Land Value: Home Office Considerations

Determining the value of land for a home office is important for tax purposes, as the value of the physical structure can be depreciated, but the land it sits on cannot. The easiest way to determine land value is to hire a professional appraiser, but this can be costly. An alternative is to use a land value estimator or calculator, or to look at comparable properties and their valuations. Vacant lots are valued differently from improved properties, as they cannot be valued using the income or cost approach. Instead, the sales comparison approach is used, which looks at the recent sales figures of similar properties in the area.

Hire a professional appraiser

Hiring a professional appraiser is the easiest way to determine the value of your land compared to your home. An appraiser is a professional with the knowledge and experience to determine the value of your property based on its location and the current market. They will provide an independent, official determination of the approximate worth of your property and home.

Appraisers will conduct an inspection of the property, examining the size, condition, quality, and purpose of the home. They will also research other homes in the same area with similar makeup, comparing recent sales to help determine a fair market value. If the property is new construction, the appraiser will estimate the cost to replace the structure, taking into account land value and depreciation.

Appraisers will also consider the overall size of the plot of land, the number of bedrooms and bathrooms, the materials comprising the exterior and interior of the house, and any home improvements or extra features such as a swimming pool or garage.

Before hiring an appraiser, it is important to evaluate their qualifications, experience, and references. Confirm that you are dealing with a professional by asking for a copy of their qualifications, including information on their education, associations, and licensing. The longer an appraiser has been in service, the better. A good appraiser should also be able to provide several references from previous clients.

It is also recommended to hire an appraiser familiar with the county where the property is located, as they will understand the geography and the properties in the area. Keep in mind that the appraisal process should not take more than a month and should be completed within a couple of days.

While hiring a professional appraiser will require an out-of-pocket cost, it is worth it to ensure an accurate determination of your property's value.

Calculate value ratios

Calculating value ratios is a way to determine the worth of your land compared to your home. This is especially important for those with a home office as they will need to depreciate that portion of their home for tax purposes.

The most common calculation for determining value ratios involves using the total cost paid for the home, including transfer taxes, recording fees, utility connection fees, and title insurance. Then, the assessed value of the house is divided by the total assessed value of the house and land. This results in the percentage of your total cost that your home makes up; the remaining percentage is the percentage of the total that your land makes up.

For example, suppose you paid $200,000 for a house, and the assessed value is $160,000 consisting of $40,000 for the land and $120,000 for the house. The value of the land is $40,000 / $200,000 = 0.25, or 25% of the total value.

This calculation process can be complex and inexact, so it is important to verify your calculations by comparing them to comparable land sales and any appraisals available.

Another way to determine the value of your land is to look at similar empty plots of land and see how much they sell for per acre. By looking at several different comparable land sales, you can create an average cost per acre in your area for land similar to yours. This will give you an approximate value of your land if it were to be sold as an empty lot today. You can then subtract that amount from the value of your home and land together to determine how much your home structure is worth.

Alternatively, you can hire a professional appraiser to determine the value of your property and home. They will have the background knowledge and experience to determine the value based on its location and the current market. However, you will have to pay out of pocket, and reputable appraisers can be costly.

Check local zoning laws

Zoning laws are an important consideration when determining the land value of a home office. These laws regulate the use of a property based on its location and can vary depending on whether you live in a city or a county. Here are some detailed steps to help you navigate local zoning laws:

Determine Applicable Laws:

First, establish whether your property falls under city or county zoning laws. City zoning laws usually take precedence if your property is within city limits. Additionally, consider other applicable laws, such as health and sanitation codes, safety regulations, or fire codes, especially if you intend to run a specific type of business from your home.

Search City or County Ordinances:

Most jurisdictions have their zoning codes available online. You can also visit the county or municipal clerk's office, library, or city attorney's office for more information. Find out the zoning category of your property, such as residential, mixed-use, or commercial, as this will impact the allowed uses and restrictions.

Contact Municipal Planning or Building Department:

Even if you understand the zoning laws in your area, it's advisable to seek an official opinion from the planning or building department regarding your specific property. They can provide clarity on zoning laws and how they apply to your situation.

Research Previous Property Uses:

If a previous owner obtained a variance or exception to the zoning laws, you may be able to do the same. However, keep in mind that regulations may have changed, or your neighbours may have different preferences. Zoning laws typically exclude previous activities, so if you purchase a property where the previous owner had a variance, you must still comply with current zoning regulations.

Consult an Attorney or Real Estate Agent:

If you have questions or concerns about interpreting zoning laws or restrictions, consider consulting a local land use attorney or a real estate agent. They can guide you through the regulations and help you determine if your planned use of the property is permitted.

Attend Homeowner's Association Meetings:

If your property is part of a planned community, land use is typically governed by the homeowner's association rather than the municipal planning department. Attending their meetings can help you understand their procedures and get familiar with the people in charge. You can also contact the association directly to discuss your planned use of the property and any potential restrictions.

Seek a Variance:

If your planned use of the property is not permitted under current zoning laws, you may be able to apply for a variance or exception. Most cities and homeowner's associations have forms for this process. You will likely need to prove that the variance is necessary for you and that it won't negatively impact your neighbours' property rights or the character of the neighbourhood. There may be fees and hearings involved in this process, and you may need to gather supporting information and letters of approval from your neighbours.

Assess the land's desirability

When assessing the desirability of a piece of land, there are a few factors to consider.

Firstly, how the land looks aesthetically is important. A vacant lot in a rundown area will be less desirable than a wheat field with a river view, for example.

Secondly, zoning laws can have a huge impact on the value of a piece of land. Land is generally more valuable when it can be developed. Zoning laws may restrict how the land can be developed, so it is worth checking with the local zoning office. Land that can be developed for commercial purposes will usually be more valuable than land that can only be used residentially.

Thirdly, deed restrictions may also impact the value of the land. Liens, easements, and deed restrictions can all lower the value of the property. These can be found by checking the deed at the County Recorder's Office.

Finally, it is important to check if the land is in a flood zone. Flood insurance is costly, and people are less likely to want to build on land in a flood zone, so this will generally make the land less desirable.

Consult real estate agents

Consulting real estate agents is a great way to determine the land value of your home office. Real estate agents have in-depth knowledge of the local market conditions and can provide valuable insights that online tools may not be able to offer. They can help you understand the ratio between the land value and the value of the physical structure on top of it.

• Request a Comparative Market Analysis (CMA): A CMA is a comprehensive assessment of your property's value, prepared by a real estate professional familiar with your local market. It considers various factors, such as location, size, condition, amenities, lot size, year built, renovations, and interior improvements. Most agents are happy to prepare a CMA, often free of charge, to win your business.
• Utilize their access to the Multiple Listing Service (MLS): Only licensed real estate agents can access the MLS, which is a database created and maintained by real estate professionals. It provides up-to-date and accurate information about properties currently listed for sale, including listing history. Brokers share comments about a property's appearance, condition, and their opinion on whether it is accurately priced. This inside information can be invaluable when determining the value of your home office.
• Benefit from their expertise in comparable properties ("comps"): Comps are one of the most trustworthy ways to calculate a property's value. Real estate agents can help you find similar properties in the same area, considering size, condition, and features. They can guide you in determining the market value of your home office by analyzing recent sales data and providing insights into local market trends.
• Get a Broker Price Opinion (BPO): A BPO is similar to a CMA, but it is conducted by a real estate broker, who typically has more experience than a sales agent. A BPO considers the location, costs to get the property ready for sale, and repairs needed. There are two types of BPOs: internal, which involves inspecting the property's interior, and external, which is a "drive-by" assessment. While BPOs may have some legal limitations, they can still be valuable in the early stages of estimating your property's value.
• Leverage their connections for appraisals: While appraisals are typically done after an accepted offer, real estate agents can help facilitate independent appraisals if needed. Appraisals are considered one of the most reliable methods to determine a property's value, as appraisers are trained professionals who provide unbiased opinions.

By following these steps and working closely with real estate agents, you can gain valuable insights into the land value of your home office and make more informed decisions regarding your property.

Frequently asked questions