Effect of building moratorium on vacant lot

[heres2hope]

I am doing an appraisal on a vacant lot that is located in an area where the typical (similar 5 acre lot) is selling for about $250,000. About 2 year ago there was a moratorium placed on new building due to septic issues (they wont allow septic tanks). The plan is eventually to put in a swear line which would then ease the moratorium. When this will happen is unknown, say 5 years. Should future ability to build effect the current value of the lot? Is other words is the property worth 50,000 for a horse pasture or $250,000 because one day someone most likely will be able to build on it.

 

[Michigan CG]

This condition absolutely affects value. How much is what you must determine.

 

[David Mescon]

What have physically similar parcels which are similarly affected sold for in the past two years? How do these sales compare to the non-affected ones?

 

[J Grant]

I think you meant sewer, not swear line. Are there any listings? Talk to agents in the area . When you say the typical 5 acre lot sells for 250k...are you referring to subject subdivision lots that sold 2 years ago pre moratorium, or nearby area lots selling now where there is no building moratorium in place?

I would suspect, that if project time to install sewers is 5 years (and that is not reliable), that present value of land would be far below the 250k. Because someone has to hold the land 5 years before building ( and there is no guarantee the 5 years will see sewer lines, plus usually land owners have to pay for the sewer lines, or for a portion of them as an assesment).

How much vacant land is around there? If there are ample alternative vacant 5 acre or similar parcels avail, why wouldn't someone buy one of them, instead of buying subject parcel where they can't build? But if there are very few alternative vacant parcels in area, then people would pay more for subject land due to scarcity.

 

[Don Clark]

This may not be exactly what you are looking for but..............similar situation a few years ago when my city would not allow building permits due to lack of renewable water source. The builders with existing permits put in temporary wells. The water was so bad it ruined almost all hot water tanks, dishwashers, and could be used for drinking and cooking only with water filters. As soon as the water source issue was solved, the lot's became more valuable.(We now bring water in from 85 miles away from a lake).

In another case, a remore resort area did not have sewer lines. Each lot had a self contained sewerage tank on site. Afet a nor'easter many would be exposed. Lot's were selling for about $150,000 to $200,000 depending on whether or not they were ocean fron or not. When city sewerage lines were installed the lot values doubled and tripled in some cases. Then the housing crisis came along........................

But even today a .35 acre lot sells for $275,000 to $350,000 or more. These are waterfront but not ocean front. On the ocean they would sell for abot twice that amount.

 

[Terrel L. Shields]

When this will happen is unknown, say 5 years. Should future ability to build effect the current value of the lot? Is other words is the property worth 50,000 for a horse pasture or $250,000 because one day someone most likely will be able to build on it.

Time value of money... If you can predict accurately (say based on a master plan by the county or sewage district) how long before the issue is 'cured' then the holding costs and the time value of money can be discounted. However, if there is an open ended question as to when the project will commence, the obvious problem is how to "time" the investment. You could guess that time length and then add a "risk' factor but finding a market based estimate of the risk to add to this "investment" in land would be difficult to make. In fact, there isn't much way you could accurately depend on it.

So for me, I would fall back on the HBU and at this point the HBU is NOT for residential construction because the property is not "Legally permissible" as a residence. Thus it is horse pasture with some element of "future" change in HBU.

The last tactic to consider is would they allow a dwelling to have a pumped system..say a 1500 gal. holding tank that is routinely pumped by a septic service...assuming that the dwelling would hook to sewer once it is created. Then the "cost to cure" would be to project the expense of the holding tank and a residual amount to pay for the pumping service. I might call and see if someone could actually build and have such a temporary system in lieu of a septic service.

 

[John Hassler]

I am doing an appraisal on a vacant lot that is located in an area where the typical (similar 5 acre lot) is selling for about $250,000. About 2 year ago there was a moratorium placed on new building due to septic issues (they wont allow septic tanks). The plan is eventually to put in a swear line which would then ease the moratorium. When this will happen is unknown, say 5 years. Should future ability to build effect the current value of the lot? Is other words is the property worth 50,000 for a horse pasture or $250,000 because one day someone most likely will be able to build on it.

What a great assignment!

This is a great opportunity to spend time with the folks who work at the Building and Health Departments. What is the time line on the sewer? Has it been designed yet? Funded, even partially? Are alternatives to a tank & leach field, such as a mound system, allowed? Get as much info as you can along with the name a number of the persons you speak with.

The value of the property may be $50k as horse pasture plus a speculative kicker. Buy and hold? Maybe a mound system will be allowed on a permanent or temporary basis so maybe you have a building site with higher than normal development costs?


Just as an aside, there is a community here which is about 50% developed but stopped issuing water permits in the 1970s due to the limits of the community well. Homes are 500k & up and the $600-700k home would be 1,500sf and of average quality and condition (virtually all built pre-1970). There are plenty of subdivided lots in the area which typically sell between $2-4 per sf depending who the buyer is (buyers who are adjacent landowners pay the most). Lots are typically 4,000-10,000 sf and a dozen or two change hands every year. Somehow the water district "found" more water and decided to issue one more water permit a few years back. Is was sold through a sealed auction for ....... $325,000.

Moral, there is a big difference between 5 acres of land and a 5 acre building site. Do you best, document what you did, listen to anyone who will talk to you, and most of all ... enjoy!

 

[CANative]

What a great assignment!

This is a great opportunity to spend time with the folks who work at the Building and Health Departments. What is the time line on the sewer? Has it been designed yet? Funded, even partially? Are alternatives to a tank & leach field, such as a mound system, allowed? Get as much info as you can along with the name a number of the persons you speak with.

The value of the property may be $50k as horse pasture plus a speculative kicker. Buy and hold? Maybe a mound system will be allowed on a permanent or temporary basis so maybe you have a building site with higher than normal development costs?


Just as an aside, there is a community here which is about 50% developed but stopped issuing water permits in the 1970s due to the limits of the community well. Homes are 500k & up and the $600-700k home would be 1,500sf and of average quality and condition (virtually all built pre-1970). There are plenty of subdivided lots in the area which typically sell between $2-4 per sf depending who the buyer is (buyers who are adjacent landowners pay the most). Lots are typically 4,000-10,000 sf and a dozen or two change hands every year. Somehow the water district "found" more water and decided to issue one more water permit a few years back. Is was sold through a sealed auction for ....... $325,000.

Moral, there is a big difference between 5 acres of land and a 5 acre building site. Do you best, document what you did, listen to anyone who will talk to you, and most of all ... enjoy!

Nice to see you here again John. Just think Brooktrails in Willits about the effect of a building moratorium on vacant lot values!