Land buyers who are looking to buy land in order to "develop" (as this term is defined in these Land Development Values articles) it or build on it to sell the whole package (e.g. a home built on its lot), have to sort through many parcels, because everyone wants to sell them something! It takes a long time to identify the parcels worthy of consideration. Land purchasers therefore need to have tools at their disposal to quickly filter out the junk parcels and identify those that deserve further attention. For preliminary screening, most buyers rely on formulas and simple rules.
These guidelines are meant to give rough estimates of the site's yield and the different cost factors, because they are key elements in determining the "right" amount to pay for the property. The price at which these numbers work allows land buyers to determine within minutes whether the seller's request is realistic. If the land parcel is substantially overpriced, the buyers can simply discard the property and move on to better prospects.
Commercial Land Developments
It is not surprising that the method for estimating the site yield and the cost of improvement differs for residential and non-residential developments. For retail KO Excavation and office parcels the yield is defined as the potential amount of construction space. This is usually a factor of the amount of parking space that will fit in the parcel. One rule of thumb might be used to estimate the total amount of land area needed for each car that would be parked on the office property (e.g., square feet for parking space plus drive aisle). The amount of land taken up for sidewalks and walk ways would be estimated by another rule. Another rule of thumb would assume that $100/sq.ft. is the cost to improve vertically or horizontally. The square footage of an office.
Residential Land Developments
In residential land developments, the rules of thumb are designed to estimate how many building lots the parcel will produce once subdivision is complete and the cost of horizontal improvements. The value of each "raw" building lot would be calculated based on the projected sale value of the finished product (house on its lot) and the improvement costs.
Site yield rules of thumb may net the amount in square feet of land that will be wasted, or not be able to be used due to various reasons. They then divide this amount by the minimum required lot size by the zoned area and arrive at the number. This is an example of how the rule-of-thumb calculation would look for a 15 acres vacant parcel zoned to 20,000 sq. ft. lots:
Step 1: 43,560 sq. ft. x 15 acres = 653,400 sq. ft.
Step 2: 653,400 sq. ft. x 70% = 457,380 sq. ft.
Step 3: 457,380 sq. ft. divided by 20,000 sq. ft. = 22.87 building lots
The result will always be rounded up. So, there would roughly be 22 building plots for this lot. In the second stage, 30% of gross site area is deducted for waste, natural constraints such as slopes, flooding, and irregular shapes, plus land that will be used by new roads.
Keep in mind that the rules of thumb may vary depending on your geographic location. Since these are rough estimate, you may need to adjust them according to the circumstances. If a substantial portion of the 15 acre parcel was in floodplain, it wouldn't make any sense to deduct only 30% from the total gross site area. If you're not sure what rule of thumb to use, be conservative.