For those of you who plan to sell or buy a plot of land, one of the most important aspects is to verify the market price. And that´s the topic of this article. When you´ve read it you´ll know how to do it. We´ll explain, one step at a time, how to determine the market price of land for the construction of a house. Let’s get started.
First of all, it´s necessary to explain what is meant by the words „market price“ which we use very often in this article. It´s the price at which comparable plots of land (comparable by size and quality) have been sold in the same location and recently, meanings in the last 12 months. Therefore we need to have the information on sales in that place. These days, we can find out this kind of information simply by using online applications that provide real data on sales from the real estate cadastre from purchase contracts, therefore it´s the best source of information. For plots of land, I use the www.cenovamapa.cz application.
There exist two main influences that determine the resulting price. The first influence is the quality of the plot of land. Each plot has its advantages and disadvantages that affect its attractiveness and therefore the price. The second influence includes the subjective circumstances on the part of the seller and the buyer which are unique in each and every sale.
Each plot of land has different shapes, location, construction options etc. This all affects the market price. In the table below I list all known land qualities and quantify their impact on the market price:
|Noisy location||-10 to -20% as per intensity|
|Flood area||-10 to -20% as per flood degree|
|Sloping or unsuitable shape of plot of land||-10% as per the slope gradient / unsuitability|
|Absent servitude of use||serious – impossible to obtain building permit|
|Absent distribution networks||-10% / as per the cost of construction|
|Plot of land impaired by servitude of use||-10 % / as per the impact of the restriction|
|Protection strips of networks (such as power lines) extended inside the plot of land||-10 % / as per the impact of the restriction|
|Unattractive surroundings of the house (factory, warehouse, unattractive houses etc.)||-10%|
|In the vicinity of a park or forest||+10%|
|With great views||+10%|
|Orientation to the north||-10%|
|Orientation to the south, southeast, southwest||+10%|
|Plot of land with a building permit||+10%|
|Non-standard restrictions resulting from the zoning plan||depending on relevance|
These circumstances may be on the side of both the seller and the buyer as each of them enters the deal for different reasons and in a different position and the mutual constellation will have a considerable effect on the price. It can be said that these subjective circumstances affect about 10% of the total price. Therefore, if you calculated the price of the plot of land as for example 2,000 CZK per m2 based on the above procedure, this doesn´t mean that the plot of land can´t be sold for 1,800 CZK or 2,200 CZK per m2. It depends on the subjective circumstances of the sale.
On the buyer’s side, motivation plays a major role. If they want to buy for the sole purpose of investing, they will look for an offer with an attractive price. If they want to buy for the purpose of their own housing and, on top of it all, an acquaintance or family lives in that place, they´ll be ready to pay more. Other offers in the area have an impact too. If the market in the given place has sold out, the buyer will be more ready to accept the price rather than when the offer in the place is extensive. Another determining factor includes financial possibilities, someone is well-off and someone has to be careful with their money. And finally, how much time one has for the search plays a role too. If the buyer isn´t in a hurry, they won´t be motivated to decide quickly and will therefore wait for an attractive offer. And if they are planning to start a family and need to build as quickly as possible, then they will be able to decide immediately.
On the part of the seller, the readiness of the land is essential. If the land is overgrown with unkempt bushes or full of old junk it will be less attractive than if the seller grows a beautiful lawn on the plot of land. Timing of the offer can also be one of the decisive factors. If the seller decided to put up the offer in December, at that time the interest in the land is significantly lower and thus the possible final selling price is lower too than, for example, in April which is the beginning of high season for sales. When the seller is in a hurry, for example because they need money to buy another property or because of a family settlement, the resulting price may be lower than when the seller doesn´t have to hurry. Personal preferences can also decide. Not everything is just about money, sometimes sellers prefer a lower selling price if they take a liking to potential buyers.
There are two ways to deal with the lack of information for valuation. The first one is to include older sales going back more than 12 months in the valuation. Here, however, we must take into account the development of prices. We are now in a period when prices are rising and that´s why we should increase older sales prices accordingly. How much can the index of changes in real estate prices issued by the Czech Statistics Authority help us? The second option is to expand the location in which we are looking for sales made. Here, make sure that the locations are comparable as far as quality is concerned to the location where you want to determine the market price. Usually the nearest villages are comparable in price but this may not be the case which means that you must know the location well.