A realtor friend of mine recently asked me a question that one of his clients had asked him:
"I have the largest lot in the neighborhood but the smallest house. What's most important?"
This is a great question, and for the most part, it really depends on the buyer. Sometimes, buyers want a big backyard with room for the kids to play. Other times, they want as much living space inside the home as possible, and don't care about lot size. Of course, as appraisers, it's our job to determine what the trend is for each specific neighborhood we work in: is there a market reaction to a larger lot here? In some areas with acreage such as Loomis, Auburn,
Penryn, etc, lot size does matter. Buyers tend to look for a certain amount of land, and there usually is a big difference between a lot of 0.5 acres and 2 acres in these types of areas.
In other more suburban areas, though, there is not always a measurable difference in sales price between an average lot size and a larger lot. In Rocklin, for instance, a lot twice as big as all the other lots in the neighborhood might not be desirable. It requires more upkeep and more expense (especially with water prices increasing due to the drought), and the average lot size is big enough for the needs of most families. Suburban buyers tend to care more about home size than lot size (of course, there are always exceptions).
In my experience, most people think that if their lot is bigger than their neighbors', this warrants an
increase in value. However, there is an appraisal term, "surplus land," which refers to land that cannot be separated from the lot, but may or may not add value. For example, home prices in one neighborhood may increase with lot size until lot size exceeds 20% higher than average, and then prices will level out. There is a market reaction to lot size until a lot is 20% or more larger, and then buyers are not willing to pay more for the land.
If you were looking to buy a home, would you care about lot size? Which wins for you when the question is Large Lot vs. Large House? Let us know in the comments!
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