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! To identify parcels of land that are worthy of further investigation, it is a time-consuming process. Land buyers need tools that can help them quickly separate the junk from the good parcels. Typically, buyers use formulas and rule of thumbs to do their preliminary screening.
These guidelines are meant to give rough estimates of the site's yield and the different cost factors, because they are key elements in determining the "right" amount to pay for the property. Land buyers will be able to tell within minutes if an asking price is reasonable based on the number of numbers that work. If the land parcel's price is excessive, buyers can just throw it away and move onto better opportunities.
Commercial Land Developments
For residential and nonresidential land developments, it is not surprising that there are differences in the estimation of site yields. For retail or office parcels, the yield is the amount of potential building space that can be built. This is often based on the number of parking spots that can fit onto the parcel. It also takes into consideration the overall development restrictions imposed by the zoning laws, such as impervious coverage requirements and green spaces. You can use a simple rule to estimate the area required for each parking space and drive aisle on your office property. The amount of land taken up for sidewalks and walk ways would be estimated by another rule. A third rule of thumb might assume that the cost for vertical and horizontal improvements would be $100/sq. The square footage of an office.
Residential Land Developments
The rules of thumb applied to residential land developments would be designed to estimate the number of building lots that the parcel could produce once the subdivision had been completed, and the cost for horizontal improvements. 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.
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. Dirt Work near me = 22.87 building lots
The result will always be rounded up. So, there would roughly be 22 building plots for this lot. In the second step, 30% of the gross site area was deducted to account for wastage, square feet lost because of natural constraints (e.g., slopes, floodplain, irregular shape) and land area that would be taken up by new roads in the community.
You should be aware that there are different rules for each area. Since these are rough estimate, you may need to adjust them according to the circumstances. If a substantial portion of the 15 acre parcel was in floodplain, it wouldn't make any sense to deduct only 30% from the total gross site area. If you're unsure what rule of thumb to apply, go conservative.