Undeveloped land value: what can you tell me about it?

September 23, 2024 1:24 PM

I am listed as the recipient, on a relative’s will, of two undeveloped plots of land in LA County. I’m not sure whether accepting this inheritance will be more trouble than it’s worth—both in terms of admin and because I’d have to deal with an unpleasant family member to get everything sorted. Do you know anything about this?

My main questions are:
1. If the plots are assessed at $X each (for tax purposes), does that have any relationship on the actual resale value?
2. One plot is very rural and undeveloped. Another plot is just on the edge of a development, literally across the street from a housing development. Do these locations factor in to considering their value over time?
3. The tax on the plots wasn’t paid for the last couple of years so it would be a bit of money (several thousand dollars) and time and a not-inconsiderable amount of administrative headache to deal with that. Is this something that is worth my energy? I would generally imagine it’s good to own land, but maybe the annual property tax negates any future value? And, as mentioned up top, I’d need to deal with a difficult family member so it might be an emotional drain for me.
4. Is there anything else I’m not thinking of in deciding whether to accept this inheritance? I’ve not been in this situation before.

Thanks in advance for any thoughts.

posted by stillmoving to Home & Garden (17 answers total)

I don't see why you couldn't take ownership of this land and immediately sell it if you didn't want to deal with land as an investment vehicle.
posted by advicepig at 1:30 PM on September 23 [6 favorites]

How large are the plots and are they 'airable', meaning can you farm crops on them?

If you've got dozens to hundreds of acres, the property is probably worth more much than taxable value, especially if it is farmable -- if it's farmable you likely will made more than enough money off renting the land to farmers to pay the taxes and still get a nice check every year, but that does take some work to find a farmer, sign a contract, make sure he pays you, etc.

If there's a plot of land directly across from a new development: find out who that developer is and ask if they'll make an offer -- don't look urgent to sell, they'll probably underbid you, but it'll be a sign of how valuable it is, or if they decline they'll likely tell you what's wrong with it. Like, is it just on the wrong side of the city/county line, no city utilities run to it, there's a gas pipeline under it that makes it undevelopable?

But -- if you have an acre or more, you should be looking at comparable "price per acre" of neighboring land, not the tax assessed value, the price per acre may be significantly more than what the taxes are calculated on.

Another comparison: you'll owe taxes on selling it -- it's worth comparing the loss of taxes to the sale, to the cost of doing business to hold onto the property.

Credentials: my grandfather passed several million dollars worth of Minnesota farmland via a trust divided equally to his kids and hearing from my dad how they're handling it.
posted by AzraelBrown at 1:49 PM on September 23 [2 favorites]

Response by poster: Thanks—just to clarify, part of my question is, is the tax assessed value equivalent to the resale value? If not, how do I find out what I might expect to earn from the sale, plus whatever costs might be involved in such a sale? I am not in California so do not know whether that adds any complexity.

Also, I won’t threadsit, but it’s two small plots, maybe 4-5 acres total.
posted by stillmoving at 1:50 PM on September 23

Tax assessed value is whatever it was valued the last time the tax assessor walked around the edges of the property; resale value is whatever someone will pay for it today. The best bet is to research comparable sales, what recently has sold that resembles your property?

A LA realtor may be helpful in this capacity, but they may want a lot of papers signed to get their cut of the sale if they help you research it. But, that's not necessarily a bad thing, they'll be interested in getting the best price for it.

In 2021, an acre of land in California was roughly $15,000 according to this page, which is looking more at agricultural value; if it's a spot to build houses, which looks like it could be a million per acre in LA

Is it airable, is it scenic, is it underneath a flight zone, is there a wind turbine or high-tension power lines on it? All of this affects its sale value beyond what the county gets for taxes.

(edited for acre price now that I see you put acre size in there)
posted by AzraelBrown at 1:54 PM on September 23 [1 favorite]

In California, the assessed value for tax purposes has very little relationship with the actual resale value, due to Prop 13, which caps how much the assessed value can increase each year. At least for houses. I didn't know how to figure out the actual resale value for land would be, though...
posted by skunk pig at 1:54 PM on September 23 [11 favorites]

(Just for your future googling, the word is arable not airable.)
posted by BlahLaLa at 2:09 PM on September 23 [26 favorites]

In California, the assessed value for tax purposes has very little relationship with the actual resale value, due to Prop 13, which caps how much the assessed value can increase each year. At least for houses.

Until the property changes hands, after which it is reassessed for property tax purposes at current value. So, current property tax might be very different from the property tax after the current owner passes away.

There is some tie between property tax value and market value, like a house with 3 bedrooms will have a higher tax valuation than one with 2, which will have a higher value than an unimproved property. But with prop 13, once you get a few years away from the reset date it doesn't line up as well.

I inherited property in California from my father, but it was held in a trust where the total value of the trust was intended to be split between my brother and I, but how the split happened was up to us. I had a lawyer helping out with administering the trust (I was executor) and we hired an assessor, like what a realtor would do, but without the realtor. We used the values stated by the assessor when considering the value of the houses so that my brother and I each ended up with an equal split of the estate after everything was said and done - differences between the value of the two properties was made up by other stuff in the final division. If neither of us wanted the houses, we probably would have just sold them and split the proceeds.

If the properties aren't held in a trust, there's a decent chance that with the land value the estate will have to go through probate court.
posted by LionIndex at 2:20 PM on September 23 [3 favorites]

Until the property changes hands, after which it is reassessed for property tax purposes at current value.

There is an exception for if a child inherits a property used as a primary residence by their parent where the assessed tax value stays the same, but I don't know if that would work with unimproved property.
posted by LionIndex at 2:22 PM on September 23

What was the plan for this land? Lots of land in LA county is encumbered in various ways, due to topography or water rights etc. Often if taxes are not paid and the land is useful to the county, they will quickly foreclose. that they haven't is worth researching.


Is land worth owning in aggregate? It really depends on the price and holding costs. Lawn mowing, fencing etc as well.


4-5 acres isn't really enough to do anything dramatic with.

I'd certainly ask first. Call the city with any development blockers. Is it valuable to you to own 4-5 acres in LA county? It personally wouldn't be to me especially if you don't live there, but people are different.
posted by The_Vegetables at 3:02 PM on September 23

Go to Loopnet.com, search for properties for sale in the relevant zip code with "Land" selected from the filters. You can use that to get a very general sense of values if you know what you're looking for. But, more importantly, I think you should look at nearby listings to get the names of commercial real estate brokers active in the area. Get in touch with some of them. Make sure they're commercial brokers, not residential.
posted by mullacc at 3:33 PM on September 23 [3 favorites]

California property tax is typically going to be well under 2% of the assessed value of the property per year (adding in all the levels of government, bonds and stuff). The assessed value may be wildly different to a sale price - but the assessed value is usually on the low side because of how the limits to raising property taxes work in California, and the more so the longer it's been owned. Of course, there are no guarantees.

Even if we assume that the price of the property is, for some reason we don't know, 50% of the assessed value, and you owe 4% of its value in back taxes and penalties, you are still banking decent money if you sell it, and those are both unfavourable estimates. Based on that I would accept it and put it up for sale.

If you want to be defensive you could talk to a seller's agent about what they might list it for.
posted by How much is that froggie in the window at 3:40 PM on September 23

It might well worth spending money get a professional appraisal of the property.
Real estate agents can give you their informal best guess but you would need to make sure that the real estate agent was very familiar with both the type of property (undeveloped land) and the local area (something a few miles away might have very different value despite similar physical characteristics) A professional appraisal will do a more detailed evaluation and show you how the property comes to others - which factors make the value of your higher or lower than the others.

When I had a home appraised in a different state, it cost $450, so the idea would be spending money to make a more informed decision.
posted by metahawk at 4:23 PM on September 23 [2 favorites]

A couple acres across the street from a recent housing development is likely to be worth a significant amount of money if it can be developed as well (a couple acres is small in some contexts, but that's quite a few residential lots). Check the zoning and look at sales of comparable properties nearby to get an idea or hire an appraiser with experience appraising land for a professional opinion.
posted by ssg at 4:26 PM on September 23 [2 favorites]

The current assessed value of the land is the value when it was last assessed, which in LA County may be the last time the land was sold. If it hasn't been assessed in a while, the value may be wildly higher.

Look on real estate sites for recent sale prices of nearby lots or homes to get a good idea of what things go for in that particular area.
posted by erst at 7:00 PM on September 23

zillow will let you search for lots. To pick a random :
https://www.zillow.com/homedetails/0-Highway-76-31-Valley-Center-CA-92082/439784084_zpid/
posted by at at 9:16 PM on September 23 [2 favorites]

1. The assessed value of unimproved California real property is typically its value when last assessed plus 2% per year. This may or may not resemble the current market value.
2. The market value depends primarily on where the land is located and how it can be used. The jurisdiction's general plan for the area determines how likely the asset is to appreciate. Appraisals I have seen for vacant property in my part of California generally stretch to find comps that are not truly comparable with regard to location, topography, and zoning. In a subdivision where lots are selling week after week, prices can vary by more than a factor of two based on parcel shape, slope, and view. Appraising vacant residential lots is very different from appraising homes, and appraising rural acreage is something else altogether.
3. California property tax is capped at 1% of the deflated book value, plus maybe 0.1% for school bonds and such. If a couple years of taxes is several thousand dollars, the book value must be hundreds of thousands, and the true value likely far more. If that is not worth your personal energy, it is worth hiring someone else to handle for you. The annual taxes are almost certainly less than the annual appreciation.
4. The question of whether to hold these properties depends on their upkeep. There are subdivisions across California where effectively unbuildable parcels are being given away or abandoned due to HOA dues. There are also areas where HOA or municipal vegetation maintenance obligations turn unbuilt lots into white elephants. You should see if your parcels are located within the State Responsibility Area and/or the Very High Hazard Zone. Unincorporated LA County is focused mostly on inspecting structures rather than vacant land for potential fire spread, but you should still check the enormous list of inspectable parcels to know your own obligations including a possible $151 inspection fee.

While the IRS may tax your relative's estate if it exceeds ~$13 million, they will not tax you on what you inherit. And they will step up the cost basis of inherited assets to the present fair market value, not whatever your relative paid years ago, so you will not be on the hook for capital gains taxes if you do accept and promptly resell the parcels. Some states may try to tax this income -- consult a local tax professional regarding yours.

The Realtor-backed Proposition 19 of 2020 eliminated the former Proposition 58 exclusion that allowed vacant-land transfers from parent to child to retain their Proposition 13 valuation. Thus it has become commonplace for such parcels to be placed in a family trust so the heir can inherit the reduced tax burden along with the land. If instead your relative held title in their own name, the LA County assessor must determine the land's fair market value at the time of the change in ownership. They may be able to advise you about the procedure for paying the back taxes and transfer taxes and whether the new assessed values will be known at that time. They may even be able to ballpark what the new assessments might be.

I looked into the unincorporated parcels in my own county's 2024 tax auction. Almost all were unusably steep or landlocked or burnt to cinder or so heavily encumbered with HOA dues and upkeep requirements to be worth less than the taxes due. A buildable lot on a street with utilities is almost certainly worth the taxes plus the paperwork hassles. Unless this portion of LA County is sliding into the sea, I would be glad to own a few acres.

There may also be Proposition 19 tricks you could play to set up a lucrative base year value transfer, but that requires the market rent for a new home being enough to cover the cost of construction plus the currently ludicrous cost of insurance. You'd have to ask a Southern California financial advisor on that one. I can't grasp all the nuances from this end of the state. I hope this is enough to guide the next steps on your journey.
posted by backwoods at 1:55 AM on September 24 [9 favorites]

First, I am not an expert but there are a lot of errors in the posts above so you get what you pay for. The location is everything. If it's far from a road, needs grading, etc., yes, it's likely not worth anything. Hiring an appraiser might well be throwing good money after bad. But the one next to a development is probably worth something. Even if you would net only a few thousand, it's almost certainly worth putting a few hours to see what's up. The assessed value is almost certainly lower, possibly a lot lower than the actual value, especially if it's been a long time since the property was sold / improved. Many counties have the ability to look up the assessed values of various parcels, you could check out the sales records on Zillow and find a recent one to compare how it is assesed vs. the market value. In any case the taxes are, as noted above, pretty low as a percentage. You could probably afford to hire an appraiser and a real estate lawyer to take care of everything, even the closing and still come out way ahead.
posted by wnissen at 10:27 AM on September 24