People who want to invest in land to either "develop" it (as that term is defined in the articles in this Land Development Values series) or to build on it and sell a total package (e.g., a new home on its lot) have to sift through many parcels because everybody wants to try to sell them a property! Land buyers must spend a lot of time to identify the parcels worth pursuing. They need tools that will help them quickly sort out the garbage and find the parcels they should consider further. Typically, buyers use formulas and rule of thumbs to do their preliminary screening.
These are rough guidelines that are intended to help land buyers determine the "right price" to pay for a piece of property. Land buyers will be able to tell within minutes if an asking price is reasonable based on the number of numbers that work. The buyer may simply decide to discard the land parcel if the asking price is too high.
Commercial Land Developments
Not surprisingly, the methodology for roughly estimating site yield and improvement costs is not the same for both residential and non-residential land developments. The yield of a retail or office lot is the maximum amount of building space that could be constructed. The yield is a function of how many parking spaces can be built on the parcel, and the development limitations imposed by impervious cover and green space requirements as set forth by the zoning regulations. To estimate the amount of land needed to park each car on the office property, a rule of thumb can be used (e.g. the square footage of the parking area plus the drive aisle). A second rule would estimate the area of land taken up by the sidewalks and pathways. Thirdly, a rule of thumb could assume Land Clearing near me that vertical and horizontal improvements will cost $100/sq. ft. of office space.
Residential Land Developments
In residential land developments, the rules of thumb are designed to estimate how many building lots the parcel will produce once subdivision is complete and the cost of horizontal improvements. The "raw" value of each building lot is calculated using the estimated sale price of the house on the lot and the cost of improvements.
One site yield rule of thumb might net out of the gross land area of the parcel the amount of square feet that would be wasted or couldn't be used for whatever reason and then would divide the result by the amount of the minimum lot size required by the zoning to come up with the number of lots. For example, the rule of thumb calculations might look like this for a 15 acre vacant parcel zoned for 20,000 sq. ft. lots:
Step 1: 43,560 sq. ft. x 15 acres = 653,400 sq. ft.
Step 2: 653,400 sq. ft. x 70% = 457,380 sq. ft.
Step 3: 457,380 sq. ft. divided by 20,000 sq. ft. = 22.87 building lots
This parcel would have approximately 22 building lots. In the second step, 30% of the gross site area was deducted to account for wastage, square feet lost because of natural constraints (e.g., slopes, floodplain, irregular shape) and land area that would be taken up by new roads in the community.
You should be aware that there are different rules for each area. They are rough estimates so you should modify them as circumstances warrant and not just apply them blindly. If a substantial portion of the 15 acre parcel was in floodplain, it wouldn't make any sense to deduct only 30% from the total gross site area. When you are unsure of the rule-of-thumb to follow, it is best to be conservative.