Real estate and land valuation is one of the key elements in supporting the stability of the real estate market, as it has an important role in making investment and financing decisions, and determining the fair value that reflects the market value of each real estate asset. Although real estate valution and land valuation share many general principles, they have some differences.

In this article, we will talk about the most important differences between agricultural land valuation and residential property

What is agricultural land valuation? 

Agricultural Land valuation is the process of determining the market value of agricultural land based on its productive capacity and natural characteristics. This valuation is based on analysing factors such as soil type and fertility, availability of water sources, climatic conditions, and others. 

What does real estate valuation mean?

We can define residential real estate valution is the process of determining the market value of residential units such as villas, apartments and houses and the value is determined at a certain time and this evaluation is based on several factors such as location, property specifications, market condition and demand for residential units and this evaluation is conducted for sale or purchase purposes, obtaining real estate financing, determining insurance value, or for tax and legal purposes.

What are the valuation factors?

To compare the valuation of agricultural land and the valuation of residential property, we have to study the factors affecting each of them: 

Firstly: Factors affecting the valuation of agricultural land

• The natural features of the land: This includes soil type, fertility, salinity, and suitability for targeted agriculture. The availability of water sources and the quality of drainage are also critical factors that directly affect the suitability of the land for farming.

• Climate and productivity: The local climate, including temperature and rainfall, determines the market value of agricultural land. This is in addition to the expected level of agricultural productivity and the economic return from seasonal or perennial crops.

• Proximity to manufacturing and marketing centres: The distance between agricultural land and markets or food processing plants affects transport costs and therefore economic viability.

• Legal and regulatory constraints: These include the extent to which the land can only be used for agricultural activities, or whether it can be converted to other uses in the future, as well as the property regime, water rights, and other legal considerations.

Secondly: Factors affecting the valuation of residential properties 

In turn, residential properties are valued based on a variety of factors related to comfort, quality, and urban location:

• Geographical location and surrounding services: The valuation of a residential property is heavily influenced by its proximity to essential services such as schools, hospitals, mosques, and recreational facilities. Easy access to transport networks and public roads is also a crucial factor in determining value.

• Market condition: The valuation of residential property is influenced by demand and supply, mortgage policies, and interest rates, making prices more volatile than agricultural land.

• Property specifications: The type of materials used, quality of finishes, architectural design, number of rooms, and available services, such as elevators or parking.

What are real estate valuation methods?

 A real estate valuer performs a valuation using one or more of the three methods, depending on the type of asset being valued. These methods are applied between agricultural land and residential properties as follows:

First: In the valuation of agricultural land:

• Income method: It is used to estimate the value of land based on the expected income from agricultural activity. This is done by calculating the net future returns and discounting them to the current value using an appropriate discount rate.

• Market comparison method: It is based on comparing the agricultural land with similar land that was recently sold in the same area, taking into account the differences in characteristics, location, and productivity.

• Cost method: It is used to estimate the cost of developing or reclaiming agricultural land, including calculating the costs of land levelling, irrigation networks, fences, etc.

Secondly: Residential Real Estate Valuation

• Comparison Method: This is the most common method of valuing residential units, where the property is compared with similar properties that have been sold recently in terms of area, location, finishing, and year of construction.

• Income method: It is based on calculating the expected annual net income from income-producing properties, such as rental properties

• Cost method: Used when it is difficult to obtain comparable sales data, the price of a property is estimated based on the cost of building it from scratch, minus depreciation.

real estate valution methods are essential to accurately determine the value of a property. By utilising different methods such as comparison, cost, or income, reliable estimates can be reached to help make informed decisions. 

In conclusion, the valuation of agricultural land and residential properties shares the same valuation methods, but there is a fundamental difference in the asset and the factors affecting it, making it important to deal with each type of valuation as an independent science. This requires careful professional expertise and familiarity with the regulations issued by the Kingdom’s regulatory authorities.

At Aain, we provide you with professional real estate valuation services based on approved methods and accurate criteria, whether you want to sell a property, buy a property, or make an investment decision. Contact us now, and let us help you know the true value of your property.