Ways to Valuate The Plot or Home Value

on September 09 at 12:43 AM


If you have already found your ideal plot and have checked in the urban planning certificate that it meets all the necessary characteristics to be able to build your home, it is time to analyze its value.
It is not a very easy task, especially since generally there are not many witnesses, many lots with the same characteristics that can be used to make a comparison. Also, in general, there are many ways to value a property and it is best to define a criterion from the beginning, even if its purpose does not coincide. For example, we can value the plot for mortgage purposes (because we are interested in defining the value it would have for a bank) even if we decide not to resort to a loan for the purchase of a plot (we will, for example, use the money collected from the sale of our apartment) and we will turn to finance for construction.

Value a plot

I want to clarify three important details:

  • By value means a quantitative expression of the qualities of a property depends on the market situation. We have to know him to know if we are doing a good business.
  • By Price, the amount a buyer is meant is willing to pay and a seller to accept for the property. It depends on the negotiation and can be very subjective. A buyer is willing to pay more than the market price for a property with which he has fallen in love, a seller may not accept a market price because due to his situation he is willing to wait until he makes more money for the sale.
  • In valuations you always have to compare similar real estate (witnesses); inland valuations, the only differentiating factor is the amount of build able m2 of each plot.
A very important principle in valuation, especially in the one for mortgage purposes, is that of Highest and Best Use and we must always keep it in mind. We have seen that the planned uses (residential, endowment, tertiary) and the planned building intensity (on my 500m2 plot, for example, I can build 0.50 m2 for each m2 of land, that is, a total of 500m2) are defined in the urban plan.

Self-promotion plots

Well, although in plots for self-promotion this case does not usually happen much, it is good to know that, for example, the plot I have chosen could allow a hotel use of 1m2 per m2 of land because it may be located in a town of the sierra where there are no small rural hotels and this possibility has been considered in planning.

The principle of Higher and Better Use would force us to decide which of the two uses, residential buildable 250m2, hotel 500m2, is the most advisable (according to a financial vision), although it does not have to correspond to the maximum building use. In this way, for example, we can understand why the plot has a higher market value than expected in the area.
Suppose that we have verified that the highest and best use is residential and we remember that our plot has an area of 500 m2 and a buildable area of 250m2. The sale price for example is € 400,000.

V Value Impact

A very simple but highly simplified method is to verify the impact value per m2 built. To know if we are doing a good deal on the value of the land we will have to add the value of the construction. Here the time factor comes into play that forces us to carry out a few operations to be able to set the price at a certain time, in addition to the construction license costs. But for now, let's forget about all this (I'll talk about these in other posts) and just apply a little common sense calculating the impact value.
This is obtained by dividing the price of the plot € 400,000 by the building area 250m2, € 1,600 / m2 built.

Let us suppose that the price per m2 of single-family homes of new construction in the area is in:

  • € 2,500 / m2, we will have only € 900 / m2 to pay for the project, construction, and construction licenses. It is impossible.
  • € 2,800 / m2 we will have € 1,200 / m2 to pay for the project, building, and construction licenses. We are somewhat fair, or we are sure that we can build at € 800 / m2 and the other € 400 / m2 will go for the other expenses or we should negotiate the purchase price to go down to € 350,000 obtaining an impact cost of € 1,400 and having available as many to be able to build
  • € 3,000 / m2 we will have € 1,400 / m2 to pay for the project, construction, and construction licenses. We could arrive considering a construction price of € 1,000 / m2 and an impact of other expenses of 40%.
It is clear that I have simplified the casuistry and that reality is very often more complex. I will return to this topic on another occasion to be able to go deeper into some topics that I have simplified due to the need for disclosure, but I hope with this calculation you can fine-tune your best choice of plot step by step.


For the People who Live in Houston & want the valuation then I've extracted a certified business valuation for Houston option for Texas people to get the maximum benefit for valuation of their Plots & houses.

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