Valuing Country Property

There are two main ways that all real estate is valued. The first is by comparable – similar properties that have sold recently. Comparables are used to establish the value of 99% of real estate sold and are by far the most reliable way to value any piece of real estate.

The other main way real estate is valued is to value elements of the property separately and then add them up. This is used for quick and dirty valuations when there are not enough comparables to work with or to confirm the value arrived at by comparable. In the last few years we have found this technique to be less and less useful, or I should really say less and less accurate. It is easy to assume that properties are valued by taking the value of the their elements and adding them together. That is not the case. The elements are valued by looking at a series of sales over time and trying to determine what value each element contributed. In the case of a series of vineyard properties, this can be extremely complex.

The Process

For any of the numbers below to make sense, the entire lot is assume to have water, waste water disposal, power and access. If any one of these is missing (power being the exception) the lot becomes unbuildable (either legally or practically) and the lots value is a fraction of what it could be. Buildability is the cornerstone of any country property valuation.

Each of these elements is so essential to value that we don’t even talk about the value they add. Here are some base value which can only be increased or decreased. So this list is really the cost of developing each of the elements and/or a discussion of how they affect value.

Well
$20,000 to $50,000 cost to drill and build out depending on depth and production.

Approved septic site
$0 – its value is reflected in the value of the building site

Installed septic system
$12,000 to $50,000 depending on age type of system.

Power to site
$10,000 to $??,???. Totally depend on the length of the run. We use $35 a lineal foot for budgeting purposes. The price of running traditional power has really impacted many properties where the cost of bringing power in is high relative to the properties cost. But, the viability of solar power as an options has reduced traditional power as a limiting factoring in developing more remote properties.

Access
Usually only has a negative impact on value. To build a new home, Sonoma County will require the driveway (unless it currently already serves another home) to be brought up to current standards. This can be very expensive and for longer driveways (1/3 mile or more) this can easily run into several hundreds of thousands of dollars or more. These costs are usually taken off the value of the property.

Splitability
Not every parcel is splittable. Sonoma County’s general plan indicates, on almost a lot by lot basis, how each lot can be split. In general less than 10% of the lots on the market at any one time can be split. And a lot that appears to be splittable based on zoning isn’t guaranteed. And the process is a long one, up to two years and we’ve seen splits take even longer and they typically cost $30,000+. If a lot appears to be splittable but the process has not been started yet, our general rule is that about half the value of the new lot (when the split is completed) is added to the parcel. But that varies a lot.

House Site – or the First Acre
A nice house site in Sonoma County is worth $400,000 to $1,500,000. The other way to look at it is that, on a buildable lot, the best acre is worth about from $400,000 to $1,500,000. Great lots with spectacular views or in particularly desirable locations may even value the best acre at above $1,500,000. This is the hardest concept for many buyers to grasp. It is why a 5 acre parcel is not half as much as a 10 acre parcel and why a 10 acre parcel is not half as much as a 20 acre parcel. Some people seem to have real trouble with that. In fact, in the same neighborhood and all other things being equal a 5 acre parcel will sell for about 75% of the 10 acre parcel just as the 10 acre parcel will sell for about 75% of the 20 acre parcel. Going up from there the distinction gets even more difficult with 20 to 40 acre parcels selling for about the same cost and prices going up very slowly from there. 300 acre parcels usually sell for about double a 40 to 50 acre parcel.

Planted land right now is going for about $100,000 an acre if the vineyard is well installed and the variety has a strong market. For a Pinot vineyard in Russian River that cost per acre could be double that. Planted land can go for as low as $65,000 an acre or less if the vineyard is on AXR, or if there are serious production problems, or the market for the grape being grown has collapsed.

Plantable land is going for about $30,000 an acre right now. Maybe more if the land is particularly suited to growing grapes for high priced wines or less if there are significant development issues that have to be addressed. We are seeing parcels where the value of the plantable land is well above $50,000. In Russian River we are seeing good Pinot ground go for $100,000 an acre and in other areas nice usable land is going for $65,000 to $75,000 an acre.

Usable but unplantable land More or less $10,000 an acre. Horse property is the most commonly seen version of this.

Unusable Land $1,000 to $7,500 – It depends on how unusable (and how much). On our property there are sections full of oak trees near a creek that are unusable for several reasons, but still add a great deal of value and enjoyment to the property – they were valued at $10,000 an acre. But there are also properties with areas that are so steep and so inaccessible that they are of no value at. That’s why I get e-mails asking “This 40 acres looks great – why is it $200,000”.