Post by Chuck Braxton, REALTOR® GRI, Roche Realty Group, Inc.
Today’s question comes from a prospective buyer of residential land possibly with conservation, recreational and agricultural (“CRA”) potential who asks, “How much per acre should I expect to pay for land in the Lakes & Mountains Region of New Hampshire?”
While I continue to see buyers and sellers approaching the market for land this way, my answer is simply this: “per acre” metrics are a poor way to evaluate the market value of undeveloped land. Looking at the price per acre is grossly misleading causing a buyer to rule out a particular valuable property while advancing a parcel that has fewer merits, but is just bigger. Or, put another way, you would no sooner by a new car on the basis of its price per cup-holder!
Sellers seem to be hung up on per acre metrics, too, and that may be the major reason that there is a lot of inventory of land in the region that is not selling because it is overpriced by 30-50%. This overpricing tendency has increased since my 2008 analysis when much of the inventory was priced 25-40% above market clearing levels. The inventory of undeveloped land for sale in most of the 32 towns that I analyzed stands at about 10 years worth of sales based on the annual rate of sales for
the past 3-4 years; some towns have as much as 30 years of inventory.
Per acre metrics may be appropriate for other types of buyers such as developers, timber interests, or “CRA buyers” with no desire for residential use. CRA buyers will generally be willing to pay more “per acre” than, say, timber interests or developers for features such as habitat, wetlands, riverbanks and pasture lands.
However, residential buyers (those who intend to build, but may want CRA features as well) should think of any parcel land as a building lot (say, one to five or six acres depending upon the town) that has a typical value for that locale, then adjust this value quantitatively pro/con for:
• The predominant quality and state of development of neighboring properties,
• Water features (stream, pond, wetland, lake),
• Road Frontage & Shape,
• Natural resources (e.g. tillable soil, timber, gravel)
• Other personal preferences
The remainder of the parcel (total acreage less the building lot) is “excess acreage” that has a much lower per acre value. That value per acre would be adjusted pro/con for some of the same factors as the building lot portion of the parcel. This “excess acreage” approach is used by property tax assessors throughout the 32 NH towns that I have examined.
Let’s examine each of the factors:
Neighboring Properties: The key question about neighboring properties is whether the state of development and upkeep is consistent with the uses that prospective buyer would do with the subject property. If the answer is yes, then the value of the subject property is not affected. One discussion of this is the article entitled, “Owning an Undeveloped Lot in a Subdivision: Going for Gold or Holding the Bag?” available athttps://db.tt/lLk0ENh.
Water Features: This is one of the most sought-after features among buyers and can create significant incremental value. The major factor is whether the water feature is visible from the building site and the quality of the view (see Views). There are a number of additional factors that affect the value of property with owned frontage on a lake or pond are discussed in the article “Factors Affecting the Value of Waterfront Property” available at https://db.tt/Lv1yg2w.
However, water features can also create challenges. Environmental regulations are becoming more demanding on stream crossings. Where a culvert was once satisfactory a much more expensive bridge-type crossing may be required today. Water features can also require buffer zones and setbacks that may affect the development of the property. Finally, there may be areas of poorly drained soils or vernal pools that affect development as well. Permits are required to fill in any
poorly drained area or wetland.
Views: Views are another sought-after feature that may add to the value of a property. This is discussed in detail in the article “What Is That View Worth?” available at https://db.tt/JQCxqb9. A related issue is whether the best views are available from the best building site and to what degree the view can be controlled and maintained. This will include the ability to cut vegetation back to sustain the view as well as control over what might appear in or intrude on the view in the future.
Exposure: The compass orientation of the property will have a major affect on sunlight, winds, and views (further discussed in the article above). Coupled with the slope of a property, this should be a major consideration for buyers. Southerly exposure is generally more desirable than northerly although a northerly exposure may offer the best viewscape. Easterly versus westerly exposure will depend to some degree on the amount of southerly exposure available as well. At central NH latitudes the summer sun sets well north of due west so a northwestern exposure will be enjoyable in the summer. Prevailing winds are northwesterly and southwesterly. Northwesterly winds are colder in general. Major storms often come out of the northeast.
Slope: Percentage slope is the measure of the rise over the run. Slopes up to 15% (about 8.5 degrees) are generally manageable. Some towns have regulations that control development on slopes steeper than 15%. Drainage is another factor to consider when looking slope. How will the flow of water from a street or another property affect the subject.
Road Frontage & Shape: The overall geometry of the tract affects its value as well. Let’s start with road frontage. More road frontage means more value, in general. A rectangular parcel close to square will have more value than an irregular parcel or one that is, say, triangular as the land at the point is pretty useless in most cases. Because the regulatory requirements are less demanding on parcels of more than five acres, in the 80s a lot of subdivisions were created with narrow but deep lots (so-called “bowling alley” lots). There is not much privacy in subdivision lot where the lots are 150-200 foot wide and 1,200 to 1,400 ft. deep unless you are prepared to have a long driveway. Thus, such lots are going to be less valuable than others. To combat this trend, towns with zoning ordinances often require the geometry of lots in new subdivisions to have a depth to width ratio of not more than 4:1.
Easements: An easement is the right of others to make some use of the property. A right-of-way is a common type of easement and overhead utilities are another. All other factors being equal, a parcel bisected by an easement will have a lower value than one where the easement is along a boundary. Will easements be needed to access the property or handle runoff from the property?
Access: What type of road access is available? A state- or town-maintained road will ensure that construction contractors, fuel suppliers, fire equipment and ambulances can service the property. However, the driveway will also need to be gradual enough so that the equipment can reach the building site.
Can a driveway permit be obtained to the property? Two concerns of the governing entity will be adequate line of sight and control drainage along the roadway and from the subject property.
A Class VI road is one that a town has voted not to pay to maintain. It is still a public way so snowmobiles and ATVs are allowed access. However, any privately funded improvements to a Class VI road require the approval of the town’s select board. Generally, the town road agent will review the proposed improvements. Some towns allow building on Class VI roads, others do not.
If the road or right-of-way are private or otherwise shared such as a Class VI road, what is the arrangement for maintaining the roadway and removing snow and ice. A private road agreement may be part of the language of a deed or restrictive covenant, there may be an association, or there may just be an informal, voluntary understanding.
Utilities: There are a few electric distribution utilities serving the Region as well as municipal electric departments in a few towns. Each utility has terms and conditions for providing services and a portion of a new service may be provided at no additional cost. Extending electric service to a remote location may be feasible, but is paid by the buyer.
Telephone, cable and internet service offerings vary from town to town and by locality as well.
Water and sewer service may be available in some densely developed suburban and urban areas. However, private wells and septic systems are often required. A state-approved waste water disposal system is required for any structure that has running water. State and local regulations apply to the design and installation of septic systems.
Buildable? Buyers and sellers frequently use this term to describe undeveloped land. Technically, town officials will say that any parcel is “buildable” until the technical evaluations have been conducted, the applications have been made to build, and have been denied. A lot that is smaller than allowed by today’s town zoning regulations may be “grandfathered,” but whether it is “buildable” will require a soils evaluation by a licensed septic designer. If there are poorly drained soils on the property, these may have to be delineated before the septic design can be completed. A town zoning or state regulatory variance may be required to accommodate a septic system on a particular property.
Aside from state regulations, note that permitting requirements and code enforcement rules vary widely among towns in the region. Some towns do not issue building permits, others do not do code enforcement inspections. However, for towns with permitting and code enforcement rules, a building permit cannot be obtained without submitting a proposed design and driveway permit. A parcel can only be called “buildable” when the building permit is issued.
In towns without building permit and code enforcement provisions, a state-approved septic system design (for buildings with running water), compliance with any setback requirements and driveway permit are sufficient to confirm that a lot is indeed buildable.
Natural Resources: The presence of timber, tillable soils, or gravel on a property can be a factor in the value as well. Evaluation of these resources should rely upon a licensed professional with the appropriate knowledge.
About the Author: Chuck Braxton is a REALTOR® with the Meredith office of Roche Realty Group, Inc. He has applied his 25+ years of experience as a business executive to the challenges facing owners and buyers of real estate in the Lakes Region. His website is at www.ChuckBraxton.com. Mr. Braxton may be reached at his direct line: 603.677.2154, by email: firstname.lastname@example.org or toll free any time of day or evening at 800/926.5253, extension 342.