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A

s a real estate broker, one of the questions that I am asked most frequently is "What is my property worth?" The question arises from concerns about over-investing, or from fear of having bought the wrong thing, in the wrong place or at the wrong time. The question sometimes takes the form of an owner's boast of his opinion of the value with his eye on me to gauge my reaction. If you have ever asked gone through the exercise yourself, you know how difficult it is to pinpoint the value of country property, and how many variables come into play.

Naturally, just as for urban property, the first three rules of real estate are Location, Location, Location. But, in the country, those three locations are defined very differently. An oversimplification of that already over-simplified rule might be Waterfront, Waterfront, Waterfront. While waterfront is indeed the primary reason that people buy in the Laurentians, it does not follow that waterfrontage guarantees the value, nor that a property without waterfrontage has no value.

A simple guide to help you assess the value of any country property is based on the value of the raw land. The total cost of purchase including land, construction, landscaping, and all subsystems should not exceed five times the cost of the land alone, and, ideally, will be around four times the cost of the raw, unimproved lot.

Following these guidelines, you can see right away that if a piece of land has a real market value of $10,000, then it does not pay to build a house on it. You would have to build the house and do all landscaping and subsystems for $30,000. Also, it is easy to conclude from this that the base value of an attractive piece of land will be 25% of the replacement cost of the finished product (house, land and subsystems).

For example, if someone is asking you for $200,000 for a house that is pleasing to you, divide by 4 and ask yourself if the land could be worth $50,000, and, if so, if the house could be replaced inside the difference.

By the same token, if a piece of land is in an area where the neighbouring parcels are selling or have sold for $300,000, you can seriously consider building a very elaborate house with confidence that you will recover your investment in the future if you decide to sell. In such a case, however, an insignificant or inappropriate house can actually lower the value of the land.

A decade ago, a client asked me to sell his house. It was a classic Canadian-style house with three bedrooms, a fireplace in the living room, two bathrooms and so on. His costs at that time were $65,000 and he wanted $72,000 in order to recover them. The site was an unlikely one, tucked into the woods beside a gravel pit. I asked him why he had chosen to build on that particular spot and he told me that he had really been lucky: he had managed to buy the lot for $1,000. After two-and-a-half years on the market, the property sold for $45,000. Another client who consistently refused the advances of a developer finally came to us and asked how she could sell a large parcel of land next to her house and at the same time be assured that the developer would not change the character of the neighbourhood. We established a minimum lot size that the developer would have to respect of 10 acres and 500 feet on the lake. The developer accepted and the houses built there were also proportionately more substantial.

The ratio of land value to total investment is valid evening the worst market, providing that the house and landscaping are more or less conventional. The ratio of 4:1 is reliable now, and will continue to be reliable in a good market without regard to the scale. Your investment security is governed, therefore, by the base value of an equivalent piece of land in the worst market conditions, and by how close to conventional in style, quality and finishing your house and landscaping are.

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