i have always heard that the lot price should be 1/3 of the house value including the lot

therefor a lot of 100k would need a house of 200k to bring the total value to 300k

do i have this right?

what are the concequences of not following this formula?

Wrong

Land value is simply its market value. There is No formula for what it should be based on the value of the house. Why would you have to follow a formula?

A builder can spend $240K on the house and put it on a $60K lot and you would have a $300K Value.


Personally from an investors point of view I would assign the lowest value possible to the land as it cannot be depreciated.

what are the concequences of not following this formula?


The consequences are:

a) losing your RE license
b) losing your mind
c) driving to Illinois and losing your mind
d) losing your driver's license
e) learning to determine the market value of real estate
f) none of the above

Nope, Value of the land is dependant on it's location and what your intended use is for that land.

I can buy a house that sits on 2 acres for 140k,get it rezoned as commercial and sell to a commercial developer for 800k to 1 million.

It all depends on the location and what you want to do with it.

Typical of the posts we have come to expect for you Erika.

Lenders have issues w/land value as a ratio to the structure. I have seen loans die b/c the ratio was off, ie the land value was too high relative to the structure value.

Don't recall the formula, the 1/3 could be right.

thanks loan diva

i knew that i heard it SOMEWHERE

so why do lenders what a house and land value to have a ratio of some sort?

would a lower value house drop the value of the land?

i guess maybe it would now that i am thinking about it

if you put a 80k house on a 350k lot

the next person might have to tear down the house to build a new one

Too much risk to rely too much on the land itself as collateral. Banks don't loan on *what if*. They look at present value. I see many $300K+ houses here but the land itself is only worth about $30K.

It could be different in the commerical RE world, beats me. But in residential they do have a ratio. You can prolly find it in the Fannie/Freddie guidelines.

It is different in the commercial world.It is not all based on the current value of the land.Some funding isn't done through conventional means but equity partners in the deal based on the pro-forma numbers.

The smaller commercial deals tend to use regular financing,commercial deals are based more on the return on the numbers than the credit score since the success is based on the equity and cash flow in the deal.

If you look at tax records, you should see a fairly consistent range of assessed land value as a proportion of total assessed value (land + improvements), for SFR property in a defined market area. In my area, it's typically 20-25%. Of course, assessed value is often a far cry from market value.

Now, here's a question. Should we expect those proportions to remain fairly constant over time, as market values change? In other words, if we value them separately, should the land's market value change at roughly the same rate as the improvement's? Why or why not? Which value is more volatile, land or improvements?

i would say that improvements are more volitile

just look at what house values have done lately

land probably never goes down well almost never (love canal)

they just don't make land anymore