Land Value Depends on Where You Are Standing

So the story goes something like this… The young farm boy comes to his boss and asks, “So, what is old Mr. Henry’s farm worth?”  The old farmer looks over at the young man, tips his hat back and says “well son, it all depends on whether you are buying or selling.” 

The economics of this example translates easily in evaluating a land buyer’s willingness to pay for a given property. Not all land buyers share the same goals in terms of land use, return on investment or management. While this may seem readily obvious, it is often not well understood by practitioners in the industry; and these differences if identified can yield valuable indicators for determining land value that will be internalized in today’s land market. The “buyer values” I will outline are often captured in most appraisals, but it is understood that appraisals are a “snap shot in time” and do not often reflect the subtle motivations of buyers which drive them to make the purchase. Appraisals, just in the same way as this column, are a statement of opinion based on the best available information and analysis.

For the purpose of discussion, land buyers today can be characterized in the following classes: 1- Agricultural 2- Recreational 3- Investor. It is a dream to understand a client’s vision with such a clear lens of motivation and goals and typically the picture is not well defined, even by the buyer. This is my primary role in helping the buyer see what values they find most important in determining the overall value they are willing to pay. For each of these values there are a matrix of factors measured creating the bottom line evaluation by the buyer.