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The Valuation of Undeveloped Land: A Reconciliation of Methods

The valuation of undeveloped or "subdivision" land typically is accomplished by using either a single discount rate applied to total projected cash flows or by using a land discount rate applied to cash flows that are net of a developer's profit. The relationship between these two techniques is more complex than is generally recognized and valuation errors easily could result from the way they are typically used by appraisers. This paper reconciles these two techniques and demonstrates the conditions necessary for each to produce a correct estimate of land value. Survey data are used to illustrate the application of each technique and the incorrect value estimate that could result from their misapplication even if appropriate market data are being used.

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Article provided by American Real Estate Society in its journal Journal of Real Estate Research.

Volume (Year): 9 (1994)
Issue (Month): 2 ()
Pages: 169-178

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Handle: RePEc:jre:issued:v:9:n:2:1994:p:169-178
Contact details of provider: Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
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Order Information: Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
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