Determining the market value of an empty building lot can be a complex process. A vacant lot is a piece of land that is not occupied or being used for any kind of building project. There are several factors involved that influence the prices of such properties. In comparison to commercial and residential properties, empty building lots have different values.
Valuing a vacant lot can be done through a commercially recognized method called ‘Residual Land Valuation (RLV)’. However, during the evaluation process, several factors should be kept in mind. For instance, properties with different floor area ratios will have distinct market values accordingly.
It is relatively easier to determine the value of a single-unit development. The process becomes complex when it comes to the development of apartments, condos, retail shops, offices, or industrial constructions on these empty lots.
Graana.com, Pakistan’s smartest property portal, brings you a complete guide on how to figure out the value of these empty lots.
Factors Influencing the Value of Empty Building Lots
For many investors, investment in empty building lots is a desirable option as there are no depreciation or maintenance costs involved. Moreover, this investment acts as an inflation hedge, saving investors from losing the value of their assets when the market dips.
The value of empty building lots can vary from area to area. The following are some factors that can influence the value of such properties:
- City, state, or local planning constraints
- Economic variables
- Zoning laws
- Cost of construction
- Floor area ratio
- Physical attributes of the plot (size)
- Accessibility to economic activities
- Neighborhood amenities
- Location and transport linkages
- Infrastructure development
- Market value and property prices
- Present and future use of the land
These factors are most likely to affect the prices of an empty building lot, directly or indirectly.
Steps to Figure the Value of Empty Building Lots
Determining the factors might help in estimating the market value of property lots. However, changes in the market can be abrupt and unpredictable sometimes, and it can be difficult to have an estimate of the prices beforehand. Therefore, it is essential to follow a logical set of steps that can help determine the value of empty building lots. They are as follows:
- Search for comparable properties
- Consider the location of the property
- Determine the attributes of the plot
- Research on market trends over time
Search for Comparable Properties
Comparable properties are the best way to determine the value of any vacant building lot. Plots of similar size in the same location, which have been recently sold in the past two or three months, will give you an idea of the market value.
For instance, corner plots are generally worth more than closed-end plots. Such comparable properties can determine the value of the empty plot you are looking for.
Consider the Location of the Property
In real estate, location is a prime factor in determining the value of properties. Consider the location of the empty plot that you are looking for. Two plots located in two different cities will have different values based on the local zoning laws and other factors. For instance, any two plots in Islamabad and Rawalpindi will be completely different in their worth.
Secondly, two plots that are a few blocks away from each other can also differ in their value. For instance, a plot located in sector F-10, Islamabad will be different in its value than the one located in sector I-11. It is mainly due to the availability of amenities nearby, or the expansion of commercial or retail areas.
Determine the Attributes of the Plot
Property attributes also play an important role in figuring out the value of plots. For instance, if a plot is located in a commercial zone, its value will be quite higher as compared to the one located in a residential zone. This is because of any future development of retail areas and commercial hubs.
Secondly, if a plot is located in an area with high tourism, such as the northern areas of Pakistan, the value of the plot will be high. Therefore, keeping the different attributes of a plot in mind is essential.
Research on Market Trends Over Time
Individual property prices are largely influenced by the overall market trends. Several factors affect these market trends, which cause the prices to either go up or down. The following factors can determine these trends:
- Interest rates on loans and property
- Economic growth of the country
- Government policies
- Trust in the market
- External investors
- Budget of the country
Therefore, depending upon these factors, the prices of empty lots can also change over time.
Formula to Determine the Prices of Empty Building Lots
Residual Land Valuation (RLV) is a simple formula that is used to determine the value of a building lot. RLV follows the given procedures:
- The estimated sales price of the plot
- Subtract the cost of hard and soft construction, along with the builder’s profit, from the final market value
- The net leftover is the cost of land that a buyer has to pay or RLV (Residual Land Value)
By using this formula, it becomes easier to estimate the price of a plot.
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