Urban villages, lying on the outskirts of Chinese cities, are being replaced by apartment buildings and infrastructure as rapid urbanization expands the boundary of urban land. Using Zhoushan, an island city in China as a case study, this paper examines the determinants of farmers’ reservation price based on real options theory and their level of satisfaction towards the compensation they received from the government-oriented urban village removal program. The data collected from 214 surveys in 3 urban villages illustrate that villager’s reservation price is associated with factors like the year of the house built, ease of conversion, and socio-demographic characteristics after using the double-hurdle model. The result can potentially be a reference for the improvement measures on the wellbeing of the farmers and future city planning, and contribute to the literature of land economics by providing insights on individual farmer’s perception towards their land and property.