Two people can look at the same parcel of land and come away with wildly different ideas and “facts” that determine how to value it.
While there are more than three categories of landowner, most can be characterized in broad terms as developers, speculators or small parcel farmers/passive heirs.
Each land-seller category has its own valuation process and formulas.
The value creator
A developer is an active value creator who acquires land, plans its use, and pushes it through entitlements, utilities, and often construction, turning raw or underutilized parcels into buildable lots or communities. This starts with navigating zoning, platting, infrastructure and government approvals. It goes on to delivering entitled lots or improved pads to builders and end users. Developers are the pipeline operators of the urban edge, absorbing land from nonmarket owners and converting it into shovel-ready product that builders can price, schedule, and build against. In that sense, they are the engineers of density and delivery, aligning private capital with municipal infrastructure and demographic demand.
The cycle-timer
This contrasts dramatically with the role played by the land speculator, often the “spectator” in the market theater. Rather than running entitlements or building, speculators buy land expecting its value to rise from market growth, infrastructure, or rezoning. Then, the idea is to sell later for a capital gain. They provide liquidity and price discovery by absorbing land from farmers, heirs, and small‑parcel owners, warehousing it until the market or public investment unlocks value.
In Texas’s fast‑growing corridors, speculators are a visible minority of active participants, perhaps 20% to 30% of the land investor cohort. However, they can dominate the most valuable tracts around infrastructure nodes and growth fronts.
Beneath both developers and speculators in the land-seller food chain sits a third group.
The non-player
Farmers and heirs, who collectively own a large share of the state’s land, often operate outside the active development pipeline. Family owned farms comprise more than 90% of Texas farms, and many tracts are held in undivided- or heirs’ property arrangements that complicate sale, financing or subdivision.
These landowners may lease for agriculture, hold for family legacy, or gradually consolidate parcels, but they typically do not drive the entitlement-heavy development cycle. Quantitatively, they likely represent a relatively small share of active market participants, yet they control a substantial portion of the underlying land base from which developers and speculators ultimately source supply.
The profit models
Residual value and speculation represent two distinct logics for determining land value, even though they both hinge on expectations about the future. Let’s look at each.
Residual value starts with a concrete development hypothesis. An appraiser or developer estimates the total development value of a completed project, subtracts construction, infrastructure, and carrying costs, and then deducts a required developer profit to arrive at the maximum price that can be justified for the land. This approach anchors valuation in measurable costs and market based sales and rental assumptions, making it a disciplined, feasibility-driven framework for land pricing.
In contrast, speculation relies less on cost-plus mechanics, and more on anticipated market uplift, such as infrastructure announcements, zoning changes or demographic shifts.
Investors buy land not because they intend to build, but because they expect someone else’s development activity to push prices higher over time.
Put simply, residual value answers the question, “What can I pay for this land and still make a project work?” Speculation answers the question, “How much can I pay for this land and still win on market momentum alone?” Residual value is based on fact, while speculation is based on belief.
Caught long on land
Coming off the last bull run, many speculators in Texas are now underwater when you apply residual value as a constraint rather than pure market momentum. They bought tracts based on the expectation of endless appreciation. Today’s higher interest rates, softer lot pricing and slower absorption have sharply compressed project margins.
When you run a proper residual land value model, subtracting build costs, infrastructure, carry, and a market based developer profit from the achievable sales value, the resulting maximum land price often falls below what these earlier buyers actually paid.
That leaves them with land that still looks good on the map, but that proves to be economically unviable under current conditions, forcing either painful write-downs, liquidations or prolonged holding that further strains capital.
Now layer in carpetbaggers, cultural buyer groups and local promoters with pooled funds and too much leverage, and you have the makings of a slow‑motion disaster. These investors piled into the market at the peak, using aggressive debt structures to amplify returns on speculative land positions, assuming that population growth and infrastructure would keep lot prices rising indefinitely.
When demand normalizes or slows, their over-levered positions become toxic.
Debt service consumes cash relentlessly, lenders pull back, and refinancing becomes impossible without mark-to-market impairments. The result is often a wave of distressed land packages, stalled entitlements, and politically uncomfortable conversations with local governments about projects that are no longer financeable. Further, this can drag down neighboring land values and delay the broader reset of the market toward true residual value.
Zeroing in on the Dallas market
Dallas is not collapsing. The underlying data makes that clear. Population growth, job creation and relatively low tax friction still underpin fundamental demand for housing and infrastructure. The market is correcting, not cratering, with margins tightening, velocity slowing, and some tranches of land reverting to more realistic pricing.
That’s very different from a systemic collapse.
The over-levered speculators who got ahead of their skis are not universally doomed. Rather, they are being filtered out by the cycle. Those with the capital, relationships and patience to restructure debt, partner with builders, or work with municipalities on phased entitlements can survive and even emerge from this period as more disciplined. For others, the pain comes in the form of forced sales, write-downs and lost equity.
The market itself continues to absorb supply at a slower, more deliberate pace.
While looking at a tract of land out west with one of my bankers, he mentioned a deal he is about to finance over in Melissa, Texas. Land that spectators purchased at $100K per acre is now being sold for $45K per acre in bankruptcy, a textbook example of how this reset plays out. I called BS when he told me the price, until he said “out of bankruptcy.”
When residual value replaces pure speculation in a stabilizing market, previously over-bid land gets repriced to reflect what a responsible developer can actually pay after accounting for build costs, infrastructure and market-based profit. That represents a brutal but necessary correction for the speculators who bought on momentum alone.
This adjustment creates opportunity for operators who can model projects with discipline and operate within real development feasibility. The cycle doesn’t destroy the market; it shifts ownership from the “spectators” to the serious land developers and builders who can execute entitlements, manage entitlement risk and deliver product in line with current demand and economics.
Back to the basics
Adjusting to market changes while consistently underwriting land through residual value is a formula for success in land acquisition and development. Residual value forces discipline when the market is euphoric and provides clarity when the market is uncertain, because it ties the land to executable margins, real schedules, and bankable assumptions.
Keep residual value as the anchor. Use acquisition leverage conservatively (if at all). Phase to absorption, and treat time as a cost, not a rounding error.
If you do those things, you put yourself in position to buy well in frothy markets, survive normalizations, and capitalize on resets when basis finally meets reality.
