I am sure everyone has heard over and over the saying location, location, location when it comes to real estate. That may hold especially true for residential and commercial markets, but I think it’s less important for the land market particularly the rural, farmland, and hunting land sectors. Usefulness, Use, & Best Use are my replacements for location, location, location when it comes to rural land.
Before you list your land there are many factors to consider. Robert King’s recent post here on LANDTHINK covers preparation of the land in detail but one thing that is usually overlooked by sellers is the actual market data. A quality comparable is data on a property that has SOLD – not on the market for sale. An active property listing may give you an idea of your competition but it gives no indication of actual price sold. If there is any chance the buyer of your property would need financing, then an appraisal will be done and they always use sold data, not active listings or pending contract properties.
Things to look for in the comparables:
The date of the sold transaction is most important right now because of the fast changing market conditions. Using comparables from a year ago is no longer feasible. Some areas are so remote you may have to use a full year to even get a few comparables but try to keep it under 6 months if at all possible and take into account the seasons as well. If several sales were in December they could have been lower prices due to willingness to sell by year end for tax purposes. Take care when looking at a comparable sale because you need to know more about the sale than just acres sold, sold price and the date.
A qualified land agent that follows the market will be able to use unpublished data to support documented sold reports from MLS or other services. Agents out in the market talking with landowners will know if land had been split, or if investors drove up a price in a bidding war or if a seller provided down payment assistance at closing which actually lowers the selling price. Every sold price in the MLS has a story. The more experienced agents that focus exclusively on land sales will know the stories and can help you interpret the data.
Features do not have nearly the impact on land sales as they do in residential sales. Certain features are inherently appealing though and will usually garner a higher sales price. For example, in Kansas especially in grassland areas a pond is an excellent feature. All weather roads are a big feature in some areas where dirt roads become impassable during rains. So make a list of features and see how your land compares.
What is the use of the property? Is it the best use? Was the land ignored by the seller which caused a lower price? How can the land be used now? Did the use change drastically and if so did it affect the price? These are all things to consider and look at when evaluating comparable sold data. Pre-development land can cause prices to skyrocket in an area but that does not necessarily mean that all land in that area can bring the same amount. A qualified land professional can help you interpret the trends.
Should REO, foreclosure, short sales or any type of distressed sale be used as a comparable? It depends. Some short sales actually still sell within market ranges so in that case they should be used. In reality there have been far fewer land foreclosures than residential so the impact of these sales in the land market will not be as drastic.
Finally you need to know what you are up against in the market. You should drive by if possible or do online tours of other land for sale that is comparable to yours. Curb appeal is more of a factor now with land than it ever has been before especially with recreational land. If your opening gate is made of barb wire and falling over and the comparables all have solid metal gates with locks or even automatic openers then you need to make improvements or adjust your price accordingly.
After you have evaluated the data then decide your course of action. If you are adamant on a price that does not coincide with the data then be prepared to have your listing agent say no to your listing. You could linger on the market for ages and that would be a detriment to your marketing plan. Instead offer the following solution to your agent. If your projected listing price is drastically off from the data then sign a Pricing Agreement Addendum to your listing and agree to a sliding price change. For example if you believe you can list your property at 25% above what the data supports then agree to a 10% price reduction every 60-90 days to keep your listing competitive in the marketplace. Also re-evaluate any new sold data that comes out after your listing is put on the market.
Using sold data to determine your listing price will provide the best estimate of market value and decrease your marketing time.
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