Land Is Hard

“C’mon Bob, it’s only a little lot. Why do you need so much time? And why is the fee so high? It’s only two acres and it’s used to park ice cream trucks. Why is that such a big deal?” Because land is hard.

Let’s start with the Highest and Best Use. It’s probably not parking ice cream trucks. What is the underlying zoning? Ugh. Residential. 10,000 square foot lots.

“No problem – two acres is 87,120 square feet, so divide by 10,000 and you get eight lots. Easy peasy.”

I wish. There are roads and sidewalks to account for.

“O.k., take 20% for infrastructure. 87,120 square feet times 80% is 69,969 square feet. So, six lots?”

I wish. Stormwater management rules require a detention basin if you are building a tree house. Topography must be considered. And the potential of flood. And wetlands. Can’t build on those anymore. And Category One waters, streams that run to drinking water sources. A 300 foot buffer is required.

And utilities? Are public water and sewer available? Would utilities have to extended for a distance (at high cost)? Does the sewer authority have adequate capacity? Is there a moratorium or a threat of one? If on-site septic systems are needed, what is the water table and what are the soil conditions?

What about environmental issues? Ice cream trucks leak all kinds of fluids. And for all we know the land used to be the headquarters of a leading asbestos manufacturing concern.

“So let’s say we ignore all this and say that it can be a five lot subdivision. You just have to find some single family lot sales, right?”

I wish. Sales of lots include existing public street frontage and don’t account for the cost of installing the street improvements and utilities.

“So you just subtract the cost of the street improvements, right?”

I wish. There’s more to it. There’s the cost of obtaining the approvals. Usually no less than $50,000 for legal fees, engineering and other experts. More if there is any complexity or state approvals to obtain. And the time. It can take three years to get approvals. And there is risk to account for.

“So you get sales of subdivision parcels. There should be some of those.”

I wish. We are just coming out of a five year recession. The entire real estate market came to a grinding halt. You might have noticed. There have been some townhouse land sales, and sales of land for high-end housing. But the middle market, the market for houses on 10,000 square foot lots, for example, is still on life support.

“So you can get this for me in two weeks?”

I wish.

– Bob Gagliano

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Ice Cream Truck

 / 2 Comments  / in Highest and Best Use, Humor, Land, Real Estate, Value

2 Comments

  1. Thomas Garrity March 5, 2014 8:13 am

    Hi Bob
    Always thought provoking. My Dad, an MAI and lifelong banker, also said
    appraisers are always on the wrong side of the deal.
    It’s not all regression models or DCF. Art, science and some common sense….who would have thought?

    Best Regards

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