Owning a piece of rural land has long been part of the American dream. It can provide a getaway to the country for hunting, fishing, horseback riding, ATV riding, gardening, farming, and building family memories. Because of those memories and activities, many landowners’ “bake” emotion into the value of their land when it comes time to sell. That mistake can lead to an overpriced listing that is difficult to sell. An accurate estimate of your land’s value is important whether you are a buyer or a seller. That is why the question is often asked: “What is my land worth?”

The first thing to remember when estimating the value of your land is that value is only an opinion, and that opinion is only as good as the amount and quality of market data available. A contract is a fact, a listing is a fact, and a closed sale is a fact. Those are some of the data points used to develop an opinion of value. In the market, the term “comp” refers to a comparable sale or listing. The key is to make sure the data is truly comparable.

Land is often difficult to value because of the limited availability of sales and listings data. Unlike residential houses, where most sales are typically entered into a multiple listing service (MLS) and the data is readily available, land transactions are not usually included in the MLS. Much of the sales data is scattered among many land brokers and consultants, making it difficult and time-consuming to collect.

So, let’s move to the basics of what your land is worth. The first important step is to accurately assess the economic and physical attributes of the property. I am often asked, “What is land going for around here?” My response is usually another question: What type of property is it? Crop land, pastureland, wooded land, timberland, cutover land, or turnkey recreational land? These different types of land carry different values. My next question would be: Where is it located, and what do the surrounding properties look like? You get the picture. Not all rural land is the same.

Once the property type and description have been assessed, it is time to gather sales and listings of similar property. Sales of similar property should follow the definition of market value used by federal financial institutions.

The definition of market value is as follows:

The most probable price which property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer whereby:

1. The buyer and seller are typically motivated.
2. Both parties are well-informed or well-advised and each is acting in what he or she considers his or her own best interest.
3. A reasonable time is allowed for exposure to the open market.
4. Payment is made in cash or in terms of financing comparable to cash.
5. The price represents the normal consideration for the property sold, unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

What this means is that when looking for comparable sales in order to arrive at an opinion of value, the sale should be normal.

A land sale in which a seller is forced to sell because of a court order or a bank foreclosure, or where an adjoining property owner paid a premium because the property was next to theirs, is typically not a good comparable sale.

A land sale that brings a premium price because the owner offered below-market financing, such as 0% interest, is typically not a good comparable sale.

A land sale that was not exposed to the open market and where the seller accepted the first offer received is typically not a good comparable sale.

A sale in which one of the parties was uninformed, such as not knowing the true timber value or not knowing the property had a contaminated site or a WRP easement[LH1.1], is also typically not a good comparable sale.

Although most sellers would appreciate an adjoining landowner paying a premium, that is not typically the case and is rare.

Once a sale has been identified as comparable to your land, it is important to research the transactional and property characteristics, compare them to your property, and apply adjustments.

Transactional adjustments include:

• Property rights conveyed: Did all rights transfer with the sale, including mineral rights, surface rights, timber rights, or others?
  Financing terms: Were the terms normal, or were they favorable because of owner financing?
• Conditions of sale: Was it a normal sale, or did the buyer pay a premium because of a 1031 exchange or purchase from a family member at a discount?
• Expenditures made immediately after purchase: Did the purchaser pay a commission, buy access, or clear a title problem after the purchase?
  Market conditions: If the sale was one or two years old, has the market changed since then?

All of these factors must be known, considered, and adjusted for when compared to your property.

After transactional adjustments are completed, the property adjustments to each sale are applied in a similar manner.

Property adjustments include:

• Location: Area or neighborhood differences, and proximity to major cities or major interstates.
• Physical characteristics: Access, topography, interior road system, flood zones or wetlands, size, shape of site, and improvements on the property.
• Economic characteristics: CRP rent, timber leases, hunting leases, surface or mineral royalties, or the amount of timber.
• Non-realty components of value: Rural land transactions often include personal items such as tractors, ATVs, trailers, or furnishings.
  It is vitally important to understand each sale used as a comparison to your property in order to draw a credible conclusion about what the property is worth. The more sales and listings available, the more credible the opinion. Also, having the sales data is only the first step; accurately analyzing the data is equally important. A business analyst once told me, “just because you have the recipe doesn’t mean you are a good cook.”

Remember, market changes are not linear. The market rises and falls like a wave, with troughs and crests in the overall movement of land values. If your property is listed when many similar properties are on the market, it could be a trough moment when supply exceeds demand. If yours is one of the few properties for sale, it could be a crest moment when demand exceeds supply. That means the number of listings should also be reviewed alongside the comparable sales.

Over the years, I have seen many land investments fail to reach their full potential because the seller did not want to pay a knowledgeable broker or consultant before selling. I have seen this in other industries as well, and I have personally not paid for advice when I should have. My advice is to keep your day job and do what you do well, and let a professional broker, appraiser, or consultant help you price your land and expose it to the market so you can maximize your return.

Josh Hall, MAI is a Certified General real property appraiser in Alabama and the Senior Managing Director for Valbridge Property Advisors | South Alabama | North Alabama | Daphne | Fairhope | Foley. He has been appraising rural land for 35 years.

The information contained in this publication is for informational and educational purposes only. It is not financial, legal, or other professional advice, and you may not rely on it for any purpose. To secure professional advice for your particular situation, you must engage one or more appropriate professional advisors to advise you about your situation.