Evaluating your land for residential development potential and potential worth
Are you an Owner or Land Flipper looking to sell your Land?
Understanding the residential development potential (If any) will help you determine its value so you can correctly market and maximize your profit.
Just this week, a land flipper approached us looking to sell 100+ acres in a large US City. The offering price was based on per acre pricing from similar properties sold nearby.
This seller, believing he was basing his evaluation on a property with significant residential development potential, simply multiplied the price per acre by the number of acres in the parcel. Our quick evaluation indicated that 75% of the property is a Federally Protected Wetland; thereby, minimizing the buildable area of the property rendering it almost unbuildable. Bottomline, the property is worth much less than he thought and now he is struggling to sell it. Remember this tale, it will come in handy in one of the following steps…
So, how can you quickly and efficiently evaluate your property to determine residential development potential and determine relative value?
Thumbnail Research for Development Potential:
- Proximity to services, Development Nearby, Utility Access and Availability
- Adequate Frontage and/or Access
- Zoning and Future Land Use
- By-Right Zoning Density
- Physical and Environmental Constraints (Flood Plain, Wetlands, Steep Slopes, etc)
- Back-of-the-Napkin Yield Calculation
- Back-of-the-Napkin Land Value Calculation
Proximity to services, Development Nearby, Utility Access and Availability
Your goal in this step is to get a general idea if a property has development potential and just how much potential. Is it high, moderate, or low density? You can determine much of this by simply reviewing neighboring properties, their current uses and development status.
This can quickly be accomplished using Google Earth or Google Map in Satellite view.
Analyze these 3 Opportunities:
Opportunity 1:
Obviously rural , surrounded by mostly Forested Recreational Land or Open Fields and Cropland While this doesn’t mean that the land is unbuildable it does give you a hint that the property most likely has low density development potential.
Opportunity 2:
The adjoining properties are generally rural, some nearby land has developed with residential uses and denser development with access to services appears to be a few miles away. While no guarantee, this is a reasonable indication of the potential for Moderate Density Development.
Opportunity 3:
The adjoining properties have been developed into Moderate and High Density Communities. In all likelihood, your property has the opportunity to be planned for Moderate to High Density Development.
Access and Frontage
Determining if a property has adequate access and frontage is critical to the assessment of Development potential. Without Deeded and Dedicated Access or Frontage on Existing State or County Maintained Right-of-Way a property would be difficult if not impossible to develop. Additionally, depending on the number of potential residential units, most Jurisdictions, primarily in support of Fire Marshal’s Code, will require several points of access. Keep in mind, multiple points of access are generally required for projects that exceed Fifty (50) Dwelling Units.
Zoning and Future Land Use
Zoning Designations are Land Use planning tools utilized by Counties, Cities and Towns to define what is allowed to be built and where it can be built. Municipalities use these Zoning Designations to aggregate land into areas of allowable uses that are generally compatible with surrounding uses.
In order to determine the Zoning Designation on your property, check with the municipality/jurisdiction to determine if the property is within a City or Town Limit , or if it is regulated by the County. Some Cities and Towns could have Extra Territorial Jurisdiction (ETJ) over properties near their borders in which case the property could be subjected to additional regulations and requirements.
Once you have confirmed the controlling jurisdiction, it’s time to find the Zoning Map, locate your parcel, and find the assigned Zone Designation or District.
But, where do you find the Zoning map?
Each municipality/jurisdiction will provide access to this information differently; Here’s a couple of ways to get started.
Option 1:
Search Google for the GIS Mapping site for the Jurisdiction.
Search the words {City/County name} {State} GIS map.
Once you access the map, locate your property by address or parcel number.
Next, on the Sidebar you should find a selection of Layers.
Select the Zoning Layer and identify the assigned Zoning Designation.
Watch the following video for demonstration:
Option 2:
Go to the Municipality/Jurisdiction Website and find the Contact Information for the Planning Department.
Email or call the Planner in charge and ask for a copy of the Zoning Map.
By-Right Zoning Density
Now that you know the Zoning Designation for your property, it’s time to determine what type of development is permitted and how much density is allowed. This information can be found in the Zoning Ordinance, as Adopted and Amended, by the municipality/jurisdiction. The Zoning Ordinance is a Municipal Code that outlines permitted uses in the several Zoning Designations. There are several Options for obtaining the Zoning Ordinance or Code.
Option 1:
Search on Google and find the Zoning Ordinance or Municipal Code.
Search the words {City/County name} {State} Zoning Ordinance.
Option 2:
Go to the municipality/jurisdiction Website and find the Planning Department Contact Information.
Email or call the Planner in charge and request a copy of the current Zoning Ordinance.
Next, Open the Zoning Ordinance and READ. First, read the Table of Contents to find your Zoning District. Once you find your Zoning District, read and familiarize yourself with the Code specific to your Zoning District. Then, locate the Uses as assigned to your property. These Uses may be designated as: Permitted, Permitted by Special Use, or Not Permitted.
Many times the Uses will be shown in a Table like this:
Once you have determined Allowable Uses, search for the Maximum Allowable Density. This information will often be shown as Units/Dwelling per acre or possibly as minimum lot size X sqft, or possibly a combination of both. If the Maximum Allowable Density is described as “minimum lot size X sqft” , Divide 43,560 sqft (1 acre = 43,560 sqft) by minimum lot size. If; however, the Maximum Allowable Density is described in terms “Not the Exceed “X” Dwelling Units/Acre” then you multiply the “X” by the number of acres. The resultant, in both cases, will be the Maximum By-Right Density.
For example, here is how it will be shown in the Zoning Ordinance:
Physical and Environmental Constraints
Big reveal; Not all of the Gross Area of your property is buildable! Some of the land may be impacted by Flood Plain, Wetlands, Steep Slopes, Endangered Species, Jurisdictional Restrictions and Setbacks, or perhaps possibly an Historic District if it is, these areas can either not be developed into lots or Development may be restricted.
You can quickly evaluate how many acres of a property might be affected by one or more of these constraints by accessing the Jurisdictions GIS Mapping and viewing the various Layers and/ or Overlay Districts; If that option does not exist, calling or emailing the Planning Department and asking for the Overlay Mapping for your Property is always a possibility.
If any Physical, Environmental, or Regulatory constraint exists on your property, roughly estimate how many acres of the property are affected.
Here is an example how to do it:
Back-of-the-Napkin Yield Calculation
To roughly calculate the By-Right Yield of the property, simply Subtract the number of constrained acres from the total number of acres of the parcel then multiply the result by the By-Right Zoning Density. Finally, multiply the resultant by 0.7; this reduction will account for areas attributed to roads, setbacks, and easements.
For example, if your property consists of 100 acres15 acres is Wetlands and the By-Right Zoning allows for a maximum density of 4 units per acre. Then the By-Right Yield could be calculated as: (100-15)*4 * 0.7= 238 so the Maximum Yield could be estimated at 238 Lots.
There is a more accurate way to determine the Maximum By-Right Yield; hire an experienced Civil Engineer to prepare a Conceptual Sketch Plan. Be advised, the sketch plan might yield more, or less, than the rough calculation.
Back-of-the-Napkin Land Value Calculation.
If your property has a high potential for residential development, your buyer is either a Developer or a Builder/Developer that has an In-house Development Division. Either will develop finished lots in an effort to keep the pipeline full for the Builders.
To determine the value of the Raw Land, find the active builders in your area, call and ask if they are interested in acquiring raw land with a By-Right Yield of “X” lots (previous step calculation), Zoned “Y”(The Zoning District) in the area of (property location). If the answer is yes, ask their price range per lot for raw land. With this information you can reasonably estimate your raw land price.
The final step in, your land evaluation will be the calculation of the Land Value.
Using the Calculated By-Right Yield from our previous example; If the Builders estimated price per lot raw lot is $8K, then by applying yet another simple calculation:238*8,000 = 1,900,000, from this, it can be assumed that the property would be worth, somewhere on the order of, One Million Nine Hundred Thousand Dollars ($1,900,000.00)