Hey I’m researching a county with lots of sold comps within the past year. To look at comps, I divided groups of properties based on parcel size (Such as 3 to 5 acres, 5 to 10 acres, 10 to 15 acres, etc.) From five acres to 50 acres, the average sold prices for each group of similar sized properties seem pretty consistent at around $7500 per acre (after tossing out super high price and super low price solds). That is with the exception of parcels between 15-20 acres. There are not nearly as many comps for parcels that size, but the average sold price is around $9500 per acre instead of $7500 per acre. My question for experienced land investors is, since I don’t have nearly as many comps for that size property, should I just treat the numbers as a fluke and go with $7500 per acre which would be consistent with the average sold price for other size lots, or should I bump up my offer price to reflect $9500 per acre for parcels that size. (My offer price will be discounted from those numbers of course.)
@ChrisHutto, I've been at this less than a year and have mostly been working with smaller lot sizes than you are, so take this input for whatever it's worth, but based on what you described I think I'd personally just use the $7,500/acre number that you found based on the larger sample set. I say this because you said the $9,500/acre amount was based on a pretty small sample size, and because it seems to me that, assuming your offers are a relatively small (under 50%, at least, I assume) portion of the full value of the property, whether you use $9,500 or $7,500 probably won't make a huge difference in whether the owner at least responds to your offer or not, so why not start from the lower number.
For example, if you have a 20 acre parcel and you're offering 10% of retail value, at $7,500 or $9,500 per acre valuation, your offer would be either $15,000 or $19,000, respectively. Now based on your approach and your target market, you might be offering higher than 10% which would obviously widen that gap, but in any event, I suspect the difference between the two will not often make the difference between a prospective seller ripping up your offer and cursing you out or not.
@dl7573 Thanks David! I appreciate your input. That’s basically what I have been thinking as well.
I typically see price breaks at the higher acreage. The cost per acre can go down.
Sometimes it's hard to define a "fluke" when running land comps, because size isn't the only factor at play. Features and location also has a lot to do with it.
I've stumbled across several HUGE parcels this past month (40 - 80 acres a piece) that have been completely landlocked (no legal or physical access) with no hope of getting an easement. There is certainly some value to them because of their size, but the landlocked issue can have a big impact in the wrong direction.
Obviously, road access is just one of many issues to consider when it comes to value. My point is, don't get tricked into thinking size is everything. A lot of other variables can mess with a property's value... and a lot of times, the surrounding comps are limited in their helpfulness (at some point, you just have to make a judgment call, regardless of what the comps say).
To answer you earlier question about whether to bump up your offer price... I've always erred on the side of keeping my offers lower, and this has cost me some opportunities in the past... so you have to decide whether you want to stick your neck out for a particular deal, and what the property has to offer in terms of desirability.
@retipsterseth 👍🏻 Thanks for your input. I’m definitely with you on erring toward the conservative side on offer prices.