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How do I know if I am paying too much?
Many things determine the value of a parcel of land.
Ultimately, it comes down to what the market will bear. It
is not the seller, real estate broker, the bank or anyone
else who sets the value of the land. It is the consumer. It
is the demand for land that drives it's price up or down.
The easiest way to determine whether or not you have offered
too much is through the appraisal process.
The vast majority of real estate purchases are financed
through a lending institution. In the case of vacant land,
banks are usually financing 80% to 90% of the purchase
price. They have the greatest amount of risk and are not
willing to proceed with the financing without first having a
qualified, licensed appraiser confirm that the land is worth
the risk.
The appraiser's job is not to determine the property's
ultimate value, but whether or not it is worth what has been
offered. If the property does not appraise, you should have
the option of canceling your offer to purchase, putting more
money down to reduce the bank's risk or renegotiating the
purchase amount with the seller.
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What is the difference in assessed value vs. fair market
value?
Many people are confused by exactly what assessed value and
fair market value are. Assessed value is used to compute
property taxes. It isn't used to any degree in determining
the purchase price of a property. In some areas the
properties haven't been reassessed in many years. Since it
is used mostly in determination of your property taxes you
want a low assessed value. The lower the assessed value the
lower your tax bill! Fair market value is the price the
property will bring on the open market. In other words, fair
market value is what you pay for a piece of property.
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What should I be getting for my money?
We've all heard the saying, "you get what you pay for". This
is as much true for land as any other consumer product.
Considering the rising cost of land these days, if it seems
too good to be true it probably is. Some things a buyer
should determine are whether or not the land is guaranteed
to be build-able, whether there has been a recent survey and
soil test, whether there are clear title and legal access,
and whether telephone service and electricity are on site or
scheduled to be installed. These additional expenses can add
substantially to the cost of the "too good to be true" deal.
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