Establishing Lot Premiums 301

In 2 previous posts, we discussed the rationale for lot premiums and began the methodology for quantifying them. In this edition, we continue the “how.”

Corner lot premiums

Again, similar to adjacent school uses, those who will not even consider a corner will not be persuaded by a lower price. Many will pay extra to be on a corner…more open, often more light, sometimes more privacy since at least one of the adjacent neighbors faces about 90 degrees away from the subject. Usually there is more frontage area as a percentage of the total site.

Corner lots on simple grid streets will still justify a premium. Corner lots on cul de sacs will attract premiums for both issues. There will be less traffic into the cul de sac and buyers will be willing to pay more of a premium than for a home on the corner of two through streets.

Orientation premiums

South and West facing will normally make rear yards more valuable in cooler climates. In the desert Southwest, rear yards facing East and north are cooler and thererfore more useable. Watch for these. Irrespective of your geographic location in the world, about half the rear yards will be the preferred orientation. The site sales team will usually know which orientations are typically preferred. Preferred means they should attract a premium. These may be modest premiums, but they are real. Charge for them.

Adjacent use premiums

The Precise Grading Plan (or Fine Grading Plan or local equivalent) and the project manager will be able to show if there are uses immediately adjacent that will affect specific homesites. (For flag lots, there may be some overlap with the access issue above.) If the home is adjacent to a detention basin, try turning the negative to a positive. Install a hand-carved sign, identify some of the wildlife that will frequent the water, celebrate the butterflies, the deer, the rabbits, etc. Call the basin a permanently protected bio-filtration site. If the site borders a park, a school, a golf course, realize that for SOME these are negatives. Insurmountable to many buyers. Thus, don’t worry about those buyers. Realize that those who buy next to a park will do so to USE the park as an extension of their own home. Those buying beside the school like the kids, the schoolyard view, the excited voices, etc. Price for them…with a premium. The buyers who despise the candy and burger litter, the soccer moms’ traffic in front, the sounds of someone else’s kids yelling...well, these buyers are not candidates in any event.

Usually, adjacent property owned by US Forest Service, for example, will attract a premium value. But think first. Certainly those adjacent to the California wildfires may have been happier if adjacent properties were owned by timber companies, who WOULD have harvested trees, but also would have managed the forests to minimize the damage to neighbors, and themselves. Less politics may have saved lives and property. Think how a potential buyer, in November 2003 would consider a lot immediately adjacent (see above) that is owned by the USFS. Would this be a plus, attracting a lot premium? Or would it introduce major fear in a buyer. Government use is often a premium, but we should ask the questions.

On the negative side, be aware of the site utility issues. If there is an above- ground utility vault, it will be a negative, but seldom a deal killer. Watch for light poles, postal hutches, fire hydrants, water line clean outs, pumping stations, telemetry poles for the pumping stations, power poles, train tracks, chain link fences, present or required. Again watch for immediately adjacent access issues. How is the County going to access the detention basin? Does the adjacent flag lot’s driveway, and hence its traffic, come within 5 feet of my dining room window? Etc.

Topographical premiums

The site-specific topography will be relevant to the lot premium analysis. Also, the topo relative to other homesites in the community will also bear examination. If every home is on a bluff 40 feet above the neighboring homes, the topo is not a premium. But if only some are elevated, the lots with such a wonderful outlook will attract a significant premium. Elevation is normally good. In some heavy snow markets, this will not be true if the driveway becomes a seasonal challenge.

Being at the bottom of a major topo change is normally bad. I once observed purportedly-skilled homebuilders put an enormous premium on a lot that, “back at the office,” showed a very large size of nearly an acre. What they did not factor was that the site had a terrible, steep access, beside one home to the flag lot, onto a very small building pad, with virtually no room to turn around. The building pad was at the bottom of a 60-degree slope where some evidence of minor erosion slides was still in evidence. The bulk of the subject property was unusable, and towered over its "own" home by over 60 feet. “Back at the office” there was no topo showing on the site plan consulted. The relative value of the homesite was very apparent from a block away, but not from 35 miles away at the division office.

Worse, customers who could have been interested lost any sense of confidence in the builder’s pricing strategy because of this avoidable error. And, the very salespeople who were the conductors of the information to prospects were not even polled. They could see this mini-mountain from their office, but were not considered to have anything of value to contribute.

This reminds us that topo may contribute ONLY privacy, but be offset by extra installation / maintenance costs for landscaping, a smaller, less useable flat pad area, and challenging access.

In terms of waterfront, the long-standing debate is whether high-bank is better than low-bank. If you can walk out to the shore, others can walk on the shore right in front of your home. If you are perched well above the water, the privacy (and potentially-greater view) means you need to hike down to get to the water. Local custom and market will determine which merits the higher lot premium.

Gentle slopes are usually preferred, but the depth of the flat rear yard is almost always a lot premium issue.

Next: often forgotten matters in lot premiums.