It has always been a little more complicated to evaluate land financing than any other real estate transactions. In part because there are much less land transactions so less comparables. In addition, different pieces of lands, even geographically closely related, may have significant different usage. This being said, there is still a need to provide financing for land and land development.
When thiniking of land value here are couple of pointers for you and your clients to consider. If the land is supposed to be developped for residential purpose make sure the final value of the lot make sense. The estimated value of the lot has to be in line with the future value of the completed property. If the land is only used for agricultural purpose, then the valuation is done based on agricultural value. There is a significant difference in value between land entitled and land that is not. However, at this time the difference in value is not at significant as it once was. Finaly, we at this time land for commercial use is in higher demand than residential development.
In term of financing, land values have dropped significantly not only accross California, but in the US in general. The drops that was seen and that we are seeing are related to how fast and high values of improved property had increased in the last 5 years. Land values have drops between 30% and 80% in the past 8 months. When providing financing a lender will look at these issues and then be conservative. On land not entitled LTV will be 25% to 35% on lot LTV will be up to 55%.
Make sure to send me your feedback on this and other post at gui@euroeq.com.
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