Zara Dilemma

William needs to ensure that he is able to price the land for development as precise as possible to ensure he is heading into the right direction in turning down the $6.8 million offer. While there are several comparables for land that he can rely on for finding the approximate land price, using this method can be dangerous if the comparable is not appropriate. While there are several ways to find land value, William can use the land residual method which takes the highest and best use of piece of property and subtracts the total cost of development plus profit margin to arrive the at the fair land value. In assessing the fair land value, it was already established after multiple discussions with city officials and assessment of market conditions that building an eight-unit luxury townhomes was the best use of the property. The estimated final value of the property using William’s projected sale prices of the eight townhomes, which were deemed to be fairly reasonable, was close to $25 million. Subtracting the development costs of $17million (from Schedule 1 including predevelopment funding requirement) and working a 30% profit margin ($5.1 million) that William might be looking to achieve for developing the project, the residual land value was found to be approximately $3 million. Despite the attractive premium William is getting for the property, strong emotional ties to 49 Jackes Avenue that housed family business for decades makes it difficult for William to pass up the development opportunity that gives him part ownership.