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. So buyers typically use rules of thumb and formulas for their preliminary screening.

These guidelines provide rough estimates on the yield of the site and various cost factors. These are the main aspects that determine the "right' price to pay for land. The price at which these numbers work allows land buyers to determine within minutes whether the seller's request is realistic. If the land parcel is substantially overpriced, the buyers can simply discard the property and move on to better prospects.

Commercial Land Developments

As is to be expected, the methods for estimating site yields and costs of improvements are different for residential and commercial land developments. For retail and office parcels the yield is defined as the potential amount of construction space. 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. The office space should be at least 100 sq. ft.

Residential Land Developments


The rule of thumb that is applied to residential land development will be to estimate both the cost and number of building parcels the parcel would produce when the subdivision has been completed. The value of each "raw" building lot would be calculated based on the projected sale value of the finished product (house on its lot) and the improvement costs.

One site yield rule of thumb might net out of the gross land area of the parcel the amount of square feet that would be wasted or couldn't be used for whatever reason and then would divide the result by the amount of the minimum lot size required by the zoning to come up with the number of lots. As an example, a 15-acre vacant parcel zoned at 20,000 sq.ft. might be calculated as follows. 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 result will always be rounded up. So, there would roughly be 22 building plots for this lot. In the next step, 30 percent of the site's gross area was subtracted to account both for the wastage of land, the square footage lost because of natural constraints like slopes and floodplains as well as the area of land that would have been taken up by roads in the neighborhood.

It is important to remember that these rules can change depending on the geographical area. These are rough estimations, so make sure to modify Dirt Work near me them if necessary. It would not make sense to subtract only 30% of the gross site area if a large portion of the parcel is in floodplain. You should be conservative when you're not certain what rule-of thumb to use.