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I'm not sure I agree with this: > since that number is not based on actual sales of the land in question, it's just hand-waving Actual land is sold in a lot o

I'm not sure I agree with this: > since that number is not based on actual sales of the land in question, it's just hand-waving Actual land is sold in a lot of markets. That sets a great benchmark for "comparable transaction" types of valuation analyses which tend to be the most reliable. If one acre of land is sold, there is a great baseline for the whole surrounding area. I passed all 3 CFA exams and agree it's not an exact science, but as far a valuation analyses go, this one is pretty easy. Valuing something like intellectual property, goodwill impairment analyses, 409a valuations are much harder.

pdonis 5y ago
> Actual land is sold in a lot of markets. But much more land with improvements on it is also sold, and that's the land that all these hand-waving formulas claim to be determining the "value" of--not the total value of land + improvements, but just the value of the land itself.
- theluketaylor 5y ago
  The local cost of construction per sq ft to replace an improvement is reasonably easy to arrive at. So is the annual cost to maintain an improvement. Then simply subtract from purchase price. The toughest part is making sure the process isn't corrupted and some people get an assessed land value far less or more than it is actually worth. It likely wouldn't work with real estate, but low cost motorsports has a simple solution to this problem. If there is a $1000 limit on the value of the car before all the standard safety additions, then the owner has to accept $1000 from any other competitor for the car. This massively disincentives anyone from undervaluing their race car as it will simply be purchased for way less than it's worth. In real estate this would just result in wealthy people snapping up anything they thought was even slightly undervalued. Maybe value purchases can only happen when challenging a valuation with strong court-backed protection for the owner to ensure the valuation has been applied justly.
  - pdonis 5y ago
    > The local cost of construction per sq ft to replace an improvement is reasonably easy to arrive at. So is the annual cost to maintain an improvement. I'm not sure I agree with this, since construction costs are subject to a lot of government interventions that distort the market. > The toughest part is making sure the process isn't corrupted Exactly.

pdonis 5y ago

> Actual land is sold in a lot of markets. But much more land with improvements on it is also sold, and that's the land that all these hand-waving formulas claim to be determining the "value" of--not the total value of land + improvements, but just the value of the land itself.

theluketaylor 5y ago
The local cost of construction per sq ft to replace an improvement is reasonably easy to arrive at. So is the annual cost to maintain an improvement. Then simply subtract from purchase price. The toughest part is making sure the process isn't corrupted and some people get an assessed land value far less or more than it is actually worth. It likely wouldn't work with real estate, but low cost motorsports has a simple solution to this problem. If there is a $1000 limit on the value of the car before all the standard safety additions, then the owner has to accept $1000 from any other competitor for the car. This massively disincentives anyone from undervaluing their race car as it will simply be purchased for way less than it's worth. In real estate this would just result in wealthy people snapping up anything they thought was even slightly undervalued. Maybe value purchases can only happen when challenging a valuation with strong court-backed protection for the owner to ensure the valuation has been applied justly.
- pdonis 5y ago
  > The local cost of construction per sq ft to replace an improvement is reasonably easy to arrive at. So is the annual cost to maintain an improvement. I'm not sure I agree with this, since construction costs are subject to a lot of government interventions that distort the market. > The toughest part is making sure the process isn't corrupted Exactly.