April 26, 2009 in Real Estate

Dear Steve,
We are looking at a parcel of raw land. Do restrictive covenants on a property increase or decrease its value? We are told the land can’t be subdivided into less than three-acre plots, and its uses must be either agricultural or single-family dwellings.
— Sherie

Dear Sherie,
Restrictive covenants generally protect property values because they promote more tasteful construction and orderly land use. Such covenants are typically put in place by a developer, lot owner or homeowners association and usually stipulate the minimum size of a residence and number of lots that can be built there.

Covenants often spell out such concerns as how far a home can be set back from a street, where easements for power lines or roads can be located and what buildings can be constructed on the property. They also can impose limits on tree cutting and fences, among many other things.

Covenants aside, make sure you know the inherent limitations in buying raw land. If you plan to eventually build a home there, you may be expected to foot the bill for bringing power, gas, water and cable television to the land, assuming those services are not already there. Plus, you may have to build and maintain a road or gravel path to access your plot.

You can imagine how expensive this work can be. Some counties and cities require multiple permits for even minor aspects of construction, which can also run up the cost of construction as can unstable soil on your property. All of this will affect your investment, whether you build your own house or break up the land for resale to a potential homeowner.

Also, just how rural is this plot? Can you get a cell-phone signal out there? It would be prudent to check with some of the locals on winter road conditions, snow plowing and any issues they have with utility availability and cell-service consistency.

Make sure the land in question has been surveyed by an engineer or registered surveyor to avoid future lot-line disputes. To be safe, buy title insurance before you close on the parcel. You may discover there’s a cattle easement on it.

If you do build your own house there, do a Web search first to see if there is a home-building consultant in your area who can walk you through some of the preliminary steps of building on raw land.

Investment-wise, restrictive covenants seldom decrease a land’s value unless they are so restrictive that they chase away would-be buyers of good credit and character. The three-acre minimum the covenant is imposing is not uncharacteristic with a country plot. Your main concern should be with the protections you’ll need when you’re out there in the “raw.”

Good luck.