how the price of a property or piece of land is determined
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The price of ALL things (well, almost all things) is determined by what someone else is willing to pay for it.
Here’s a story. An old family friend passed away a few years ago after a long illness. He owned some assets including farm land. The farm land is going to his son X, since X farms the plot next door. But since there’s 3 siblings, the value of the Land was to be deducted from the 1/3 inheritance that X receives. All seems fair, and X actually does want the land to expand so all is well. Except, what’s the land worth?
X’s siblings want to value the land at $300,000 because that’s what they think it’s worth. X thinks it’s worth $200,000 max. So the argument went back and fourth, involving estimators, calls to real estate agents and layers and such before eventually X said “I’m done arguing, if you think it’s worth $300,000 then list it for that and sell it. Then we can just divide the cash assets”
The land sat unsold for over a year, they dropped the price to $250 and still no bites. Eventually the other siblings agreed to the $200,000 valuation, X got the land and the estate was closed.
The point of this story is that everyone can have a lot of opinions on what something is worth. But what it’s actually worth is the number of real monies that someone else is willing to pay for it. Until an actual exchange of money for land happens, any valuation is just a guess.
Property and/or land value is determined, like most everything else, by how much someone is willing to pay for it.
In a free market economy, like the US, prices are determined by supply and demand or what is know as market price. You can see this in a smaller scale in sites like ebay, where people can post things for sale at whatever price they want but success is determined by the market price. For example, I have a comic book I want to sell. I list it at $500, but there are 10 other copies list for $200. Will my comic sell for $500 or is it more likely that the $200 ones will sell first. Thus the market price and actual value is somewhere closer to $200. Now of course things like condition come into play,, as they would in real estate, but my price would still have to be comparable to the other listings. Maybe $250 or $300 if mine was in better condition.
Same rules apply to real estate. You have an acre of land to sell and you list it for a million dollars. Meanwhile there are 10 other plots of land in the same area about the same size being listed and sold for $100,000. Is you land worth 1 million or somewhere closer to $1,000?
Taking it a step further, let’s say you list you land for $100k as well, but let’s say that there is no well source for water on that land. Would people still be willing to pay $100k, even though it’s similar to other properties? Doubtful, therefore your property is goingbto be worth less because not as many people are interested in buying it, so you have to lower the price in order to sell.
Basically by comparison and history. Property sales happen all the time, the sellers want the highest price while the buyers want the cheapest. When buying property you’re looking at what other similar properties have sold for in that area. That gives you an idea of what people are willing to pay. From there it’s just reading the market. If people are buying anything they can than the seller can charge more simply because people will pay it. Now when other people go to look at property prices, they see it’s gone up and everyone follows suit. The same thing happens when the market cools, just prices go down instead of up. There is a ton more that goes into it, but that’s the basics of it.
“I’ll give you $100 for that piece of land over yonder,” says A.
“While I would have thought that was the going rate, but C just sold a similar plot to D last month for $200!” says B.
“I think D overpaid for that piece of land. I won’t give you more than $150 for it…” says A.
“That sounds fair. It’s a deal” says B.
“I’ll give you $50 for you piece of land E”, says F.
“Are you crazy? A just bought the exact same sized parcel next door for $150! I’m not going less than $125” says E…
And so on and so on.
People look at the land around it to see how much that is worth ($ per square foot or acre) and ask a similar amount. Sometimes the cost of improvements (road, house, etc) is added to the selling price to recover those costs.
If there already is a property owner, the government has probably guessed a value for property taxes so that can be a starting price.
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