Big lots don’t always bring big value

Just because a lot is large doesn’t mean it’s worth big bucks. I came across a vacant parcel that is nearly one-acre in size in Sacramento County, but it’s priced at only $2,000. No, that is not a typo. I thought this would be a perfect example to help us consider a few thoughts on the value of land.

what is this lot worth

When reading about a lot that is 0.88 acres and only $2,000, it seems like a no-brainer to purchase. Yet when looking at the plat map, it’s obvious the lot might have some issues because of its location (it is sandwiched between 20 houses to the west and east), shape (it is really thin) and potential use (it is listed as a drainage channel in Tax Records and might not be suitable for any building).

Bigger Isn’t Always Better: The example above is of course extreme, but generally speaking most buyers do want more space and will pay higher amounts for a larger lot. For example, I appraised a house in Land Park recently that had a “double lot” (which actually means 1.5x lot), and there was a hefty premium for the additional size and location. However, there are also many reasons why a larger parcel may not necessarily evoke a premium in the market. Why? If a lot cannot be built on or used for something constructive, it’s not good for much, right? If a lot is located next to a busy street, railroad tracks or some other adverse location, it may sell for less than a smaller-sized parcel with a better location. Additionally, if a lot has a steep slope or some sort of easement that makes much of it not useable, this can definitely impact value.

Image purchased at 123rf dot com and used with permission - 14688774_s - smallerDefinition of Highest and Best Use: The lot above is the perfect scenario for talking about the concept of highest and best use (HABU), which is something appraisers have to think through for each appraisal – whether it is a vacant lot or improved site (house, commercial property…). Real estate text books describe HABU as follows: Highest and best use is that use which is legally permissible, physically and reasonably possible, economically and financially feasible, and which results in the most profitable of the alternatives. Highest and best use considers current zoning, location and size of the site, surrounding land uses and development characteristics of the market area. Highest and best use is that reasonable and probable use that will support the highest present value as defined as of the effective date of this appraisal.

What is this lot good for? This lot definitely has some issues and I’m not sure what the highest and best use is for the parcel because I would have to do quite a bit of research to figure that out. However, I can imagine the site is probably not going to be suitable for construction due to its shape and location alone. With such a low cost, my guess is the right person will buy it who sees a personal use for it. I know if I was a neighbor, after considering liability issues and ownership responsibilities, I might consider making a purchase to instantly increase the size of my backyard.  🙂

10 Potential (Fake) Uses for This Lot

  1. Neighborhood paintball field.
  2. Community garden.
  3. Purchase and then sell smaller chunks to neighbors.
  4. Build a very thin park.
  5. Low-cost tent camping for vagrants (imagine what neighbors would do).
  6. Open field for hunting.
  7. Llama petting zoo.
  8. Wetland mitigation (get paid by the government to own this parcel).
  9. Community pumpkin farm.
  10. L-shaped walking trail.

Question: What else could this lot be used for? What is #11?

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Comments

  1. says

    Coming from the Bay Area, I was awestrucked with getting a house with .66 acre instead of .25 acre. In my 30’s, it was a love affair, in my 40’s, it was a chore, and divorced it in my 50’s. Spending 6 hours to mow/trim/weed, $$ and time on landscaping improvements, it made me wonder, why?
    Then to break my heart to see the new owner allowing the place to go back to it’s “natural” condition.

    • says

      Thanks for the comment, Jeff. It’s interesting to hear your experience. 0.66 is definitely a whole lot more to take care of instead of 0.25 acres. I think this is why many buyers prefer 2 acres instead of 5 acres when looking at a rural-ish property. It’s just easier to take care of (even though 2.0 acres is still a good chunk of land for a residential home). Thanks again.

  2. says

    I saw that shape and immediately thought DOG PARK. But honestly, it is landlocked on the other side I’m sure, so it would have to be jointly purchased by the owners that back up to it, and jointly maintain the land. If iwas on the end, I’d just purchase my tiny section that extends the backyard and see if the city would sell just that portion, keeping the rest contiguous.The city really should have proposed something to those homeowners as a joint idea rather than trying to get some unsuspecting person to pay $2000 for a landlocked, unbuildable strip that needs to be maintained. –Sonja

    • says

      Thanks Sonja. The interesting thing is that this property is not owned by the city. It is actually privately owned. The value would clearly be for neighbors here to maybe extend their lots or have some sort of space they can create for something. However, if there is much water flowing in this area, it could be useless.

  3. ricardo says

    11. duck pond ( OK, that is wetland)
    12. drone airfield
    13. rowing basin
    14. “L” for Last Place Arena, for the Kings!

    Of course community garden seems best

    • says

      That is great, Ricardo. Well done. Maybe we should invite Shaq to tour the site to see if it might work out (For any onlookers, it was announced yesterday that Shaq is now a part-owner of the Kings).

  4. Emilie Barnes says

    One edge of the parcel is along Mercy San Juan. I say make it into a rehab track! You can have areas for wheelchair practice, and a walking trail for patients needing rehab, and an area for pregnant ladies to walk until they are “ready”…

        • says

          I like that idea since it likely may need to function for drainage still. My kids would love to play back there (well, as long as it wasn’t gnarly – in a bad way). I bet neighbors love the extra space between other houses and the peace of how the lot currently is. 🙂

  5. Anne Graviet, REALTOR, CHS, C-REPS says

    Name it after yourself then donate it to a conservancy group as a micro wetlands wildlife preservation area.

  6. says

    I like paintball field or community garden Ryan, or maybe both! Seriously though, I was doing some research on land sales once and ran across a parcel that was a lot less per acre than the rest. Come to find out it was land locked, which explained the low price. Appraisers definitely have to dig deeper when things don’t look right.

    • says

      I know my boys would love a paintball field. I’m glad you brought that up. It just goes to show how important research is. What is a landlocked lot worth, after all? 🙂 Thanks Tom.

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