Your Dream Home Needs Dream Land: Tips for Buying the Perfect Building Lot
Buying vacant land on which to build a home is a huge step, and it is often done by those who are looking for freedom and independence from a typical development community. You get to create exactly what you desire—and where your desire—in a home within your budget. So it is easy to fall in love with a piece of property before doing your due diligence.
You start dreaming of building a home with a fabulous view and feel a rush to move ahead quickly to create that dream. I know because I almost did! I have been through this myself and have done a lot of research—it's complex!
Ideally, start to learn before even looking at land. We will focus on buying “vacant land,” not land that is within a development. Those lots have had much of the legwork already done for you and are easier to purchase without an issue.
Let’s look at the most important factors to keep in mind when buying land. I strongly recommended getting a real estate lawyer involved to check all paperwork before committing to a land purchase.
1. Clear Ownership
Do a title search. If you are getting a loan to purchase the land, it will be required. A title search checks for claims on the property by previous heirs and any liens or covenants (previous agreements that are legally binding). You can purchase title insurance to protect yourself should any problem be found and rear its head later. This is a bit complex, but if any issues are found you may still choose to go ahead with the safety net of the title-insurance policy. Having it may save you thousands of dollars down the road.
When you buy a large tract of desirable land (in this case with a great view over water), make sure there is clear ownership and there are no zoning or deed restrictions (Plan #165-1090).
2. Zoning or Deed Restrictions
Can you build the type and size of structure you want on the property? For example, you may not be able to build a four-bedroom home but only a two-bedroom house for a variety of reasons. And judging by what a neighbor has on his or her property is no guarantee. They may have built prior to changes in zoning laws and been grandfathered in. Check for some of these answers at the local planning office or via your real estate agent:
• Upcoming Plans for the Area. Is any sort of industrial plant or other possible eyesores in the works? And you may be able to get aerial views of the lot, as you might notice a concern close by that you didn't notice on your drive in to view the property.
• Does the Property Meet Fire-Department-Access Rules? If there are any issues with roads, and if any upgrades are needed, this can be costly.
• Does a Homeowners Association Have Jurisdiction over the Lot? They may have rules that must be obeyed and fees due annually.
• Is Some of the Land "Protected" in Any Way, Such As Wildlife Habitats? That may preclude your building in certain places on the lot. This issue, combined with percolation-test results (see below) may force you to build on a small area within the lot. Check out our house plans for narrow lots, as you can still create a beautiful home in limited space.
At 24 ft. wide, this 1-bedroom house, great for vacation living, will fit on a very narrow lot (Plan #160-1020).
Water and sewage disposal are the primary issues. If the lot uses town water and the town’s sewage system, that's great, though you will need to pay to get access to it. In rural areas, however, that won't be the case. You will need to start from scratch:
Water: Is there water on the property? It doesn’t matter how gorgeous the land is if you can’t get access to water for your needs.
• Will a well need to be dug? The depth of wells has a direct effect on the cost of creating them. And, unfortunately, depth is unpredictable before the work starts. A neighbor may hit the water at 50 feet while your well may need to be much deeper. If a usable well is already in place, that may save money—but it still may need an inspection.
When you purchase rural property, it is important to perform percolation tests on the site before closing on the lot (Plan #167-1524).
Sewer: A key thing when I was searching for land was the all-important "perc test." A percolation test is an official measurement of the quality of soil and drainage, which determines where and even if a septic tank and leach field (septic system) can be built.
• The perc test tells you where on the property the septic system can be placed. It may limit where on the lot you can build your home. It's very important and can cause you to alter your building plans because the well water and the septic system need to be a certain distances apart for safety.
• If a standard septic tank and leach field cannot be built, other newer but more expensive systems may be doable on the property. Your engineering company will be able to advise you.
• With some properties a perc test may have been performed by the previous landowner. It is great to have a passing perc test, as it saves you money. But be aware that there may be time limitations on a "passing test." It may need to be redone.
• If you need to have a perc test done, be aware there are limits on when it can be performed, depending on the climate in your region. In New England, for example, winter is not doable because the ground is frozen. The county usually has a time range during which it allows tests to be conducted.
Electric and Phone: Be aware that some companies may legally be able to refuse to run electric, cable, and phone lines if your location is remote. Or an upfront cash payment may be required.
It is vital to get a survey to be sure that your 20 acres are not actually 16.5 acres. Or that a neighbor hasn't built a structure that crosses onto your property. Hire local engineering to perform a survey of the property and provide you with a survey map (or “plat map”) showing boundaries, structures on the property, septic-system location, etc.
5.Access and Easements
Next is the critical issue of easements. According to Findlaw.com, an easement is defined as a "right-of-way granted to a person or company authorizing access to or over the owner's land."
• Sometimes the access point to your property is not actually yours, it may be on your neighbor's land. You want to have a clause written in the deed that covers this issue to ensure that you have permanent, transferrable, legal access. I have heard stories of people losing access to their own property after a verbal agreement allowing use of a road on neighboring land falls through.
• An example of a typical easement is a utility company that maintains certain control to maintain access to their equipment on your property.
6.Often Overlooked Issues
Remember that buying raw land is more involved than buying ready-to-build land or a lot within a subdivision, and now we'll touch on some major but often overlooked issues in such a purchase. Buying within a development is more straightforward because the developer most likely addressed most or all of these issues already. In any case, make sure you have an attorney review all paperwork before closing on property.
Purchasing raw land away from metropolitan or even suburban areas can be more complicated than buying developed land (Plan #120-1247).
Cuius est solum, eius est usque ad coelum et ad inferos is Latin for "whoever owns the soil, it is theirs all the way to Heaven and all the way to Hell." What it means, of course, is that a landowner is presumed to have ownership over all aspects of his or her land, from aboveground to as far as one could go belowground. This was common law practice for centuries in England and influenced American legal thought—but with important modifications over the years.
These days, think of your land as having three levels, sub-surface, surface, and above the surface, and each can have separate ownership!
Each state has different laws, and it is vital to understand what rights you have when purchasing land. Mineral rights are important and have implications for the long-term future of your property ownership. You may be buying just the surface rights, and the mineral rights may not be yours. The previous owner may have sold them to a mining company at some point in the past. The implications of that are huge—years down the line, for example, the company may choose to begin drilling as part of the exploration of your property. And it will be legal.
Even if your mineral rights are intact, the impact of a neighbor’s sale of mineral rights can affect your property—sometimes drilling actually crosses property lines underground. Modern technology enables drilling to go from vertical to horizontal to exploit nearby minerals. This is especially true in states like Pennsylvania, New York, and West Virginia, where fracking is popular. Some states have laws that ensure that profits are shared; others may not.
Another issue is that the after-effects of extraction of minerals (which may go beyond just oil or gas) may not show for decades when your heirs may have to deal with cleanup, despite what the contract said. This may be the case if the company is no longer in business, for instance.
When you buy open, rural property you need to be aware of land rights such as mineral rights (Plan #142-1133).
It is possible to buy land but not the right to own the trees on the property. Check to be sure that there isn't a standing timber contract on the lot. Such contracts can be for a specific period of time or in perpetuity (essentially, forever), or they can be limited by the type or size of tree that will be harvested.
That majestic oak you want to shade your porch or the beautiful grove of evergreens that provides such coveted privacy may be hauled off. Needless to say, this is something you probably don't want to get into. In some cases you can buy back the timber rights if you are in love with a property and don't want to walk away.
When you purchase a wooded property (top, Plan #141-1134, and above, Plan #160-1015), make sure the timber rights have not been sold so you can maintain your privacy and avoid an unpleasant surprise down the line.
There is a third and final "level" of your property. Previously, you may have thought that all of the "levels" are sold together, but by now you can presume that the air itself may be "owned" by someone else, i.e., the government. What this means is that there is a limit above which you cannot build. Typically in the U.S., up to 500 feet of air space above a property is considered that of the property owner. Rights to anything above that must be obtained by special permission of local, state, and/or federal government.
Local zoning laws can contradict the air-rights principal, however, and may be used to protect the views for neighbors or preserve the look of a community. Zoning laws can be appealed, but there must be a good reason, and it can be a long, involved process.
Local zoning laws intended to preserve views or protect the appearance of a community may override normal air-rights parameters on your property and preclude your building a large, tall home like one of these (top, Plan #130-1017; above, Plan #130-1107).
Of huge importance is how you will buy the lot for your dream home. Financing a land purchase may be a bit more difficult than buying a home because lending institutions want collateral that they can easily liquidate to cover the liability of the loan. Selling land is usually more difficult for the bank than selling a house. One novel approach is "seller financing," or working directly with the seller of the land. This can make sense for you, the buyer, as some of the usual fees are excluded in this seller financing. The financial proofs and hurdles required can also be a bit less.
Not ready to build:
Raw land without any upgrades is harder for the bank to sell if you can't make payments. So it should not be surprising that undeveloped land is the hardest to finance: you will need a land, or lot, loan, which will require a down payment of between 25 and 50 percent.
Typically terms are shorter and interest rates higher for undeveloped land because this type of loan is viewed as so much more of a risk by the lender.
The less ready the property is to have a home built, the less desirable it looks to a bank. So if you are in a subdivision with roads and other infrastructure in place, it is easier to get financing, even if your particular lot is not yet "build ready."
Ready to build:
A loan for land that has been approved for building (with soil and septic tests performed and passed) is easier to finance in the form of land loan. There will likely be a period of time (up to several months) between when you purchase the land and you have house plans and a builder ready to construct the house. Once you are ready to move forward with erecting your home, you should secure a construction loan. The land loan is then paid off once the construction loan is in place (that is, the land loan is essentially absorbed by the construction loan). You should have a clause in the land loan that if you are not able to get the construction loan, you do not have to move forward.
Have your house design and plans in hand and approved by the local building department before applying for a construction loan. You will also need to have a contractor or builder ready, as you will have to present a budget to the bank.
For rural land, this process may a bit more complex, as you will be pulling together more elements (plans, approvals, contractor, and possibly sub-contractors and their schedules, etc.). But if you choose to buy within a development or planned community, the plans and builder might be part of the package choices.