How I Underwrite a Land Deal — Before I Ever Write an Offer

Most people buy land the way they buy homes: find something they like, check the comps, make an offer. That works fine for houses. For land, it's how people lose money.

Land has no comps in the way a three-bedroom house does. Its value is entirely a function of what you can build on it, what that finished product will sell for, and what it costs to get from here to there. I trained as an economist before I sold real estate, and this is where that training earns its keep. Here's the framework I walk clients through before they write a single offer.

Start at the end: residual land value

The right price for a parcel isn't "what the seller wants" or "what the lot next door sold for." It's a residual:

Finished value − (construction costs + soft costs + carry + profit margin) = what the land is worth to you.

Work backwards. What will the finished home sell for in this exact location? What does it cost to build to that standard here, today — not in a spreadsheet from 2021? What do permits, architecture, engineering, and financing carry add? What margin do you need for the risk you're taking? Whatever's left over is your ceiling for the land. If the asking price is above that number, the deal doesn't work no matter how much you love the street.

The four questions that kill deals

1. Zoning and entitlements. What's allowed by right, and what requires discretionary approval? With laws like SB 79 rewriting the rules near transit, the answer may have changed recently — in your favor or not. Never rely on what the listing says. Verify against the current municipal code and state law.

2. Setbacks, height, FAR, and lot coverage. The buildable envelope is often much smaller than the lot. A 15,000 sq ft parcel with aggressive setbacks and a creek easement might yield less house than a clean 8,000 sq ft lot down the road.

3. Soils, slope, and trees. Expansive soil, a steep grade, or two protected heritage oaks in the middle of your footprint can add six figures to a budget — or cap what you can build entirely. Geotechnical review comes before the offer, not after.

4. Utilities and infrastructure. Sewer lateral condition, water pressure, undergrounding requirements, school and impact fees. Unsexy, and routinely underestimated.

Timeline is a cost

Every month between purchase and sale is carry: interest, taxes, insurance, opportunity cost. A parcel that entitles in six months and one that entitles in twenty-four can look identical on paper and be completely different investments. Understanding a city's actual approval timelines — not its published ones — is one of the biggest edges a buyer can have. It's a core reason we built Citis, which tracks entitlement activity across California jurisdictions.

The bottom line

Land rewards people who do the work before they commit, and it is unforgiving to everyone else. Silicon Valley remains one of the most supply-constrained land markets in the country, and recent state housing laws have expanded what select parcels can become — but construction costs remain elevated, so the margin between a good land buy and a bad one is thinner than the headlines suggest. Discipline matters more, not less.

If you're evaluating a parcel — to build your own home, develop a spec project, or hold as an investment — I'm glad to run this framework with you on your specific site. That's the conversation I most enjoy having.

This article is general information, not investment advice — every parcel deserves its own diligence. Payne Sharpley · Intero | Forbes Global Properties · CA DRE #02195155 · Co-founder of Citis.