Reviewed by Jan 05, 2021| Updated on
Land value is the worth of a piece of property, which includes both the value of the land itself and any enhancements made to it. It should not be confused with site value, which is the land's fair value if there are no rentals, mortgages, or anything else present that would otherwise affect the value of the property.
Land prices rise when the demand for land exceeds the availability of land or when the inherent value of a specific piece of land exceeds adjacent areas (for example, the oil may be found on land).
Landowners use land value to decide how much other parties are expected to charge for its use. For example, a person who leases several acres of farmland to ranchers for grazing cattle will calculate the sum to be paid by looking at the land's market value compared to land taxes and the rate of capitalisation.
Land value can be calculated by third-party immovable appraisers. Assessment by an appraiser may be critical to a lender's decision to agree to fund a potential buyer or to refinance a property holder.
A land, which is in a region facing environmental risks, may lose some of its value. For instance, if a property is located in an area prone to floods, mudslides, or earthquakes, those hazards can dissuade potential buyers from taking an interest.
The potential for repeated loss will make maintaining a stable and continuous operation at the property a challenge. Any changes to the land could be lost in a consequent ecological calamity. The danger to residents and workers who may be present at such a site could outweigh any benefits from land use.
Even if the land is in a prime position and has access to suitable services, conditions may be mitigating that would prevent the land from being developed or used to its fullest potential. Restrictive covenants may prohibit property owners from tapping on resources, such as oil found there.