume that improvements vertically and horizontally will cost $100/sq. Office space is measured in square feet.
Residential Land Developments
To estimate the number of lots that a parcel of land could produce, once the subdivision was completed, as well as the cost for horizontal improvement. The value per "raw" building parcel would be calculated by calculating the value of the completed product (the home on its own lot) as well the cost for horizontal improvements.
Site yield rules of thumb may net the amount in square feet of land that will be wasted, Land Clearing near me or not be able to be used due to various reasons. They then divide this amount by the minimum required lot size by the zoned area and arrive at the number. The rule of thumb calculation might look something like this, for example, for a vacant 15-acre parcel zoned 20,000 square feet. 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
This would mean that there are roughly 22 lots of land for this parcel. The second step involves subtracting 30% from the gross site to account of wastage and square feet lost due to natural constraints, such as slopes or floodplains.
Keep in mind that the rules of thumb may vary depending on your geographic location. They are rough estimates so you should modify them as circumstances warrant and not just apply them blindly. A substantial portion of a 15 acre parcel would have to be in floodplain for it to make sense to take only 30% off the total gross site. Be conservative if you don't know what rule to use.