How do you factor land value into offer price?

How much weight do you put on the unimproved land value (per sites like pricefinder) when working out what amount to offer when bidding on a property.

Say you are evaluating two properties both with the same asking price.

Property A land value is $100k higher than property B. The houses are very similar in terms of construction and condition.

Would you be willing to pay $100k more for property A? Conversely would you assume property B should sell for less than A or is this too simplistic?

Thanks FXH

 

The 'aspect' of the dwelling can also make a big difference, ie street location, elevations, views etc.

 

Thanks. So the valuation wouldn't take those kind of factors into account? Would the valuation be more based on the size of plot and suburb location then without consideration of these other factors?

 

I do think they take into account certain aspects though, positive and negative. eg views, power lines, on main busy roads, to name some.

This is a good, quick brief of things someone can do before a valuation firm comes to the property to ensure the best result as possible. I think its a great list and resource to add to your Investor's Resource folder.

The article is by a gentleman, Johnathan Millar from the firm JDMA Property consulting and Valuations.

1) Tidy, declutter & repair: Valuers are trained to look through the mess and value the bricks and mortar, but, in my mind, a well presented property will value better. If the valuer is coming this week, you can’t perform miracles but there are still some actions you can take to maximise your valuation. Tidying the yard and de-cluttering the house will have an impact. If the valuer needs to hack through front yard growth to make it to the door it makes it difficult for the valuer to see the property’s full potential. And it doesn’t help if the valuer can’t comment on floor coverings because he can’t see through the toys, dirty clothes and magazines. Fix those small things you’ve been meaning to do for months: re-attach the kitchen cupboard door, straighten the blinds and fix the towel rail. All small fixes that will make a difference to the valuer’s first impression.
To improve the value in the longer term – if your property has no covered outdoor area or undercover car accommodation, this is a good place to start.
2) Provide building plans: Provide the valuer with a copy of the building plans if you have them available. Valuers need to know the living areas, outdoor areas and car accommodation areas for their calculations. The valuer will need to measure up the property, but if plans are available it improves accuracy and saves time. Ensure the valuer takes into consideration every square metre of your property.
3) Provide an estimate of value: So the valuer can come prepared with research of comparable sales in the area, provide the valuer with a rough estimate of value prior to his/her arrival. The valuer needs to conduct considerable research prior to inspecting the property. Having a rough estimate saves the valuer searching for $300 000 properties if your property is going to value in the $900,000 range. Save the valuer time and research by providing the best estimate you can.
4) Provide immediate recent sales (if you know of any): Advise the valuer of any very recent sales you are aware of in your immediate area e.g. a neighbouring property. This is because the details of properties recently sold in the area, are often not available on the central property databases until three months after the sale has settled. If you are aware of a sale in the area the valuer can then make further investigations. The house four doors up may have sold two months ago. The sale is not yet on the relevant databases and the For Sale sign has been removed. The valuer has no way of knowing about this sale.
Also, the listing price of a property in the area is irrelevant to the valuer. A property rarely sells for what it is listed at and so the listing price cannot be considered as sales evidence.
5) Make a list of hard to see features: Sometimes clients will come back saying the underground water tank, the underfloor heating or the new solar panels weren’t listed in the report. Prepare a list of the hard to see features of the property so the valuer can take all of this into consideration.
6) Recent renovations: Advise the valuer of any significant renovations conducted since purchasing the property and the approximate cost of those renovations. This will explain why your estimate is now $700K when you paid $500K twelve months prior. The valuer will take these renovations into consideration.
7) Finish any renovations: To get the best valuation ensure you finish any renovations. Once you’ve pulled out the kitchen and bathroom, the house is worth considerably less as very few people want to purchase a property in that condition. Don’t start the renovations then go to the bank to get more money.
8) If tenanted – advise the property manager that the property is to be valued. Often property managers demand written notice from the owner before allowing a valuer access to the property and if the property manager isn’t aware of the valuation this can slow the process somewhat.
9) Tie up the dog – One more than one occasion I’ve opened a gate and the dog has run out. I’ve then spent half an hour chasing this dog up and down the street. The dog was having a great time and the kids next door thought it was hilarious.
10) Don’t ask the valuer for the figure at the inspection - he can’t tell you. He still needs to conduct more research and visit the sales in the area. Also, if the valuation has been requested by the bank, then we are only permitted to provide information to the instructing party, which is the bank.
What’s really important is that you put your best case forward before the valuation. Once the valuation is finalised and submitted to the bank, valuers are hesitant to change their reports. Don’t forget, you may have information to support your case that the valuer may not have access to.

 

Ignore ignore ignore software vals

They are dangerously misleading

Only use them as a n indicator to compare to blocks to see which is higher and still question why its higher or lower

They are so ridiculously all over the place its scary

 

Pricefinder has the council land valuation history for QLD properties.

 

Land value is for council ratings purposes only. It has zero value in any other context other than if you have read the council budget and want to determine outgoings.

 

I think in the Zombie Apocalypse scenario the building on the land should be considered in its ability to withstand the waves of brain eating undead that will inevitably show up at the front door. In the non zombie Apocalypse scenario more considerations should be give to land value.

Actually I disagree with this. I have rarely seen a piece of land sell for less than UCV so it is a good start as far as price considerations when making an offer. Importantly, the UCV is set by government valuers so they will have a better idea of the amenity of a piece of land and its inherent value.

My view is to buy land that is valuable rather than a valuable house. The house will depreciate but the land usually won't.

 

This is a great point mate. Valuable land. Sometimes I hear people saying to buy land as land appreciates and buildings depreciate. But in a practical sense, this is not true. There is an abundance of land around not worth squat.

It's valuable land that appreciates well, not all land. I would much rather 800sqm house 10km from Brisbane cbd than a 2000sqm place in the middle of no where.

 

Unless you have commissioned the valuation it cannot be relied upon unless you are privy to the instructions and the complete valuation (the SVO has not and will not extend the benefit of the valuation to landholders or prospective purchasers).

UCV have been instructed for ratings purposes not for market value, not for mortgage purposes nor for current use if not highest & best use.

In essence it means jack squat unless you are disputing the value for ratings or land tax purposes.

UCV is not a valuation methodology it is an outcome for a specific purpose. You will generally use direct comparison to put your offer forward and frame your arguments.

 

The replacement value of the house also increases so buying a depreciated house and refurbishing can be cheaper (& achieve a quicker/larger % profit) than demolition and rebuilding.

 

Thanks for all your replies.

Do any of you apply a rule of thumb around required land value % of total purpose price. I've heard some professionals talk around ensuring at least 60% of the purchase price is land value.

 

@Leo2413 fantastic article! Thanks for posting.

Well said @TMNT. Desktop valuations such as RP Data and Residex are great because they contain a lot of data about the general suburb and what other properties in the area are selling for. They are not an immediate solution to determining the value of a property. Instead they should be used as an information resource to help you determine the property value.

Components of a valuation such as aspect, views, room layout are quite subjective. You can't make a simple comparison between two properties, it takes many comparisons and is both an art and a science.

Lenders use desktop valuations in many circumstances because whilst they may not be entirely accurate, they've got a close enough margin of error to ensure the bank will recover their money. For example the CBA (and other banks) use desktop valuations for almost all 80% lending scenarios because they know that the desktop valuation is going to be accurate to within 20% of the purchase price. It saves the bank time and money.

For the purchaser however, 20% is a huge margin and could take 3-5 years of capital growth to make up.

 

I dont know why people even use RP data as a guide or not,

frankly if a broker I speak to starts using RP data vals as a guide, that really gets me scared

 

With regards to RP data and valuations, I only look at the valuation to the extent to see if its the ball park, and also a bit of fun That's it.

 

It's a resource, not a guide. When meeting a client I walk them through a sample report and show them the comparable sales. I explain that they should take a drive past some of the recent sales listed, perhaps look at the 'sold' listing on realestate.com.au and try to get a feel for how those properties compare to the one they're looking at.

There's a lot of other useful stuff such as historical growth and future predictions (which never seem to be right in hindsight). The rental yields are very generic but a starting point. Some people find the demographics info useful as well.

In the right context, these reports are extremely useful, but it's frustrating when people simply use the figure on the front page to make an offer and wonder why they run into problems. They're simply more data to help you figure out the property value, but they don't give you the answer.