If you are planning to sell or buy a land, it is important to know the real cost of it. When you know the true cost of a piece of land, you get a fair price and both parties benefit. In this article, we will tell you how to value a piece of land.
In what circumstances will I need to value a piece of land?
Before explaining directly how to value a piece of land, it is key to know in what circumstances you will have to value it. Normally, the appraisal is requested when you want to sell or rent a piece of land and you want to avoid economic losses. The appraisal can also be requested when a subdivision of land has to be made.
What is FMV
Fair Market Value (FMV) in Canada refers to the highest price that a property would reasonably sell for between a willing buyer and a willing seller in an open and unrestricted market. It is the price that would be agreed upon by both parties who have full knowledge of all relevant facts and are under no compulsion to buy or sell.
Who Value Fair Market Value in Canada
The Canada Revenue Agency (CRA) does not directly value land. The valuation of land for tax purposes is typically done by independent appraisers or valuation experts. The CRA relies on these valuations when assessing property values for tax purposes.
When it comes to taxation, the CRA is primarily concerned with determining the fair market value of land. Fair market value is the highest price that a property would reasonably sell for between a willing buyer and a willing seller, both having knowledge of all relevant facts and neither being under any compulsion to buy or sell.
Property valuations are typically conducted through a combination of market analysis, comparable sales, and property inspections. Appraisers consider factors such as location, size, zoning regulations, access to services and amenities, and any unique features or limitations of the land.
It’s worth noting that the CRA may conduct its own review of property valuations and may challenge assessments if they believe the fair market value has been inaccurately determined. It’s important to consult with a qualified appraiser or seek professional advice when dealing with property valuations for tax purposes.
When assessing FMV, several factors are considered, including:
- Market Conditions: The current state of the real estate market and economic conditions in the specific location where the property is situated.
- Comparable Sales: Recent sales of similar properties in the area, taking into account their size, location, condition, and other relevant factors.
- Property Characteristics: The physical attributes of the property, such as size, age, layout, quality, zoning, access to amenities, and any unique features.
- Income Potential: If the property generates income, such as rental properties or commercial buildings, the potential income stream and prevailing rental rates may be considered.
- Professional Appraisals: The CRA may also consider professional appraisals conducted by qualified appraisers to determine FMV accurately.
What is needed to value a land
- Property Information: Detailed information about the property is essential, including its location, size, boundaries, access, zoning, and any legal restrictions or easements that may affect its use or value.
- Market Analysis: An evaluation of the local real estate market conditions is necessary. This includes analyzing recent sales data, comparable properties, and market trends to understand how the property fits within the current market.
- Physical Characteristics: An assessment of the physical attributes of the land, such as topography, soil quality, drainage, utilities availability, and any environmental considerations, is important in determining its value.
- Legal and Regulatory Considerations: Understanding the legal and regulatory aspects of the property is crucial. This includes reviewing any applicable zoning restrictions, building codes, permits, development plans, and potential future changes that may impact the property’s value.
- Comparable Sales: Comparable sales, or “comps,” play a significant role in land valuation. Evaluating recent sales of similar properties in the area helps establish a benchmark for determining the value of the subject property.
- Income Potential: If the land has income-generating potential, such as through agricultural use or leasing for commercial purposes, an analysis of the income stream and prevailing rental rates is necessary to assess its value.
- Professional Appraisal: Engaging a qualified appraiser with expertise in land valuation is often recommended. They will conduct a comprehensive assessment using various methodologies and approaches to determine an accurate valuation.
Now that you know how to value a piece of land, don’t forget that at Team Bains we can help you with this service. In addition, we offer advice in case you plan to sell your land. If you want to buy, we also have many options for you.
Our advisors are happy to answer all your questions and help you make the best buying or selling decision.