Clients ask me whether a parcel of vacant land that they own should be divided, without incurring the substantial cost of a full blown subdivision, into a few or several smaller parcels as may be allowed by the City or County government. They point to valid comparable sales and say, "Why not sell multiple parcels at the higher price per acre?"
It's a good question since there appears to be a common sense answer. Why sell say 10 acres at a lower price per acre when you can sell four 2.5 acre parcels at a higher price per acre? Common sense would tell you to always divide the property.
Anyone who has lived through a downward market swing (that should include most of us by now) knows that selling any vacant property, no matter how small the parcels may be when the market stalls is unlikely. What appraisers consider in an analysis of the property value, besides the comparable sales prices, is marketing and exposure time. If it is taking a year to sell a typical parcel of land in the market, because so little demand exists or the supply so far exceeds demand, how long will it take to sell four parcels? Often the answer is "much longer." So why do you want to have to make four sales when getting one would be difficult?
The fact of the matter is, as home builders will tell you, the holding cost associated with the development, marketing and sales of smaller parcels of land over an extended period of time can consume the potential gains associated with a split.
Living through a boom market, you would receive the opposite answer. "Can't I split this property at a reasonable cost because my phone is ringing off the hook and I know I can get more on a per acre basis for smaller parcels?" Of course the answer in this scenario often "yes."
So the answer to the question, "will dividing my property make me more money?" usually has to do with market supply and demand and secondarily with the simple ability to divide. Appraisers using a "subdivision analysis" can consider development costs, holding costs, sales costs and the present value of the money that will potentially be made.
Vacant land is often an illiquid asset, so even projecting the price and absorption of parcels over time is fraught with risk. A well-reasoned subdivision analysis completed by an appraiser in touch with the market is likely better than a simple guess since it will rely on current market data and forecasting based on historical information.
This article discusses issues of general interest and does not give any spefic legal or business advice pertaining to any specific circumstances. Before acting on any of its information, you should obtain appropriate advice from a lawyer or other qualified professional.
For more appraisal information contact
Glenn Rigdon MA, MRICS, ASA is a Las Vegas / Henderson Nevada appraiser who can be contacted via email or via his business website
Appraiser Las Vegas (
http://www.appraiserlasvegas.com), or you can also click on “Contact Us” on the home page of this website or visit my public profile at LinkedIn at
http://www.linkedin.com/pub/glenn-rigdon-ma-mrics-asa/1a/30b/879/.
Article source: http://www.appraisalarticles.com/General-Appraisal-Articles/4302-Why-Having-More-Divided-Parcels-Does-Not-Always-Mean-More-Money.html