The Option Value of Vacant Land

19 Pages Posted: 19 Dec 2006

See all articles by Joseph T. L. Ooi

Joseph T. L. Ooi

National University of Singapore (NUS) - Department of Real Estate

C. F. Sirmans

Florida State University - Department of Risk Management, Insurance, Real Estate & Business Law

Geoffrey K. Turnbull

Georgia State University - Department of Economics

Date Written: March 2006

Abstract

Option theory offers a useful way of modeling land value under uncertainty. While this approach underlies much theoretical analysis, the unanswered question is, to what extent does the market value of land reflect this option value? This paper exploits a unique natural experiment to obtain the first direct estimates of the option value of land based on observed transactions. Comparing land sold under constraints that strip away real options to land sold in the same market without such restrictions, we find that approximately 45% of the market value of developable land represents the value of these embedded real options.

Keywords: option value, vacant land value

JEL Classification: D44, G13, R33

Suggested Citation

Ooi, Joseph T. L. and Sirmans, C. F. and Turnbull, Geoffrey K., The Option Value of Vacant Land (March 2006). Available at SSRN: https://ssrn.com/abstract=952556 or http://dx.doi.org/10.2139/ssrn.952556

Joseph T. L. Ooi (Contact Author)

National University of Singapore (NUS) - Department of Real Estate ( email )

4 Architecture Drive
Singapore 117566
Singapore

C. F. Sirmans

Florida State University - Department of Risk Management, Insurance, Real Estate & Business Law ( email )

Tallahasse, FL 32306
United States
850 644-4076 (Phone)

HOME PAGE: http://www.cob.fsu.edu/rmi

Geoffrey K. Turnbull

Georgia State University - Department of Economics ( email )

P.O. Box 3992
Atlanta, GA 30302-3992
United States
404-651-0419 (Phone)
404-651-2737 (Fax)

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