In real estate development deals, however, land buyers measure value by objective, not subjective, standards: the realistic income that the parcel will produce and the cost that will be necessary to transform the property into something that will generate a profit. Although real estate value can be defined in several different ways, as a practical matter, there are only two types of value in land development transactions: “as is where is” and “what if.”
“As Is Where Is” Value
The present value is what the parcel is worth in its current state and assumes there won’t be any change in the status quo until after closing. It is arrived at after taking into account the property’s current use and physical or other limitations and quantifying the amount of risk. If you bought a property as is, you’d be taking it as you found it. You wouldn’t be making your purchase contingent on, for example, satisfactory results of inspections, permitted use, or a desired site yield. However, you shouldn’t submit an offer until you had first thoroughly investigated the relevant facts.
The risk in an as-is scenario is twofold. Buyers commit to purchasing the parcel withoutRead More