Land valuation is an important component of the real estate market, as it plays a pivotal role in determining the market value of undeveloped assets. With the increasing interest in real estate investment and the expansion of cities and urban plans, there is a clear need to know the methodologies of land valuation as it differs from built properties, making it a different process. This article will explain how land is valued and its importance in the real estate market.
What is the difference between land and real estate?
We can first define land as undeveloped land that does not have any real estate or buildings and is agricultural land or intended for construction. Thus, it is an investment, whether for housing, commerce, or any other purpose. The property is the building on the land, whether residential, commercial, or industrial. It is intended to be used for housing, investment, rent, or trade.
How to calculate the value of the land?
A professional real estate valuer performs the valuation of the land. It is a delicate process in the real estate field and requires choosing the appropriate methods depending on the nature of the land and the purpose of the valuation. Among the most commonly used methods of land valuation, three main models are often derived from real estate valuation methods:
- Comparative method:
This is the most suitable method in land valuation, where the real estate valuer compares the target land with other recently sold lands with the same specifications in terms of location, area, type of use, and many other factors, and reflects the direct interaction between supply and demand in the market.
- Cost method:
This method is used when the land has undergone improvements or partial development, such as the provision of basic infrastructure, where the value of the raw land is estimated by adding the costs of the improvements. Although this method is usually applied to built properties, it is sometimes useful in valuing land that has undergone some improvements.
- The income method:
It is used to a lesser extent in land appraisal, but it is suitable for land with a direct investment return, such as being leased for car parking or temporary facilities. It is done by calculating the expected annual net income to arrive at the value of the land.
These three methods are pivotal tools that help appraisers provide accurate and fair estimates that take into account the characteristics of each land and its market context, and support different entities in making strategic decisions based on professional foundations.
What are the factors affecting valuation?
Land valuation is an important process for the investor or seller in the process of determining the price This valuation is not done randomly, but is subject to a set of basic factors that determine the fair market value of the land, which must be studied accurately to ensure a correct investment decision, and the most important of these factors:
Location:
The location of the land is one of the most important factors in valuation, as its presence in a strategic area and near basic services and facilities such as hospitals, schools, government buildings and others, contributes to the high market value of the land compared to other land in a remote or unserviced area. Its geographical location is also an important factor, as land overlooking natural landscapes such as the sea or public parks is often more desirable, and this advantage is reflected in its price.
Land condition and size:
The size and condition of the land directly affect its market value; the larger the area, the higher the value, especially if the land is investable or buildable. In addition to the condition of the land, is it ready and free of obstacles, or does it need some repairs? Is it equipped with infrastructure or not? All of these are important factors that contribute to the ease of use of the land, which increases its value and makes it more attractive to investors.
Land type:
There are different types of land (agricultural, residential, commercial), and the price of each type varies depending on the type of land and the extent of its utilisation.
Market Status:
The timing of the sale and the state of the market are important matters that affect the valuation, especially when the demand for land rises or falls, and with local and global economic conditions.
These are the most important and prominent factors that affect the valuation of land, and the valuation is done by a real estate valuer accredited by the Saudi Authority of Accredited Valuers to ensure the quality and accuracy of the valuation.
In conclusion, land and real estate valuation is an essential step for any buying or selling process, as it helps determine the true market value based on a range of influential factors such as location, area, condition, and timing. If you are looking for an accurate and reliable valuation of your property, contact Aain Valuation, and we will provide you with a professional valuation through accredited real estate valuers that will help you make the right decision and avoid financial risks.
Frequently asked questions:
- How do you know the value of the land?
You can determine the market value of the land by an accredited real estate valuer who studies all the factors of the land in terms of location, type of land, area, and compares them with the market conditions.
- What is the benefit of a real estate valuation?
It is based on a set of factors such as location, condition, and size. It is used for purposes such as buying and selling, bank financing, determining property taxes, and resolving legal disputes. Real estate valuation provides an accurate estimate that helps interested parties make informed financial decisions.
- Who does the valuation?
When valuing land or real estate, it must be done by a real estate valuer accredited by the Saudi Commission of Accredited Valuers who studies the condition of the property, inspects it, and prepares an accredited real estate valuation report. Aain is an accredited property valuation company with a large team of accredited valuers.