> since that number is not based on actual sales of the land in question, it's just hand-waving
Actual land is sold in a lot of markets. That sets a great benchmark for "comparable transaction" types of valuation analyses which tend to be the most reliable.
If one acre of land is sold, there is a great baseline for the whole surrounding area.
I passed all 3 CFA exams and agree it's not an exact science, but as far a valuation analyses go, this one is pretty easy. Valuing something like intellectual property, goodwill impairment analyses, 409a valuations are much harder.
But much more land with improvements on it is also sold, and that's the land that all these hand-waving formulas claim to be determining the "value" of--not the total value of land + improvements, but just the value of the land itself.
It likely wouldn't work with real estate, but low cost motorsports has a simple solution to this problem. If there is a $1000 limit on the value of the car before all the standard safety additions, then the owner has to accept $1000 from any other competitor for the car. This massively disincentives anyone from undervaluing their race car as it will simply be purchased for way less than it's worth. In real estate this would just result in wealthy people snapping up anything they thought was even slightly undervalued. Maybe value purchases can only happen when challenging a valuation with strong court-backed protection for the owner to ensure the valuation has been applied justly.
I'm not sure I agree with this, since construction costs are subject to a lot of government interventions that distort the market.
> The toughest part is making sure the process isn't corrupted
Exactly.
No, it's really easy to wave your hands and come up with a number that you claim is "the value of the land". But since that number is not based on actual sales of the land in question, it's just hand-waving. Not to mention that if you ask five different economists to do the estimating, you'll get more than five different answers. Much of the article that prompted this thread is trying to deal with this problem: there are so many widely varying estimates of land value, and no compelling reason to believe any one more than the others, because none of them are based on actual sales of the land whose value they're trying to estimate.