The National Association of Realtors' code of ethics opens with the grandiose statement that "under all is the land." When it comes to your home's value, nothing could be both more and less true at the same time. While land is the ultimate store of value in real estate, a 3,000-square-foot house on a 0.43 acre lot may not be worth more than the same house on a 0.39 acre lot, even though there is a 10 percent difference in the amount of land.
Land and Value
Land carries enduring value because it endures. Barring waterfront land and seismic areas, it's likely that your parcel of land was there 10,000 years ago and that it will be there 10,000 years from now. Furthermore, other than small areas where lava is being deposited next to the coast and occasional landfill projects, there won't be any more land 10,000 years from now than there is today. This is why land should theoretically be valuable -- it's permanent and scarce.
Once a house gets built on a parcel, though, the land becomes part of the package and gets looked at along with the whole house. In a neighborhood of houses on lots that are approximately 11,000 square feet, it's unlikely that a house on a 10,000-square-foot lot or a 12,000-square-foot lot would be worth more or less. If a house has an additional 4,000 square feet that is unusable space, like a steeply sloped hillside, it might not make a difference, or could even be a negative if it has to be taken care of. On the other hand, a house on a significantly larger lot that adds room for a guest house, a swimming pool, a tennis court or other amenity would be worth more. Ultimately, it's not about the exact quantity of land in isolation -- the utility of the additional land is a crucial part of the calculation.
The size of your land becomes important if it can be divided. For example, if you have a house built on the side of a five-acre parcel and your community's zoning laws allow for a two-acre minimum parcel size, you could carve off a portion of your land and sell it separately. While the subdivision process can be costly and time-consuming, the possibility of doing it adds value even if you don't complete the subdivision yourself.
Assessments and Appraisals
Your lot size could impact your home's assessed or appraised value even if a buyer wouldn't pay more or less for it. While assessors estimate home values with an eye towards establishing property taxes and appraisers attempt to find market values for estate, lending or other purposes, both use similar methods. It's not at all uncommon for either to value your land by multiplying its size by an average cost per square foot or per acre. In those instances, your home's assessed or appraised value could change based on small variances in your lot size.
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