Land valuation – simple m2 comparison could be a mistake Friday, Jun 04, 2021 by: Robert L. Dragoo In Latin America (Mexico, Colombia, Peru), appraisers are faced with this challenge in preparing appraisals in an opaque market where information is difficult to collect and verify. With limited information, appraisers sometimes use the area of land (square meters, M2) as a basis of comparison in appraisals. This could be a mistake as development potential can vary significantly between land comparables – a price per buildable unit, or price per buildable square meter are superior methods to use. M2 – This measures the surface area of a property. It is a very basic metric because it does not reflect what can be built on the property. Using this method, without having comps that have similar development potential, can lead to unreliable valuation conclusions. Price per Buildable Unit – Sophisticated buyers of land, such as developers and builders use this method to value land, however, unit sizes can be different depending on the product conceptualized. For example, it may be difficult to use this metric for a suburban site, where unit sizes are larger in order to cater to families, versus infill sites, that may have smaller units designed for working professionals. This method can be useful when comparing sites in similar submarkets that have the same use and similar product type. Price per GBA – This method considers development potential and can be used to compare different uses. Often, parcels of land may have various financially viable uses. Developers use this metric to evaluate properties – as zoning and the market can vary from property to property. It is important to note, that in order to calculate the potential gross buildable area of a site two things must be considered · Zoning restrictions: FAR (floor to area ratio) limits, SCR (site or building coverage ratio) restrictions and setbacks – which impact the total allowable area to be built on a site. · Market: This indicates what is financially feasible to be built. Just because a property can legally have a very dense property built on it, the financially viability of such a project must be considered. This can often be determined by surrounding buildings in the submarket and their respective uses and vacancy, and projects that are under construction. CONCLUSIÓN Often, in Latin America, appraisals the productivity of a property is not analyzed properly – or sometimes not at all. It is difficult to find the information on what can be built on a site, and it takes time to research. Using square meters may be quick and relatively easy as a basis for comparison, however, the practice can lead to mistakes if the comparable properties are not researched properly.