Establishing Lot Premiums 201

Last post we examined the who, what, when, where and why of establishing lot premiums. In this edition, we will review the actual methodology.


How to do the analysis.

Tools

The tools we need on site are the precise grading plan, a site plottage plan, a ladder, a compass, a few helium balloons, red dental floss, a camera, and a reduced typical floor plan of each plan.

If the site is not yet graded, the PGP is vital to establish the site conditions as they will be, once a customer receives a new home. The plottage plan will show which houses (can) go where and the floor plan will show where windows are (likely to be) located. If the view is toward the river, a premium will likely result, but only if the view can be enjoyed. The same views from different windows will attract different premiums. Certainly we understand that a stunning view from the nursery will not be as valuable as one from the family room, owners’ retreat, etc.

However, if headlights from all community traffic will hit the master suite, or the dining room, the location will suffer a negative. Reading the plottage plan in conjunction with the floor plan will allow an intelligent analysis.

The compass will tell us about heat and light issues. In Phoenix or Las Vegas, a North or East facing rear yard will normally be preferred, to escape the late-day heat. In Portland, South and West facing will be preferred to capture the sunlight and warmth. If they are preferred, they get a premium.

The camera will capture neighborhood influences, usually on the periphery of the community. We’ll want to keep them in mind. (Sometimes, we will want to offer to paint a neighbor’s home, or to install some buffer trees, even if they are on others’ property.)

The stepladder, 6 or 8 feet, will allow us to stand on top and predict the views from second story locations. The helium balloons can be located to approximate view blockages from walls and fences not yet built, or even homes that will be constructed. I like using red dental floss to tie the balloons so I can see if the balloon is floating straight up, or if winds push balloons to one side, thus dropping the elevation from where the eventual structure will be. The red color helps increase visibility from the ladder, or even the finished grade, wherever we are standing.

View premiums

This is the most common matter attracting attention in the lot premium discussion. It is something to be handled delicately since we usually cannot guarantee nearby uses that could impact views. We can provide third party information to buyers regarding zoning, civic restrictions, etc. And we must have our sales teams demonstrate the view whenever it is attractive.

To do the best job of view premium analysis, use the ladder, balloons etc. discussed above. Consider WHICH rooms will have a view. Maybe this is a time to specify a particular home / elevation / orientation in order to maximize revenue. Maybe it is time to change another clever decision made “back at the office” or even one made by a land planning consultant who might not be on the same wave length.

Don’t forget the view INTO the subject site. If the location is at the bottom of a hollow, with 2 story homes perched above, any pool or recreation uses on the subject homesite may be restricted due to lack of privacy. That comes at a cost to desirability and a reduction of the lot premium…or even a negative premium.

Again, remember the premiums are WITHIN the community. I once ascribed view premiums to most lots in a community we were building in Marysville WA. So many had a view of Puget Sound, or of Mt. Baker I was ecstatic to add $500,000 in lot premiums. I did this “back at the office.” I forgot the rule that I needed to find the “vanilla” lot, and adjust from it. Only later did I also learn that, in Marysville EVERYONE expects the water view and the view of Mount Baker. That was no PREMIUM. It was a BASE. Those without these views were the unusual ones and they required a negative lot premium.

Size Premiums

Larger lots will usually, but NOT always attract a premium. The issue is what the benefit is of a larger size. Does it give privacy? Does it simply add construction and maintenance costs? Can a pool fit? A tennis court? An extra garage or workshop building (if they are allowed)? Is there extra room for play areas? Can an RV get access (if they are allowed)? Recently, I have noticed a real trend to wanting on-site RV parking. Not long ago, neighbors would be in arms. Now, communities seem to welcome them, so long as they are not shrouded in blue tarps! Again, however, a large size does not necessarily mean that RV’s are allowed, or if the actual access point is wide enough for an RV.

Cul de sac premiums

Homes on cul de sacs will have extra appeal to most buyers. At the very bottom of the cul de sac, the premium will be greatest. There will be less traffic. Kids will be more likely to play in the street in front of their home. Those orange traffic pylons may well be used by the parents. Other neighbors’ kids may well congregate there. While other buyer profiles will also typically out a premium value on the location, the greatest premium will typically come to / from parents of young kids. As the location gets closer to the opening of the cul de sac, the traffic will be more, simply because more of the neighbors will be accessing / egressing their own homes. Premiums will fall relative to the end of the cul de sac. Each location’s premium value will change. Those across the street from each other will be similar to each other.


Next post: evaluating premiums for corner lots, orientation, adjacent uses.