By Boyce Thompson
Top photo by Boyce Thompson
The expression “buyer beware” was seemingly invented for buying land. Most states require full disclosure of potential problems from land sellers. But sellers aren’t always aware of every land mine (so to speak) that stands between you and building the home of your dreams. Even buyers who conscientiously perform due diligence still run into unforeseen expenses.
The easy way: already done (but more expensive)
You could always buy a “finished” lot in a plotted subdivision where the developer has already laid the groundwork for building a home. In most cases, the developer has already arranged to run utilities to the lot, knows how much of the ground you can build on, and can fill you in on design and easement restrictions. But you’ll pay full retail price for these assurances.
The affordable (but harder) way: DIY
Otherwise, you need to play developer and do the work yourself. Zoning for the land is the first concern. You need to confirm that the lot is zoned for residential use. Never assume that you can easily rezone an empty lot from some other use. Neighbors, used to having a vacant lot in the neighborhood, may put up a fuss. You can also get into a battle over how many trees you want to clear from a virgin plot. Even if the property is zoned residential, you may be restricted from building on certain portions of the lot.
Step 1: check setback laws
The first things to check are the setback requirements – how far from the street and neighboring houses does your home need to be? In extreme cases, the buildable area of the lot may be so small that you can’t build a big-enough house to justify the cost of the land. Builders, as a rule of thumb, try to limit land to one-third of the finished price of the home.
Step 2: determine utilities
The next step is to determine whether the parcel is already served by water, power, sewer, and Internet. It’s never cheap when utilities have to run lines to the house. And the work may not be performed in a timely matter. Your project will go to the back of the line if utility construction crews are laying lines for entire neighborhoods of new customers.
If running sewer to your lot is problematic, you could investigate a septic system. You’ll need to have an engineering firm test your soil – drill percolation test holes and dig observation pits – to figure how big the system can be. The grade of the lot matters, since septic systems work through gravity. A drainfield needs to be downhill from the building site and can’t be too close to springs and streams.
If the area isn’t served by a ground-based internet service provider, you can still get your Wi-Fi and Internet from a satellite provider. If electric service isn’t readily available, you could always generate power with solar panels, a great idea in this day and age. But you may still need back-up power for a cloudy day, unless you plan to buy a battery as well.
Step 3: evaluate environmental concerns
Environmental conditions – like whether the home is near water -- can impact how much of the lot you can use or how you build a home. The local assessor should be able to tell you whether the lot lies within a flood-zone boundary or within close proximity to wetlands. If the lot sits within a flood-zone, you may need to elevate it (explore Coastalto see a variety of designs with elevated foundations) and take other precautions on site to qualify for federal flood insurance.
The assessor should also be able to tell you about easements on the land. Easements can be especially nettlesome on undeveloped rural property. You'll want to hire a surveyor to identify the property’s boundaries before you buy. You may find that a neighbor’s fence or part of a garage is on your property. One day the neighbor could serve you with a “prescriptive” easement, claiming title to that strip of land. Another common situation: a neighbor with a “landlocked” parcel may have a driveway easement.
Buyer beware: check it out in person
Buying land sight unseen over the Internet is certainly easier than ever. But you’d be foolish not to walk the lot and do an inspection, preferably with a builder, landscaper, or designer. At the very least, you need to determine whether the land needs to be graded or trees removed. This can add tens of thousands of dollars to the cost of a project. The location and size of trees can influence your ability to generate solar power and shading.
Even when the lot isn’t near water, drainage restrictions may limit how much ground you can use. Local governments may specify how much of the lot cannot have structures, so that water can percolate back into the ground. That way the property doesn’t unduly tax the local sewer system.
You may also need to test the soil for environmental contaminants. That’s especially important if you are buying a vacant urban lot that have been formerly used for commercial or industrial purposes. Soil remediation is often expensive. You may want to check rural lots for radon, if that’s a common problem in the region. Designing a radon mitigation system into a house is much easier and less expensive when starting from scratch.
To subdivide or not to subdivide?
One of the most notorious problems is when sellers advertise that the land could be subdivided. Buyers start dreaming that they could use the proceeds from the sale of subdivided lots to pay for the deal. The claim needs to be thoroughly investigated with the local building department. Even if the lot could be subdivided, there could be objection from neighbors that would tie up the sale.
Because land deals are risky, few lenders make land loans. Most buyers pay cash. When buyers do secure a loan, it’s often for no more than half the purchase price, and for one or two percent above what you’d pay on a mortgage. But if you plan on getting a construction loan to build your house, you may be able to roll the cost of the lot into the loan and pay yourself back. The first installment on a construction loan often covers lot and design costs.