The Art and Science of Pricing Vacant Land

We’ve all seen a new listing come to market with an…’ambitious’…asking price. At that moment, plenty of thoughts go through peoples’ heads:

“They’re clueless…”

“They’re smoking something…”

“They bought that listing…”

“They’re poisoning seller expectations and damaging the market…”

And much worse, but we’re trying to keep it PG here.

The Unique Challenge of Valuing Vacant Land

We’ve written about the challenges of valuing land before. Unlike improved properties with clear comparables, vacant land presents a unique challenge. Each parcel is distinctive, with its own set of characteristics that can significantly impact its value. Factors such as location, zoning, topography, and potential use all play crucial roles in determining a property's worth.

This complexity often leads to a wide range of opinions on what constitutes a fair market price. Parcels in close proximity to one another may have drastically different values based on these complexities.

Understanding Seller Expectations

It's entirely natural and understandable for sellers to have high expectations for their property's value. After all, land is a finite resource, and many sellers have strong emotional connections to their properties. Some may have owned the land for generations, while others might have specific visions for its potential. As brokers, we respect these sentiments and the personal value sellers place on their land.

However, we also have a professional responsibility to provide an accurate assessment based on current market conditions. This sometimes leads to a delicate situation where seller expectations may exceed what the market is willing to bear.

The Broker's Dilemma

When faced with a significant gap between a seller's desired price and our professional assessment of market value, we find ourselves in a challenging position. On one hand, we want to honor the seller's wishes and secure the listing. On the other, we have an ethical obligation to provide honest, market-based guidance.

Taking on an overpriced listing can lead to several issues:

• Extended time on market, potentially leading to the property becoming "stale"

• Missed opportunities with qualified buyers who may overlook an overpriced property

• Potential damage to the broker's reputation for accurate pricing

However, we also understand that pricing is not always an exact science, and there can be valid reasons for pricing above current comparables, such as unique features or anticipated market shifts.

An asking price significantly above market expectations can lead to skepticism and reduced interest. However, it's important to note that sometimes a high initial price can be part of a strategic approach, depending on the specific property and market conditions.

Our Approach to Pricing

Within our team, we employ a comprehensive approach to pricing vacant land:

• Comparative Market Analysis: We thoroughly research recent sales of similar properties, adjusting for differences in size, location, and features.

• Highest and Best Use Assessment: We consider the property's potential uses under current zoning and how these might affect value.

• Location Evaluation: We analyze proximity to amenities, infrastructure, and growth areas.

• Market Trend Analysis: We look at broader market trends that might impact future value.

• Professional Network Insights: We consult with other real estate professionals, appraisers, and local market experts.

• Seller Consultation: We have in-depth discussions with sellers to understand their needs, timelines, and any unique property features that might justify premium pricing.

Bridging the Expectation Gap

When seller expectations exceed our market analysis, we approach the situation with empathy and professionalism:

• Education: We provide detailed market information and explain our valuation process.

• Listening: We seek to understand the seller's perspective and any special circumstances that might influence their price expectations.

• Compromise: We might suggest a slightly higher initial listing price with a planned reduction strategy if the property doesn't attract offers within a specific timeframe.

• Creative Marketing: We focus on highlighting unique property features that might justify a premium price to the right buyer.

• Patience: Sometimes, allowing a seller to test the market at their desired price can be educational, leading to a more receptive attitude toward price adjustments later.

When the expectation gap cannot be bridged, we as brokers, have a decision to make.

• Do we want to risk our reputation and put our names on a listing where the asking price is clearly above market value?

• Will this seller adjust their expectations after we provide market feedback pointing to our asking price being too high?

• Are we okay passing up an opportunity to market this property?

• How will we feel if another broker takes the listing at the elevated price and ends up closing it at the lower, true market value?

Conclusion

Pricing vacant land is both an art and a science. It requires a delicate balance of market knowledge, negotiation skills, and an understanding of human psychology. Our goal is always to achieve the best possible outcome for our clients while maintaining the integrity of our professional standards.

We value the trust our clients place in us and strive to provide honest, well-researched guidance. By working together, we can navigate the complexities of the vacant land market and find that sweet spot where seller satisfaction meets market reality.

Thank you for your continued trust and partnership. We look forward to assisting you with your vacant land transactions, whatever challenges they may present.

If you would like to discuss this or anything else, please reach out!

Thanks,