The Housing Chronicles Blog: Getting real about valuing land

Thursday, November 6, 2008

Getting real about valuing land

With builders continuing to write down the value of loans (and banks then in calling loans when the collateral falls), attaching a number to the worth of undeveloped land has become increasingly difficult. Can you believe a land broker, who may want a high value for the commission? Can you believe a consultant who is under pressure to come in with a high value to get more work? I'd say believe whomever is willing to tell you the truth, because you can't address what you don't admit (i.e., the housing bust right before it happened). From a BuilderOnline.com story:

Home builders around the country have been swamped this year with news reports of public builders selling land for some fraction of its peak worth to get out from under the carrying costs on loans now worth more than the land's value.

Those large builders have teams of number crunchers and a roster of well-paid consultants and financial advisors to help them evaluate what their land might be worth, and what they might be able to get for it in a sale...

"We've been hearing all this stuff about how land is selling at 40 cents on the dollar, 60 cents on the dollar--that doesn't matter...It really needs to be selling at 15 cents on the dollar. And that's not even for raw land. That's for a combination of raw and finished lots."

While builders have been writing down the value of their own lots to be able to sell homes closer to market prices, the prices of lots for sale have not come down nearly as far, so very little land is being sold and even fewer new developments are breaking ground.

Click here for full story.

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