Buying land on which to build a new custom home is becoming an attractive option for home buyers who can’t find existing homes they like. Depending on the location and local construction costs, it could be both a better way to acquire a home that fits your needs and cost-effective. But buying land comes with risks, so I’m going to share a few answers to questions I frequently receive from buyers who want to know what to look for when buying vacant residential land.
Just as we do when purchasing an existing home, make sure the property is in the best location for your needs. Schools, work commute, proximity to services – all the usual criteria.
Getting pre-qualified for a construction loan is another important step. A construction loan is different from a standard home mortgage and there are several types of construction loans available, so meet with a specialist and find out which one works best for you.
Hiring a broker experienced with land purchases and working with an architect and a general contractor who knows local zoning and building codes to advise you before submitting an offer or releasing contingencies is vital. Make sure to get a detailed cost estimate and construction schedule.
The most critical requirement for acquiring land for any purpose are the proper entitlements. These are often called a “bundle of rights” and provide both general and specific permissions for what you can do with the land. There are many potential entitlements that are needed to build a home, let’s look at the most important.
- Zoning. Cities and counties create maps that identify the type of buildings and land use that is allowed in certain areas. The most common zoning codes are residential, commercial, industrial and agricultural. Every plot of land within a zoned area is assigned a code, which may have a multitude of sub-codes. If the plot of land you want to buy isn’t zoned for the type of home you want to build – don’t give up yet. Sometimes it’s possible to apply for and receive a variance, which allows construction of a non-conforming building as long is it meets other requirements described in the variance. It may also be possible to have the zoning changed, especially if the zoning code was assigned long ago and the general character of the area has changed. It can be an expensive, time-consuming process that most builders of individual homes avoid.
- Building Codes. The nuts and bolts of home designs must comply with applicable building codes. The most common features that effect home design are structure square footage (minimum and maximum), height restrictions, minimum set-back distances from the property line, and requirements for heating, water, sewage and other household systems. If the lot being considered is also governed by a set of homeowners association rules (typically called Covenants, Rules and Restrictions or CC&Rs) or an architectural covenant, additional building restrictions and design requirements could apply. To meet some building code requirements, testing the soil and water beneath might be required to confirm no contaminants are present. If a septic system is to be installed, a perc test should be conducted and the results submitted to the local authority for review and approval prior to closing escrow on the purchase.
- Easements. I’ve seen more deals killed due to easements than any other land-use issue other than zoning. Simply put, an easement is a specific legal right someone else has to use or travel over your land. Easement documents are typically filed in the County Recorder’s office. Violating the rights of the person holding an easement on your land could restrict or completely stop construction on your property.
- Encroachments. Encroachments exist when another person either improves, builds on or in any other way uses your property without permission. Encroachment often happens unintentionally when the property line is not clearly marked, though sometimes encroachment can be intentional. Taking a neighbor to court to force them to remove a structure, move a fence or otherwise end the encroachment can be expensive. Before closing escrow on any type of land (including homes with big lots and no clearly marked lot boundary lines), hire a surveyor to prepare a proper survey of the land, mark the boundaries, and file the survey report with the city or county, whichever applies.
- Other Rights. It’s important to perform a detailed title search and discover if any other rights have been recorded, such as grazing rights, mineral rights, drilling rights or recurring contracts to harvest agricultural products produced on the land (e.g. oranges).
Each parcel of land is unique, so create a checklist of every question that must be answered, every test that must conducted and every written approval that must be obtained when buying land. Having everything in place prior to releasing contingencies can spare land buyers a lot of headaches and save them a lot of money.
Have a great week! Questions about buying land? Drop me a line!