Transcription
80% of rural land value hides in the soils. See if you're a land buyer or a land owner, you might not fully appreciate that. Until you have a soil valuation on your property, you've not actually demonstrated to the market what the development potential is of the property. Because you don't have that, you've also not firmly established market value either.
If you are buying land without a soil report in front of you, it's a lot like that show Storage Wars where there's these abandoned storage lockers and they hold these auctions. But the people that bid on the contents of these storage lockers, they can't examine the contents; all they can do is stand at the front of the locker and look in with a flashlight. It's funny, and a lot of people won't believe me when I tell you this, but the truth is that a lot of rural land in America is marketed in the exact same way. Soil conditions are what gets you behind the curtain and allows you to see the true value of the land.
A lot of people would say, "Well, okay, man, that's that that's not totally true because in Storage Wars they can't go in and see the locker, but on a piece of land I can go put boots on, drive out to it, I can walk that land and I can look at the soil myself." In some ways you're right, but in in a bigger way you're you're wrong. And the reason why is because the attributes of soil that are most impactful to that land's value are below the surface, and in the majority of cases you actually cannot see them, even if you get up close and walk the entire property. The soil characteristics below the surface remain hidden, and yet this matters very significantly for value.
I want to tell you about three properties we sold. The land that we looked at, the soil report came back bad; the land could not support septic. And so what happened? We had to renegotiate on the buy side, and we had to sell those lots without suitable soils. Look at what happened on these three properties. This first one's an acre and a half, and the comparable value based on other sales in the area is $38,000, but it didn't perk, so we didn't have good soils on it, so we had to then sell it at $8,800, and that is a discount of 79% to the estimated value upfront.
The second property here, it's in a lake subdivision; it's very close to a major lake that's a big tourist attraction in in the region. This is a property that comps conservatively at $30,000, and it has a great neighborhood with really high home values all around it. But this lot, you cannot put a septic system on the lot. So what happened is, instead of selling it for 30,000, we sold it at 6,500, and that, guys, is a discount of 78% of the market value.
Now, this third one is about four acres, and this one we comped at about $38,000, and of course there were no, the soils weren't good on that property either, so we ended up selling it at 7,800, and guys, that is an 80% discount. An 80% discount for the same exact PR property, if only that property had a single septic permit, and it it didn't.
And so what I want to talk to you guys about today is the relationship between soils and land value, and you some of you guys may be thinking, "Well, hey, is this some Public Service Announcement about the importance of perk tests and all this type of stuff? Hey, I get it, man, perk tests are important." Well, it's actually a lot bigger than that, because the problem is is that when you talk to the majority of Agents, people in the marketplace, real estate agents will bandy the term about and talk about perk tests, but when they say that they don't actually know what they're talking about, literally like they don't understand. Are they talking about a septic permit? Are they talking about a soil evaluation? Are they talking about a preliminary soil evaluation? Are they talking about a construction authorization? Guys, the the lack of Education in this Marketplace is is unlike anything I've seen in real estate anywhere else.
And there's a lot of really compelling properties that are on the market today in the hundreds of thousands of dollars, are in the millions of dollars, and the sellers are not going to provide you a soil report in most cases. Agents will still, despite the fact that they don't know how to pull permits, they don't know how to read a soil map, they will still look you in the eye and they will tell you advice, and that advice, even if it's right, they wouldn't know because they don't have the fundamental knowledge of soil and septic to even make recommendations. And there's certification, they have licensure, there's ego, and so they're not going to tell you that, and it doesn't just change the fact that it's true, but you just have to understand that. Um, so who am I in this soil thing? Uh, my name's Alex. I've actually, I looked it up, I've I've purchased over $150,000 in soil reports over the past few years. I've also myself pulled about a 100 septic permits in County markets across the United States.
What I want to talk about in this video is the relationship between soil and and uh land value. And when you talk about soil, there's a lot of different categories. You you could talk about things like Wetland delineation, geotechnical soil reports for construction, you talk about um, you talk about uh what else, mineral rights, you talk about water rights, talking about air rights and different things like soil characteristics that have to do with farming and Agriculture and stuff like that, and all of that matters a lot. The thing is, we just don't have time in this video to get into everything, so we have to choose the one thing that's the most important, because there's one attribute of soils that stands apart from all the rest, and that's septic, guys. Septic is the game.
And the reason why is that the majority of land in the United States is zoned for residential use, and a lot of people will tell me, "Oh, no, Alex, a lot of it's agricultural." Well, agricultural zoning is also residential, just a lower density, more permissive residential zoning. Fundamentally, that's what it is, and that's that's how you're going to get top dollar for Farmland too, as a separate topic. But so we have all these all these data points now that we can go through and look at to understand these Dynamics. And what I want to do is to establish, no, it's not just about a perk test, because even when you have soils that enable you to build on a piece of land, the actual loading rate and the ability for that soil to support a septic might still be limited, and so you may only have the ability to install a two-bedroom septic. And that's a big issue because in the country, in in rural parts of America, people don't really build two bed bedom homes anymore. I mean, you have condos in the city and you have old mobile homes that have two bedrooms, but the resale value is very low typically. There's adverse selection. If you want to rent two-bedroom homes out, you're getting like a younger crowd, more like early mid-20s, you know, Vibes where people are just less likely to treat the property with care.
But soils also impact land value significantly because uh because of how they affect the residential development potential in terms of a subdivide. The the ability to actually show a larger area of usable soils is what gives you a subdivide potential, both minor subdivides and major subdivides alike. Give you an example. This is a property that our team had Acquired, and we we sold on the market; it's about nine acres. And this is a property that sold a lot faster and for a higher price than would have been the case otherwise because it had a really good uh soil report that we had established with the the property. However, even though it had that soil report that showed the ability to subdivide that land, it the buyer was only going to build one home, and yet that buyer still paid a higher price to acquire that land, even though the majority of the land he wasn't going to use. So why would that be? Well, the answer is that the actual demonstrable potential of the subdivide is able to enhance the value of the land, even if you don't plan to do the subdivide yourself.
You may think, "Okay, well, got it, so if I have a lot of good soils then I can subdivide the land; it's just all about soils, right?" Well, not really, because when you look at the subdivide potential of a piece of land in the country, soils are a big part of it, but the other piece is zoning, because you have to look at the minimum lot requirements, the demand requirements of the of the subdivision ordinance of the county, and that enables you to see, "Okay, do I have enough good soils in the right places, in the right parts of this property?" And that's ultimately what matters. And guys, this is really an an interesting dynamic in the market you really need to understand, because septic and suitability for septic is the key driver of land values out in the country in America, far and away more than anything else, and yet the lack of understanding of soils and septic on the part of your average Sellers and your average real estate agents is so shocking, it's almost like a conspiracy or something like it's it's like so crazy.
Give you a couple ideas: you know, sellers with these really expensive listings that they're trying to sell for millions of dollars won't have a soil map in the majority of cases, and agents that are representing them won't won't think to ask. In some cases, in other cases, they won't even understand how to interpret the map even if they tried to. You guys may be doubting me on this because you're probably thinking, "Hey, if you're selling land on the market and you're sophisticated enough to understand what matters in in in the eyes of the buyer, then how can you say that these sellers don't have soil maps? And hey, these agents, a lot of these agents, they represent buyers in land transactions and they've been doing this business, Alex, longer than you have, so how can you say that they don't understand?" Welcome to my world.
For example, the average real estate agent, as it relates to land, they will place a higher value on the septic permit with the county than they will a soil map of the entire property, even though the soil map is way more valuable to buyers. A septic permit on a 100-acre property, it's think about it like looking into a storage locker and knowing what one valuable artifact is in the locker—that's the septic location. "I can put a septic system there; oh, I have this artifact that's valuable there," but what about everything else? The other thing is that a lot of Agents, they'll put a property under contract on a 60-day close, will send them a soil map the day after it goes pending, they'll sit on it for 60 days, do nothing, and then they'll they'll panic and apply for a septic permit two days before closing, and then they'll complain to us about the County's backlog to review the application and then just demand an extension. Buyers won't, buyers don't understand how to pull permits, guys. There's this whole thing of like, "Oh, no, the leave it up to the buyer." Leave what? They won't do it; they won't. They will move on to the other property that's listed down the road that has this work done, and they'll buy that one. I'm telling you, some buyers they understand this; a lot of agents are are really sharp, like some will get this, most will not. If you cut corners in this game, if you make assumptions about what other people are going to do or what other people said, you're going to lose a lot of money really fast. Okay, so okay, knowledge is power; we get that. I beat the dead horse with a couple of these examples, but if you're a buyer and you're watching this at home, like what should you look out for? Because soil reports can cost $7, $800, $1,500, even a little more, just depending on the size of the property. So before you make an investment like that, what are you going to look out for to be sure that you're not just throwing your money away?
And there's a couple things that you should be aware of. One is the county. Any County in the country publishes the County Soil map; they actually map all the the prevailing soils of all the properties throughout the county. When you see that information, you can look it up on Google and you can determine the depth and drainage of that particular soil. And if you have deep, well-drained soils, typically it's a good it's a good bet that the evaluation is going to be worth the money, because if the soil map looks good, your chances of getting a favorable report are good. But you can't take the county map at face value, and I'll tell you why. A lot of things are subtle and misleading. Couple properties where we saw this: one, this property, although it had a flood zone on it, there were no mapped Wetlands on the property. Wetlands are also mapped federally, and so they would show up if there was any record of them. In this particular property, on the soil map you saw some wet soils in the back, but towards the front there was a really good uh soil series that appeared to be well-drained soil; everything looked good. And there was only one issue: is when I looked at the front of the property, I was vexed because I saw these little shrubs, these little Pine looking shrubs right by the road, and I was like, "Hm, those kind of look like maybe they're Wetlands," like I just had this feeling of like, "I think there might be Wetlands, not just on the property, but right up on the road where we actually expect that the soils are going to be good." And I was right. And I'm not an ecologist, I'm not a Wetlands ecologist, I didn't study botany; it's just one of these things that you see enough of these and you can kind of start to tell.
This one was interesting because the map showed a federal Wetlands right in the middle of the property; it was almost like an ink blotch, someone spilled some ink on the map of the property there, and it just didn't look like that was true. So we went, we sent out for soils, and we confirmed that there were no Wetlands on the property. And when the federal Maps say one thing and your soil guy says another thing, trust the soil guy. The soil scientists, they're they're typically licensed by the state for exactly this, because the county and the state and federal Maps, they're never going to be perfect. This is a property that we're we're in the Pro, we bought it; we're in the process of selling it now. On a satellite map, you can almost see the Sandy soils just from the satellite, so like Sandy soils are known for being deep and well-drained soils that are very favorable for septic. And when you get on the ground level and you see the ground level perspective on this property, you you see it even more, because it's just like really nice level ground that you can just kind of see through little clearings in the trees, you can just see the dryness of the soil. And this an example where your your intuition is valuable on the ground. When it had rained significantly the night before we got the photos taken, and there's this massive pool of water right on the edge of the property in front of the neighbor's house, and that pool of water is an area of soils that's really not good, and that just goes to show you that soil characteristics can change on a dime on a property. So don't ever assume that, "Oh, the neighbors, they built next door over there, they built next door over there, so my lot in the middle must be able to put a septic," and and if you make that assumption, you're it's oftentimes the opposite; it's there's a reason that that property wasn't built, and so don't don't ever assume a soils; trust trust your soil guy or your soil gal.
If you are interested in learning more about due diligence aspects related to land, not just soils but some other items and red flags that can come up, I'm going to put a link in this video to a another video that has an expanded perspective on some of the details of land transactions that can really hurt buyers, what's a look of out for, and how to avoid those pitfalls.