If you’ve been around real estate for more than five minutes, you’ve probably heard someone drop the phrase:
“The 4-3-2-1 rule.”
Sounds like a workout routine. Or a military countdown.
But in real estate, it’s actually about land value.
Let’s break it down.
The Short Answer
The 4-3-2-1 rule is a way appraisers and investors estimate how land value is distributed across a property.
It says:
- 40% of the value is in the front quarter of the lot.
- 30% of the value is in the next quarter.
- 20% of the value is in the third quarter.
- 10% of the value is in the back quarter.
In other words:
Front = most valuable. Back = least valuable.
Why Does This Rule Exist?
Think about it.
- The front of a property is what people see first.
- It’s where access comes from roads, driveways, and visibility.
- Businesses care about foot traffic, signage, exposure.
- Even in residential, the front of the lot is easier to use and more desirable.
The back? It’s hidden, harder to reach, and usually less functional.
So appraisers came up with this simple ratio to explain how value typically decreases as you move back.
An Example
Let’s say you’re looking at a one-acre lot worth $100,000.
Using the 4-3-2-1 rule:
- Front 25% of the lot = $40,000
- Next 25% = $30,000
- Next 25% = $20,000
- Back 25% = $10,000
Total = $100,000.
Even though each section of land is the same size, the value isn’t equal.
Where It’s Used
The 4-3-2-1 rule shows up most often in commercial real estate appraisals.
Appraisers use it when:
- Valuing deep lots (where the property stretches far back from the road).
- Splitting up land for partial sales or easements.
- Estimating highest and best use of property.
It’s not a law. It’s a rule of thumb.
But it’s one that’s been used for decades because it makes intuitive sense.
Why It Matters for Investors
Here’s the practical side:
- Frontage drives value. If you’re buying land, the part touching the road is the gold.
- Don’t overpay for depth. A super deep lot might sound great, but most of that back land isn’t nearly as valuable.
- Development strategy. If you’re planning to subdivide or develop, knowing how value breaks down helps you decide how to cut the lot.
- Negotiation tool. Sellers love to quote price per acre. Smart buyers know the front acres are worth more than the back acres.
Quick Recap
- The 4-3-2-1 rule explains how land value decreases as you move away from the road.
- 40% front, 30% next, 20% next, 10% back.
- It’s mostly used in commercial appraisals.
- It’s a rule of thumb, not a law but it helps buyers, sellers, and developers think about land value realistically.
Final Thought
Real estate isn’t just about square footage or acreage.
It’s about where the value actually sits.
The 4-3-2-1 rule is just a reminder of something every investor eventually learns the hard way:
The front of the property is prime. The back is bonus.