Land basis calculator: residual land value per lot and per acre

How the residual land value is worked out

A land basis worked backward is a residual. Whatever is left of the home price after everything else is paid for is what the land can carry, which is why the method is called residual land value, or the land residual.

For each home, the calculator starts with the sale price and takes out the selling and closing costs, overhead and financing, and your target profit, each as a share of the price. Then it takes out the cost to build the house, the site work for its lot, and the fees and soft costs. What's left is what you can pay for one lot's share of the raw land. Multiply by the lot count for the total, and divide by the acres for a price per acre.

Land per lot = Price × (1 − selling − overhead − profit)
               − build − site work − fees
Land basis   = Land per lot × lots
Per acre     = Land basis ÷ gross acres

If you enter the seller's asking price, it runs the math the other way too: at that price, how much margin is left?

A note on the name. Builders say "land basis" for what the land under each home costs them, the first line of the cost stack. It isn't the tax basis an accountant tracks for depreciation or capital gains, and this calculator doesn't work that out.

A worked example: 80 lots on 32 acres

Say you'd build 80 homes that sell for $425,000 on average. Selling and closing costs run 6%, overhead and financing 5%, and you need 12% profit. That's 23% of the price, or $97,750 a home, before any construction.

The house costs $210,000 to build, the site work comes to $55,000 a lot, and fees and soft costs add $14,000. Take all of that out of $425,000 and $48,250 is left for each lot's land. Across 80 lots that's $3,860,000, or $120,625 an acre on a 32-acre tract.

The finished lot, meaning the land plus the site work and fees, comes to $117,250, about 28% of the home price. If the seller is asking $4.5 million, the land costs $56,250 a lot. That's $8,000 a lot more than the deal supports, and it drops your margin to 10.1%.

What moves the number most

Because the land gets whatever is left, small changes upstream turn into big changes in what you can pay. In the example the land is 11.4% of the home price, so a price 2.4% lower takes 16% off the land value.

Build cost moves the land more than price does, dollar for dollar. A dollar of build cost comes straight off the land, while a dollar of price is shared with the selling costs, overhead and profit that scale with it. Fewer lots look cheap in the table only because it holds the site work per lot steady. On a real site most of the streets and utilities stay when a lot goes, so each lot you lose raises the site cost of the rest.

When the asking price is above your number

In the example the seller wants $4.5 million and the deal supports $3.86 million. Before you counter, check the three inputs most often wrong: the lot count (a yield study often finds fewer lots than the listing), the site work (sewer and offsite road work are the usual surprises) and the home price (what new homes nearby closed for, after incentives).

If the numbers hold, the gap gets closed with a lower price, with terms that cut your carrying cost, such as a takedown schedule or closing after the rezoning is approved, or with a product that earns more per acre. Each of those changes an input here, so you can test them before you call the broker.

What it leaves out

• Time. It's a one-period residual. A three-year sellout carries interest, taxes and HOA dues on unsold lots, so put an honest financing share in "Overhead and financing", or lower the price to today's dollars.
• Lot premiums and product mix. Every home sells at the average price. If corner lots or a lake view sell for more, use the blended average.
• Offsite work. Turn lanes, sewer extensions and pump stations often sit outside the site budget. Put them in site work, spread across the lots.
• Entitlement risk. If the land needs a rezoning, the price should reflect the months it takes and the chance it fails. The rezoning timeline checker works out the months and what they cost.
• Closing costs on the land. The transfer tax, title and legal on the land purchase come out of the land price. The state rules below give each state's transfer tax.

State rules that change the inputs

Two state laws move a land budget in Georgia, the Carolinas, Alabama and Tennessee: whether counties and cities can charge impact fees on new homes, and the tax on recording the deed. Fees go in "Fees and soft costs". The transfer tax is a closing cost on the land, and who pays it is up to the contract.

On the example's $3.86 million of land, the transfer tax comes to $3,860 in Georgia and Alabama, $7,720 in North Carolina, and $14,282 in South Carolina and Tennessee. In Tennessee the buyer owes it, so the residual has to carry it; elsewhere the seller does unless the contract shifts it. A Tennessee school facilities tax at $1.50 a square foot is $3,600 on a 2,400-square-foot home, and it goes in fees.

Tap fees and permit fees are set by each utility, county and city, and they change often. Check the current schedule before you lock a budget.

Terms used here

Land basis

What the land under each home costs you. It's the first cost in the stack, and the one everything else is added to.

Residual land value

The most the land is worth to you, found by taking every other cost and your profit out of what the homes will sell for.

Raw land

Land before any site work, as you'd buy it from the owner.

Finished lot

A lot ready for a house, with the grading, streets, water, sewer and stormwater in and the fees paid.

Site work

Clearing, grading, streets, utilities, stormwater and amenities. Builders also call it horizontal development.

Build cost

The direct cost of building the house itself, sometimes called vertical cost or sticks and bricks.

Impact fee

A one-time charge a county or city puts on new homes to pay for roads, parks, water, sewer or public safety.

Tap fee

The charge for connecting a home to the water or sewer system.

Takedown

Buying lots in batches on a schedule, instead of the whole tract at once.

Assumptions

• Selling, overhead, financing and profit are shares of the sale price. If you track financing as interest on a loan, turn it into a share of the price first.
• Site work and fees are per lot and cover everything it takes to deliver a finished lot: grading, streets, water and sewer, stormwater, amenities, permits, impact and tap fees, and engineering.
• The land price is what you'd pay at closing for the raw land. Closing costs on the land and the cost of any rezoning come out of it.
• Every home sells at the average price, and the timing of sales isn't modeled.
• Profit is before income tax.
• The example numbers are round figures to show the math. They aren't figures for any market.

For the reasoning behind each input and the mistakes that inflate a land number, read how much a builder should pay for land. To check the lot count first, use the subdivision lot yield calculator, and to check the price side against what's selling, see how REOS handles lot sales and new-home closings.

Embed this calculator

Put the residual land value calculator on your own site, blog or client portal. Copy the code below and paste it where you want the calculator to show. It does the same math in your reader's browser, keeps a link back to this page, and asks for nothing from your readers.

The last line is optional. It sizes the frame to fit the calculator; without it, the calculator scrolls inside a frame 2,000 pixels tall. Please keep the "Powered by REOS Software" line. To see what your readers will get, open the embedded version.