Real Estate Term of the Day – Land Value
Land Value is the value of a piece of property, calculated by taking into account both the value of the land itself and any improvements that have been made to it. Land value increases when demand for land exceeds the supply, or if the piece of land has an intrinsic value over its neighboring areas. Property owners use land value to determine how much to charge people who want to use it. For example, anyone who wants to lend their land out to farmers or cattle-drivers will use the market value of the land compared to the land’s taxes and capitalization rate.
Often, the Land Value of property is determined by third party real estate appraisers. The appraiser’s assessment will be used to inform a lender’s decisions for financing, and will often include a comparison of the property’s condition to other similar real estate. They will also look into the flaws or defects a property has that might affect its value. Factors that influence the value of land include position and location of the land as well as environmental risks like flooding, landslides, or earthquakes. Even if land is located in a prime place and has access to desirable resources, there are circumstances that could prevent it from being used to its fullest potential and dampen its value. Restrictive covenants on resources is an example of one of those circumstances.