Why standard land value × plot area is not automatically the land value

What is a standard land value?

The standard land value is an average location value for land. It does not relate directly to the specific plot, but to a notional standard land value reference plot with the typical characteristics of the respective zone.

The calculation standard land value × plot area = land value is therefore only appropriate without further adjustment if the subject plot sufficiently matches this model plot in its characteristics affecting value.

Which characteristics can differ?

Particularly relevant may be the stage of development, the type and density of permitted use, actual use, liability for development charges, location, plot size, plot shape and ground conditions. When looking up a standard land value, you should therefore consider not only the figure in €/m², but also the description of the reference plot.

Plot size: not every square metre has to be worth the same

If, for example, the reference plot is 600 m² but the subject plot is 1,500 m², it must be checked whether the whole area can be used accordingly. Land that can genuinely be subdivided and built on separately can have considerable value; garden land that cannot be built on independently, on the other hand, may have to be valued much lower.

Building land is not always building land

The German Property Valuation Ordinance (ImmoWertV) distinguishes, among others, between agricultural and forestry land, prospective building land, unserviced building land and serviced building land. A standard land value for serviced residential building land cannot simply be applied to prospective building land. Nor does mere location within a standard land value zone automatically make every square metre equally valuable building land.

Development potential, servicing and plot shape

The permitted or customary level of development can also change the land value. The same applies to liability for development charges, plot depth, street frontage and an unusual plot shape. In each case, what matters is whether the property market actually attributes an effect on value to the difference.

Individual features are not automatically included in the standard land value

Rights and encumbrances relating to the plot, soil contamination or other features affecting only the individual plot are not automatically included in the standard land value. Where relevant, such characteristics have to be taken into account separately.

Land value is generally determined without buildings

Under § 40 ImmoWertV, land value is generally determined without taking existing buildings into account. An old building does not therefore make the land worth less simply because it is there. The Ordinance provides for exceptions in special cases.

An important point in the cost approach: model consistency

So far, it might seem that the most precisely derived individual land value should always be used in the rest of the valuation. In the cost approach (Sachwertverfahren), this is not necessarily correct.

The market adjustment factor (Sachwertfaktor) is derived by the local valuation committee (Gutachterausschuss) from sale prices on the basis of a particular cost approach model. If, for example, the land value was calculated as standard land value × plot area in this derivation, this model must in principle be followed again when the market adjustment factor is applied later.

If the valuer arrives at a supposedly more precise individual land value using suitable comparable prices, it may be methodologically problematic to replace only this value and then use the market adjustment factor from the other model unchanged.

A simplified numerical example

Depreciated value of the buildings: €300,000. Land value according to the valuation committee’s model: €250,000. Provisional cost value: €550,000. With a market adjustment factor of 0.90, the market-adjusted cost value is €495,000.

If only the land value is replaced by a value of €220,000 derived from comparable prices, the result with an unchanged factor is just €468,000. Whether this difference of €27,000 actually reflects the market better is by no means proven – because the factor of 0.90 was derived precisely in the original model.

What is the right approach?

The first step is to check which standard land value is suitable and how the reference plot compares with the subject plot. If there are differences affecting value, conversion coefficients or other suitable market data may be needed. Besides comparable prices, § 40 ImmoWertV permits the standard land value adjusted to the specific property and, where neither is sufficiently available, other suitable methods.

If the land value is used within a model-based method, it must also be checked whether the way it is applied matches the models of the market data used – in particular that of the market adjustment factor.

Conclusion

The standard land value is an important basis, but not yet automatically the land value of the individual plot. What matters is which model plot the figure belongs to and how well it matches the subject plot.

At the same time, even a professionally more convincing individual land value must not be considered in isolation. Within a model-based valuation method, the data used must fit together methodologically.

Professional basis: in particular §§ 8, 10, 12–16 and 40 ImmoWertV.

How a plot is valued in an individual case – from the stage of development to servicing – is described on the page land valuation.