There are actually two terms that get confused frequently. Assemblage and Plottage. They are two real estate definitions that are commonly mixed up.
Plottage is the increased value that is obtained when two or more parcels are assembled together. The process of joining adjacent independent plots is called Assemblage.
In real estate, it is very common for a landowner to break off a piece of a larger tract. A well-known example is when a father has a 20-acre parcel and breaks it into a section for each of his children. The larger parcel becomes smaller parcels. Tax records change, and each section becomes its own thing.
The opposite process is what we are talking about today. Consolidating of adjacent lots. It’s a form or real estate investment that
Assemblage in Real Estate Example
Let’s say that a developer wants to build a large apartment building. They don’t have single ownership of a large tract, so they combine several parcels to make one large plot of land. This results in increased usability so they can now build the apartment complex.
Sometimes it is easy to get people to sell their plots, but once they hear of a development they might hold out for more money.
Another example of Assemblage is when a government wants to build a road. They need multiple adjacent parcels of land, and usually, they use eminent domain to take the land for the needed purpose.
Plottage in Real Estate Example
Now, looking back at the apartment developer, let’s say that the two parcels they combined each had a value of $100K. You would think that joining the two of them would make it worth $200K. Actually, the combining of separate properties increases the market price a bit more. It might be worth $250K or even more because larger parcels are harder to find. But doing the work of joining them is not easy nor trivial. In math, this is known as a process of consolidation, and the larger lot has a resulting increase in value.
By the way, the resulting increase of the large parcel is called plottage value.
Note that plottage doesn’t just mean increased value, but also the resulting added value of the land itself by the nature of being bigger.
Looking at the example of eminent domain, where the government assembled multiple parcels of land, the monetary value really isn’t there, as the only thing that could be built is a road. However, the plottage increment is a larger net return in usability – and increasing access from one part of town to another.
Combining Pieces of Land
A good real estate agent can find the best use for a parcel of land – sometimes the value of the individual lots is less than the sum of them all joined together, but the hard part is getting a motivated sale from the sellers.
Different techniques can be used to make sure the whole thing comes together. Long option periods are used so that there is time to negotiate with all parties. If one part doesn’t work out, the option can be exercised without too much of a loss.
Final thoughts
Now, you should easily understand the difference between Assemblage and Plottage in Real Estate? Let me know if you want more explanations of real estate terms – Share your questions in the comments.