Land Has No Intrinsic Monetary Value
You've probably never heard anyone say, land has no intrinsic monetary value. However, the fact remains that it has no intrinsic monetary value, with the only possible exception being land that contains valuable minerals. And, even land containing valuable minerals may not have any intrinsic monetary value.
So, if land by itself has no intrinsic monetary value, the big question is, where does the value of land come from?
That's what we're about to find out...
What is Land?
The question, "What is land?" sounds almost moronic. After all, the Earth we live on is made up entirely of land (although most of it is under water).
And, it's because we grow up taking the land we live on for granted, we don't give much thought to the fact that land is the basis of our human existence. It's from the land that we grow much of the food we eat, the natural fibers from which we make clothing, and with which we feed the animals we use as another source of food, clothing and other things.
It's upon the land that the trees from which we get wood to build our homes grow, and from where common rocks and minerals are extracted and used to manufacture of steel, concrete, asphalt, and many other products used to make our modern daily lives and cultures possible.
Consequently, there's much more to the question, "What is land," than it merely being the dirt under our feet.
In fact, when we actually sit down and seriously analyze land when trying to answer the basic question, "What is land," we realize that land is a the underlying component of virtually every use connected to human existence.
Accurately estimating the value of a parcel of vacant land is arguably one of the most challenging tasks facing a real estate professional, including professional real estate appraisers, of which I am one. It can be likened to the artist standing before a blank canvas asking, "What can I made of this?"
There are seemingly countless possible considerations, including:
1. All of its potential legal uses (zoning);
2. Its physical nature, including location, traffic volume, accessible public utilities, surrounding property uses, etc.;
3. Its physical features, including its surface area, dimensions, shape, topography, and soils;
4. Mineral deposit(s);
5. Water rights; and its
6. Ecological and environmental limitations, such as fresh water or other types of wetlands.
Then, there are the economic issues of supply, demand, development cost vs market value, as well as return on investment considerations for each potential use that might legally be created on a particular parcel.
All of these potential value factors and considerations stem from one simple question, "What's the value of the land?"
Non-Productive vs. Productive Land
The first, and sometimes the most important issue to address before selecting the appropriate method to estimate the value of vacant land is to determine whether the land is productive or non-productive.
But, before we can make that determination, we first have to understand the difference between non-productive and productive land.
Non-Productive Land Valuation
While there are a few different theories on how to select the appropriate valuation method with which to determine what is non-productive and productive land and how to appraise each , the Opinion of the College of Fellows of the American Society of Appraisers published in Valuation, Volume 22, Number 1 (June 1975) provides an excellent guide as follows:
The Opinion here presented deals with the valuation of wilderness land, mountain land, unused rural land, or, in more general terms, with that kind of land for which there is no demonstrable or determinable current market. The kind of land considered in this discussion is characterized by the fact that it is not put to any utilitarian use as of the valuation date.
The Opinion goes on to say, that this type of land is ...
Land that has, in effect, no foreseeable future utilitarian use, that is to say, land the possible future use of which is so uncertain, remote, and speculative that no value can be ascribed to it.
Finally, pertaining to this type of land, the Opinion concludes...
It is the Opinion of the College of Fellows of the American Society of Appraisers(ASA) that land in the [this] category of unused, currently non-marketable land has either no current value or an indeterminate current value.
Productive Land Categorization
Continuing from the same Opinion in identifying and outlining the valuation methods for productive land, it states...
Properties are classified for the purpose of valuation in accordance with the nature and character of the benefits derivable from the specified ownership under consideration. The classifications are:
Investment Property - Any property that is expected to produce owner benefits in the form of direct monetary returns. Net Monetary Return In the case of an investment property, the difference between the receipts and disbursements in any accounting period
Marketable Non-investment Property - Any property that does not possess the characteristic of generating monetary returns but that is of such a nature that the benefits of ownership are derived by use and/or consumption by the owner and that is of a type commonly bought and sold.
Service Property - Any property that does not possess the characteristic of generating direct monetary returns and that is not of a type commonly bought and sold but that is expected to produce benefits of ownership by use and/or consumption.
Productive Land Valuation Methods
The following statement regarding the appropriate real property valuation methods have been provided by the College of Fellows of the American Society of Appraisers, Washington, D.C., in a publication entitled, "The Opinion of the College on Definitions, Concepts and Principles of Appraisal Practice" and published in, "ASA Valuation," June 1975 at page 85, et seq.
In making the kind of appraisal called a 'Valuation', the subject property should first be classified as Investment Property, Marketable Non-Investment Property, or Service Property. An Investment Property can be valued only by the Investment Analysis Method, a Marketable Non-Investment Property can be valued only by the Sales Analysis Method, and a Service Property (if it can be valued at all) can be valued only by the Cost Summation Method
Land Valuation for a Specific Use
This article wasn't written to address valuation methods and techniques for appraising land for any specific use.
Providing a realistic estimate of the value of land for any specific use has to be undertaken after understanding exactly where the land is located, all of its physical and legal attributes and limitations, as well as a variety of economic factors that pertain to the specific use being considered.
That said, if you'd like more information about the valuation of a parcel of land for a specific use, please contact me and I'd be happy to have that discussion with you.
