Residential Lot Valuation

Definition

Residential Lot, Home Lot Appraisal – Residential lots are sites for single-family homes or custom homes and usually have some level of infrastructure installed. LOGAN appraises property in some of the most prestigious master planned communities in Mexico and Costa Rica offering appraisals of residential lots. These reports are often in English and are used for estate settlement, financing, legal proceedings, divorces, acquisition, or disposition purposes.

These lots are in well-known master plans such as Punta Mita, Los Suenos, Cabo del Sol, El Dorado, and Palmilla. Clients are often Americans, Canadians, or Europeans who own properties for investment purposes, or in order to eventually build a custom home for vacation or retirement purposes.

Types

Custom Home Lot – a residential lot where the customer is required to design and build a home based on this own plans. The plan must conform to architectural standards within the community and zoning restrictions, however, much of the design is up to the owner.

Beachfront Lot – a lot located on or partially on a beach. Beach front foot and quality of the beach impact values of these lots. The potential layout of a house on the beach also has an impact on value.

Oceanfront Lot – a lot located on a rocky cost or bluff, not on a beach. These lots may have access to the water and usually have less value than a beachfront lot.

Oceanview Lot – the closer to the ocean, the better the ocean view. Lots that are on the second tier typically are higher priced than those on the 3rd or 4th tier from the beach.

Golf Course Lot – A golf course lot is located on the fairway or around a hole. Some lots that are on the golf course may also have beach frontage or an ocean view.

Approaches, Relevance

Cost – the cost approach is usually not employed for custom home lots. The cost to produce the lot includes infrastructure, and raw land. Usually, the information on the cost to develop the lot is not readily available.

Sales Comp or Market Approach – there are often similar lot sale comps available, so this approach is the principal approach when determining value. Factors that impact value include

Location – the master plan in which the lot is located is of primary importance. Prices can dramatically change, depending on the community in which the lot is located.

Specific Location – within subdivisions, there are usually rows of lots, some of which are closer to the beach or ocean – or on it. Typically, the most expensive lots are closer to the beach, and the further away from the ocean, the lot is located, the less value it has. The view of the lot is also important to consider – some lots have ocean views or golf course views.

Allocation Method (supporting) – lots usually comprise 20%-30% of home value. Appraisers may use the allocation method to validate the cost of a lot based on recent home sales nearby. This ratio between the land value and total value may vary depending on the market.

Income Capitalization – this approach is not used for residential lots because they are not income producing properties. They are not typically rented or leased. In the case the property is leased, this method may be completed as a supporting method to value.

DCF – not relevant for a residential lot valuation as the property does not produce income.

Value Impacting Factors

Master Plan – the master plan where the lot is located is the most important factor when determining value. Some master plans have comprehensive infrastructure installed, community amenities, and a prestigious brand. These communities also have long sales histories of the homes built on such lots – which helps support lot values.

View – as discussed above, the view of a lot is an important factor of value.

Demand for Homes – custom home lots act as ‘supply’ for the new custom home business. Demand can fluctuate for new homes – but has a direct impact on lot values. If there is a limited supply of lots, and strong demand for homes, prices would hypothetically be rising.

Important Inputs

Price per Lot – the best comparable sales are usually located in the same subdivision. Small adjustments can be made to determine value, which tend to be relatively minor.

Lot dimensions, Topography – lot dimensions may impact the size of the home which can be built and affect the layout. Lots that have sufficient depth and frontage are most functional. Further, uneven topography may require additional earthwork to be completed and increase the overall cost to develop a home. Sometimes this additional cost is reflected in a lower lot value.

Development Potential – FAR – lots in master plans often have a maximum FAR or footprint which cannot be exceeded. Lots that have similar FAR maximums are usually most comparable.

Size – the size of a lot is not directly proportionate to value. This is contrary to other real estate assets that may trade on a $/M2 value. Residential lots are viewed based upon the size of home that can be built rather than how large the lot is. Lots are usually grouped into size ranges – that correspond with a typical home size.

Recent Trends

Second home demand from the United States and Canada

Middle class Mexican demand in tourist markets

Pandemic and strong leisure demand from the United States, notably in Mexico

Vaccine requirements and their impact on hospitality demand

Deliverable

Residential Appraisal Report – Uniform Residential Appraisal Report 

1. Subject

2. Contract

3. Neighborhood

4. Site

5. Improvements

6. Approaches to value

7. Reconciliation

8. Certification statement, scope of work

Notable Master Plans

Custom Home Lot – Lote Residencial, Nativa, Costa Rica,

Custom Home – Casa Unifamiliar, Cabo del Sol, Los Cabos