Searching for land to build a new home is exciting. However, buyers should be aware that purchasing raw land will require extensive due diligence. Do you know the right land buying questions to ask?
You should know that most sellers won’t have all the answers, so the onus is on you, the buyer, to investigate the issues thoroughly until you’re confident in the purchase.
Here are ten questions to help vet the future site of your dream home.
Land Buying Questions
1. Do you have a topographic survey or grading plan?
When a lot is surveyed by a professional surveyor, you can feel confident in the amount of acreage being sold. A topography survey shows lines at every 1 or 2 feet of elevation change along the site, thus giving you a two-dimensional representation of the site’s slope. This will help you determine a location for a building pad and site access. The survey may also show existing utilities, site features, and trees.
Sometimes sellers have gone through the process of hiring a civil engineer to create a grading plan, which is site plan that shows how the existing topography can be manipulated to create a driveway to a future building pad. This will help you evaluate what it will take to develop a site. Grading can cost tens of thousands of dollars, so the less you have to do, the more you can spend on your home.
2. Are the boundaries clearly and accurately marked on site?
Ideally, corners of the property lines should be marked on the site. These are usually tall sticks or flags that can easily be seen from a distance. In a urban area, the boundaries are more easily discernible with neighboring structures. However, be aware that some existing structures may be encroaching onto the property in questions and a survey will show if this is the case.
3. Are there any Covenants, Conditions & Restrictions (CC&R’s)?
Covenants, conditions, and restrictions – also called CC&R’s – are used by many “common interest” developments to regulate the use, appearance, and maintenance of property. CC&R’s, most commonly drafted and enforced through homeowners’ associations (HOAs), often restrict what the property owner can do on the property.
One of the main restrictions that affects buyers looking to build a home is minimum home square footage. The tiny and small home movement is a new phenomenon. In years past, many CC&R’s set minimum home sizes as a way to protect home values of neighboring homes. The logic is if a 1,000 sf home is built in the middle of 2,500 sf homes, the 1,000 sf home will bring everyone’s home value down.
Another restriction may involve the design of your home. Many tract developments where a land owner subdivided land into lots and is selling them individually have design restrictions to ensure all of the homes built will have a cohesive look. The downside is that the aesthetic prescribed in the CC&R’s may conflict with yours.
4. Is the title to the property clear (free of liens, easements, and other encumbrances)?
Property with a clear title is “worry-free” and far more attractive than property which is encumbered by liens, taxes, or easements. A title company will help you determine this and often the seller has already engaged with a title company, which brings us to the next question.
5. Do you have a preliminary title report?
A preliminary title report is essentially an offer to issue a policy of title insurance covering a particular estate or interest in land subject to stated exceptions. A preliminary title report lists – before you buy a lot – title defects, liens and encumbrances which would be excluded from coverage if the requested title insurance policy were to be issued as of the date of the preliminary report. The report may then be reviewed and discussed by the parties to a real estate transaction and their agents as part of the buyer’s due diligence.
Thus, a preliminary report provides the opportunity to seek the removal of items referenced in the report which are objectionable to the buyer prior to the buyer removing their contingencies.
6. What utilities are available in the area?
Providing utility infrastructure to a site is a significant expense, so it is important to know what is existing and what you will need to provide. There are five main utilities to make sure you understand before removing contingencies during escrow. You will want to know about the following:
- Power – This could be overhead or underground. Talk to your local power company – in San Diego, it’s SDG&E – and ask how about the process of bringing power to a new home on this site. Even though power lines may be nearby, there is still time required for the power company to survey the site and make the connection.
- Telecom – Find out what your options are for phone, cell phone, cable or satellite television, and high-speed internet.
- Gas – Natural gas may be accessible from your local municipality or you may need to use propane tanks. If you are using natural gas from the City or County, just like with power, there is a process to making the connection, so reach out to the local gas company.
- Water – This may come from a well or from a local water company. Note that installing a water meter is costly, so ask if there is a water meter installed.
- Sewer – Waste has to go somewhere, so it will either connect to an existing sewer line or a septic system. If there is no municipal sewer line available, you will need to have a septic layout designed. This will involve drilling holes in the ground and a percolation test to determine the absorption rate of soil for a septic drain field or “leach field”.
Another consideration is how far from the future home site the existing utility sources are located. Trenching lines long distances will add significant expense to your project.
7. What are the current taxes on the property?
The seller should know this, but if there is any question, refer to the preliminary title report. It will also tell you the status of property tax payments and the most recent tax on the property. Understanding the annual tax amount will be essential in understanding your ongoing holding costs.
8. Do you have a soils report?
In certain areas, the local jurisdiction having authority of building permits will require a soils report. A soils report – sometimes referred to as a geotechnical report – gives you an understanding of earth conditions. It will guide a structural engineer in designing a home’s foundation. Lots with expansive soils, low strength soils, on steep slopes, or on fill often times require a soils report. If you have a flat lot with good soils, then this report may not be necessary.
9. What is the property’s zoning?
Every property is assigned a zoning type. The lot may be zoned for residential or commercial. If it’s residential, you may be limited to a single home – sometimes called dwelling units – or be allowed to build multiple units. Zoning will also tell you other restrictions like how tall a building may be on the lot and how close you can build to a property line. Talk to your local planning department to determine the property’s zoning if the seller does not know.
10. Are there any other offers on this lot?
You need to know if you are competing with another buyer. Raw land tends to stay on the market longer than a home, because there are less buyers willing to go through the process of building a new home. If there is another offer in on the lot and you really want it, you will need to bring your best and highest offer.
The one good thing about land is that they aren’t making any more of it. If you hold on to it long enough you will see its value appreciate.
Did I miss anything?
There are so many issue to investigate, I’d love to hear your thoughts. Add your land buying questions in the comments below. Thanks!