Questions about pricing land and reading offers

A land buyer starts from recent sales of similar parcels, each confirmed by a call to someone who took part in it, and reads a value range from them. The costs to buy, hold and resell come off the value chosen from that range, and so does the buyer's margin. On the invented 10-acre lot used across this site, $47,500 of value ends at a $26,000 walk-away price. The comping guide builds the range, and the maximum offer guide takes off the costs line by line.

A maximum allowable offer, often shortened to MAO, is the highest price at which a purchase still leaves the buyer's required margin intact. It equals the value expected at exit, minus the costs to buy, hold and sell, minus that margin. Above that price the buyer walks away. The worksheet puts each term on its own line beside the quote, bill or record it came from, so the sum can be redone when a survey or a new sale changes one of them.

No page on Offerbender values a real property or company, and every worked example uses made-up numbers. A formal opinion of value comes from a state-certified appraiser for land, or from a business appraiser for a company. The owner assessment linked from this site, written for owners of land service companies, is not a valuation either: it lists what would raise or lower a buyer's price, and an email address is required before that list appears.

On land the 70 percent rule works only as a rough screen. It is a rule of thumb from house flipping, with no single source: the maximum offer is 70 percent of the after-repair value minus repairs, and the rest is meant to cover closing, holding and profit. Costs fixed in dollars, such as a survey and closing costs, take a larger share of a cheap parcel's price than that allows for. On an invented 10-acre parcel in the maximum offer guide, the rule overstates the price by $6,875.

Fannie Mae's appraisal rules for home loans ask for at least three closed comparable sales, as the comping guide sets out with its source. Rural counties often have fewer. The sales that are used match the parcel on use, size band and access, and some are better than the parcel and some worse, which brackets the value from both sides. The guide works through a set of five sales and rejects two of them, one for size and one because it was a sale between relatives.

Fannie Mae's residential rule, linked in the comping guide, prefers comparable sales that closed within the last 12 months and allows older ones where recent sales are scarce, as in rural areas with little sales activity, if the appraiser explains why. An older sale is still usable once its age is written down and its price is adjusted for how the market moved since, with the evidence for that adjustment noted. When no pair of sales shows how prices moved, the sale goes in with no time adjustment, and the file says so.

A listing is an asking price that nobody has paid, so it is not a comparable sale. The federal land appraisal standards say listings generally cannot be relied on as comparable sales, and give nonbinding offers little or no weight except where they set limits of value. A similar parcel listed for sale still marks a ceiling that buyers can see. Fannie Mae's home-loan rules accept listings as supporting data, and the comping guide cites both rules.

Assessed value is the basis of the tax bill, and it often differs from market value. In some places the law sets assessed value as a percentage of market value, and some farm, timber and open-space land is assessed on its current use instead of its highest and best use (Yellow Book, section 1.3.1.7). The county assessor's office can say how the local number is set. Market value, for a purchase, is read from recent confirmed sales of similar land, as the comping guide describes.

When no sale matches a parcel's use, size and access, that gap goes in the notes first. The search then moves to nearby areas that draw the same buyers, each with a written reason it competes, and each added sale is adjusted for its differences. Listings of similar parcels serve as a ceiling only. For an unusual parcel with a lot of money at stake, a state-certified appraiser who works that county can prepare a formal opinion of value, for a fee. The comping guide covers each step.

The maximum offer is the walk-away price; above it the buyer declines the deal. The opening offer is the first number the buyer puts in writing, and it is lower, which leaves room to move up without passing the maximum. When new evidence arrives partway through a deal, the buyer reruns the worksheet and leaves the margin as it was. In the worked example of the maximum offer guide, a resurvey that finds 9.2 acres instead of 10 drops the maximum from $26,375 to $23,069.

In the sale of Appriva Medical, the letter of intent bound the parties on three points: confidentiality, transferability and Appriva's talks with other buyers. Everything else in it was marked nonbinding, and in 2014 the Delaware Supreme Court held that the later merger agreement did not make those parts binding. An exclusivity clause can bar an owner from talking to other buyers for a set period. The letter of intent guide links the court's opinion and covers exclusivity, earnouts and seller notes.

A working capital target can move the price at closing. Buyer and seller agree on a normal level of working capital; if the business delivers less at closing, the price goes down by the difference, and if it delivers more, the buyer pays the difference. A target written into a letter has three parts a seller can check: the dollar figure, the months it was averaged over and the accounting used. The letter of intent guide covers a 2017 Delaware case in which the adjustment claim topped $2 billion.